School still pays. The cost of earning a college degree pays off with consistently higher lifetime earnings, according to the Federal Reserve Bank of San Francisco.
Earnings for those with college degrees averaged about $20,300 more per year over the past four decades than for workers without one, says a report from Mary Daly, the bank's associate director of research, and researcher Yifan Cao.
They said an undergraduate degree yields a lifetime return on investment of more than $420,000, assuming costs for four years of tuition and forgone earnings totaling $112, 194.
The Fed bank's message is timely as high school seniors receive admissions notifications from colleges, and families across the United States turn their attention to how they will pay tuition bills.
Economists have long noted that a bachelor's degree tends to pay off with a lifetime of higher earnings. Yet some are questioning that assumption as borrowers rack up $1.16 trillion in student loans and the sticker price of top private colleges reaches a quarter of a million dollars over four years.
New college graduates start out earning $5000 to $6000 more than high school graduates, and the gap grows to $25,000 after 15 years, the data show. Students who pay $9000 per year for college can break even in nine years, while annual tuition of $45,000 can be recouped in 17 years.
The last recession, the longest and deepest downturn since the Great Depression, was "especially hard on young people," including college graduates. Even so, its aftermath shows the insurance value of a college degree because college graduates have faced unemployment rates about half as high as those with only high school degrees, according to the report.
Education "arms people with the skills to find success," San Francisco Fed President John Williams wrote in an essay. "From an economist's perspective, I see the irrefutable data that investing in education is crucial to economic success."