A bachelor’s degree used to be a fairly sure way of landing a good job with a nice salary. But times have changed. Now, as competition for jobs increases, more people are seeking advanced degrees. With more people seeking and holding advanced degrees, salaries for those graduates with bachelor’s degrees have declined. And while the pay is higher for those with master’s so, too, is the student debt.
College is expensive. But parents funding their children’s college, or students funding their own, see these costs as an investment in their future. But what is the return on such an investment?
Education On The Rise
The good news is that more of the population is getting more of an education. The U.S. Census Bureau has been studying educational attainment in the USA since 1940. They track metrics such as education completed, and how it relates to age, race, gender, and the overall population.
The trends are easy to read. For instance, when they began collecting the data in 1940, only 25% of the population (25 and older) had graduated from high school. That percentage reached 50% in 1967, 75% in 1986, and by 2015, it was 88%. The U.S. Census Bureau's latest study notes that "the percentage of the adult population with a bachelor’s degree or higher also increased steadily from 1940 to 2015. In 1940, five percent of adults held a bachelor’s degree or higher. By 2015, this percentage had increased more than five fold to 33 percent."1
From An End To A Start
The not-so-good news is the simple economics of it: where businesses once saw bachelor's degrees as major distinctions, such credentials have now—put plainly—become quite common. It's no surprise, then, that master's degrees are now on the rise. A recently published article in Vox found that "more than 16 million people in the US—about eight percent of the population—now have a master's, a 43 percent increase since 2002."2
Vox provides some perspectives on that particular metric by helpfully noting that a master's degree today is just as common as a bachelor's degree was in the 1960s. This was the time when Bob Dylan sang, “The Times They Are a-Changin’.” Not only a commentary on his time, but the decades that have followed.
Likely, none of this is news to current college undergraduates. A survey titled "The American Freshman: National Norms Fall 2014" conducted by UCLA's CIRP (Cooperative Institutional Research Program) found that far more people now are entering their undergraduate degrees, already expecting it won’t be the end of their education. “Whereas 40 years ago, more than half (50.8%) of incoming first-year students aspired to earn no more than a bachelor’s degree, less than one in four students in 2014 (23.4%) shared similar aspirations.”3
Now, nearly half of undergrads are hoping to earn an advanced degree, reports the study: “Between 1974 and 2014, the percentage of students entering college with plans to earn a master’s degree increased from 28.1% to 43.6%, while students indicating they would like to earn a doctorate or first professional degree (Ph.D., Ed.D., M.D., or J.D.) similarly increased from 21.1% to 32.9%."
Georgetown University's Center on Education and the Workforce published a wide-ranging study on majors and degrees, and the salaries they command.4 In some fields of study, the wage premiums associated with a graduate degree are significant. Compare the average annual salary of someone with a bachelor's degree in the physical sciences to that of someone with a master's, and the difference is $32,000. For social sciences, the gap is $27,000. For business, it's $22,000. However, for other fields of study, the premium is not quite as pronounced. For instance, for those who study education, graduate degree holders earn an average of $15,000 more per year than those with bachelor's degrees, while those who earned an advanced degree in industrial arts, consumer services, or recreation can expect an average premium of only $13,000 more per year.
The study from UCLA's CIRP supports this finding: "Increasingly, many entry-level positions require a college degree; students may be recognizing that, in order to advance further, a graduate credential is becoming more necessary."
Where businesses once saw bachelor's degrees as major distinctions, such credentials have now--put plainly--become quite common.
But as the Georgetown study notes, perhaps the most critical factor in determining the ROI of a college degree isn’t so much the degree itself, as the actual field of study. It found that professionals with bachelor’s degrees who majored in Science, Technology, Engineering and Math (STEM), Health, and Business all enjoyed higher annual salaries than those with bachelor’s degrees but who majored in different areas of study.
For those who are just entering the work force, STEM majors earn $43,000 annually. The study notes that health majors aren't far behind at $41,000 annually. However, those who majored in humanities and liberal arts majors earn only $29,000 per year. Once workers hit what the study calls “prime age” (25-59 years old), the numbers are still strongly in favor of those who majored in STEM, Business, and Health. For that age group, the study found that “those who majored in STEM earn $76,000 annually, while those who had a teaching and serving major earn $46,000 annually.” The average salary across all majors for this age group is $61,000.
Ultimately, though, regardless of majors, when it’s viewed within the big picture, a college degree is better in terms of earnings power. The National Center for Education Statistics, a part of the Institute of Education Sciences (which is a part of the U.S. Department of Education), breaks it down like this: “For young adults ages 25–34 who worked full time, year-round, higher educational attainment was associated with higher median earnings; this pattern was consistent from 2000 through 2014. For example, in 2014 the median earnings of young adults with a bachelor's degree ($49,900) was 66 percent higher than the median earnings of young adult high school completers ($30,000).”5
The Cost Of Higher Education
It’s common knowledge that tuition rates are rising. But what are the current numbers? In a word: staggering.
In all, there are well over 43 million Americans who have student loans.
In-state tuition and fees (including room and board) at a four-year public institution currently averages $19,548 per academic year. For private (nonprofit) schools, it’s $43,921 per academic year. Using those figures, the full four-year cost of in-state tuition plus fees and room and board at a public state school will be around $80,000. For a private institution, plan on $176,000. And that’s if tuition costs don’t increase each year, which they have every year since 1980.6
With rising tuition costs, and more and more people seeking advanced degrees, saving for college can be daunting. In fact, the data suggest that more and more students are turning to funding their own education via student loans.
Metrics suggest that the per-year student loan debt for 2016 was 6% higher than it was the year prior. As it stands now in 2016, there are 43 million people in America with student loans. In aggregate, the American student loan debt is $1.3 trillion.
Sadly, while student loans may be solving one problem (the tuition bill), they may also be creating another: Research shows that these loans can be untenable for many. Over 10% of accounts are delinquent, and for the fourth quarter of 2015, more than $50 billon dollars worth of student loans across 3.3 million borrowers were in default.
In all, there are well over 43 million Americans who have student loans. The borrowers between the ages of 20 and 30 years old are making average payments of over $4,200 per year.7 In other words, even for those who majored in STEM (the most lucrative of all majors), an average student loan payment could take a 10% bite out of their annual salary. For liberal arts majors, that represents nearly 15% of the average annual salary. Factor in rent, utilities, taxes, groceries, and transportation, and there’s not a lot to go around.
Have A Vision
This is not an unworkable issue. College savings accounts are available, which can not only help parents and students plan for college, but can also be advantageous for parents from a tax perspective. But there’s far more to consider than the financial aspects, and it’s not just on the parents. Students should have a vision. Before they get to college, students should ask themselves what they want to study, and parents should discuss with them the reality of what their potential earnings may be with such a study.
No matter what, the college degree—any college degree—is no longer a promise of success, but rather an investment in that goal. And like all investments, it should be planned for. Know the details and risks (majors that yield low salaries, the danger of student loans), and have investment goals in mind. And also know that in these changing times, the ROI on such a thing is, like so many other investments, not immune to volatility. That said, as the National Center for Educational Statistics states, “higher educational attainment [is] associated with higher median earnings.” And that sounds like an investment worth making.
This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only.
1 Source: United States Census Bureau. Educational Attainment in the United States: 2015.Camille L. Ryan and Kurt Bauman. March 2016.
2 Source: Vox. Master’s degrees are as common now as bachelor degrees were in the ‘60s.Libby Nelson. February 2015.
3 Source: CIRP. The American Freshman: National Norms Fall 2014.
4 Source: Georgetown University Center on Education and the Workforce. The Economic Value of College Majors. Anthony P. Carnevale, Ban Cheah & Andrew R. Hanson. 2015.
5 Source: National Center for Education Statistics. Fast Facts. Income of young adults.
6 Source: CollegeBoard. Trends in Higher Education, 2016.
7 Source: Student Loan Hero. A Look at the Shocking Student Loan Debt Statistics for 2016.