College students are paying more. They are taking on more debt. They are accepting worse jobs after they graduate and earning less than they did just five years ago. So how could it possibly be true that college is more important than ever?
The answer is sunscreen.
College in today's economy is like sunscreen on a scorchingly hot afternoon: You have to see the people who didn’t apply it to fully appreciate how important it is. The same way a blistering sun both makes sunscreen feel ineffective and makes it more crucial than ever, recessions can both make a college degree seem ineffective and make it more important than ever.*
One of the confusing things about college is that it’s hard to keep straight its price, cost, and value. The sticker price of college—that is, the published tuition—isn’t paid by most middle-class students, who receive grants, tuition breaks, and tax benefits. The average net price of a bachelor's degree is still 55 percent lower than the sticker price today. For many students, tax benefits eliminate the full cost of an associate's degree. College is much cheaper than advertised.
Published vs. Net Tuition: Bachelor’s, Associate’s Degrees
But the true cost of higher education isn't just the money you pay to attend school. It's also the earnings you give up in the workforce. These lost earnings are quite apparent to, say, MBA applicants skipping $70,000 jobs to go to business school. But it's the same principle for anyone skipping the job force to learn stuff. Recessions lower the true cost of college because they make it easier to ignore the labor market for a few years and settle in for a degree. Even as the tuition cost of college has grown recently, the opportunity cost of college has fallen in the last few years because of the sick economy.
The upshot is that, shockingly, the New York Fed found that the average "total" cost of a four-year degree isn't much higher than it was 40 years ago.
The Cost of College = What You Pay + What You Give Up
Thousands of dollars by year
Now, what about the payoff? This is where the story gets even more complicated. But thinking about sunscreen can help.
It’s a myth that the average wage of college grads is always rising. In fact, college-grad wages have spent as much time falling as rising since the 1970s. Real college wages fell between 1970 and 1982, rose between 1982 and the mid-2000s, and now they’re falling again. But everybody else's wages are falling even faster. The "college premium" is still near all-time highs.
Again, consider the sunscreen. When it's skin-blisteringly bright outside, ordinary sunscreen won't get you the same results. That doesn't mean sunscreen "isn't worth it." It means that however singed you feel in the morning, everyone without sunscreen got totally fried. This is what's going on in the economy: Globalization, automation, debt hangovers ... it all adds up to a scorching hot sun toasting the wages of middle America. But bachelor's-degree earners still make 75 percent more than high school grads. BA is the new SPF.
Like Sunscreen on a Hot Day
Percent return to bachelor's and associate's degrees by year
The Internet is ablaze today over a new Brookings study claiming that the student-loan crisis isn't actually a crisis, since there's no evidence that debtors are devoting a higher share of their monthly income to student loan payments. I haven't spent enough time with the methodology to weigh in strongly one way or the other, but a second point it makes is clear and validated by other surveys by the New York Fed: Although student debtors owing more than $50,000 make up an outsized share of media reports about student debt, they make up a small share (less than 10 percent) of overall student debtors.
College is an investment, and like all investments, its results vary on timing and luck. But the chorus of alarming stories about student debt and a glut of degrees tends to obscure the empirical reality that it is practically impossible to prove with data that college doesn't pay off for the vast majority of Americans who finish their degree.
*Pedantry Preemption: This is a terrible metaphor, because college isn’t like sunscreen. Sunscreen is applied preventatively to maintain skin health while higher education is purchased as a ticket of entry into a category of college-level jobs, which makes it enhancing rather than preventative. Yes. There are lots of other ways that college isn’t like sunscreen (e.g.: it cannot be sprayed, it does not make your eyes sting, etc.). This is a metaphor about opportunity costs.