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In The most expensive college degrees are worth it, it was shown that the potential return on investment (ROI) of the most expensive colleges in the country generally warranted their high cost. However, with college graduates struggling to find good jobs in their field of study, starting compensation stagnating, and tuition rapidly escalating, it is not surprising that families are questioning whether or not any college – not just the most expensive – is “worth it."

While “worth it” is a relative notion, college remains a good investment from an economic perspective. Economists at the New York Federal Reserve Bank analyzed the data on costs and benefits of a diploma, and found that the value of a four-year college degree for the average graduate remains near its all-time high of $300,000. Moreover, the ROI of a bachelor’s degree increased from an average of about 9 percent in the 1970’s to about 16 percent in 2001, and has leveled off to around 14 to 15 percent for the past ten years. Of course, the ROI varies by college major, with degrees in engineering, math and computers, and health producing ROI’s of 18 percent or better, while degrees in education, leisure and hospitality, and agriculture and natural resources generate average ROI’s of 11 percent or less.

However, what is driving these numbers is not the rise in income potential of college degrees equivalent to the rise in tuition. What is keeping the present value and return of a college degree high is that the wages of those without college degrees is falling as tuition rises, so the wage premium of an average college degree (over not having a degree) has increased to near its all-time high. It is also important to note that while the present value of a college degree is, on average, still high, this could change if wages for graduates remain stagnant while tuition continues to climb. Nevertheless, for the moment, even though it is expensive and getting more so, it appears that, on average, college is worth it and a good investment.


Although it is a good investment, according to a recent KPMG Higher Education Outlook Survey, “an overwhelming number of higher education leaders are increasingly concerned about their ability to maintain current enrollment levels.” Of those surveyed by KPMG, two-thirds identified “inability to pay tuition” as the top factor impacting enrollment. Interestingly, this is logically inconsistent with the concept that college is a good investment because, if it is, one should make the investment regardless of cost given the high ROI. Of course, one must have the ability to make the investment, or the question of whether it is “worth it” becomes moot.

With student loans supposedly available to enable individuals and their families to take advantage of this good investment, enrollment should not be a concern because a college degree, while expensive, should generate a significant enough return to pay back the loans. Unfortunately in the real world loans and financial aid do not fill the gap, as prospective college students face real and perspective credit constraints on their borrowing for college. Individuals cannot truly borrow against their prospective future incomes, which in no small measure appears to be the result of student loan availability not keeping pace with the continually escalating costs of attending college.

There are also “internal borrowing constraints” that impact individuals so that even students and families who have the ability to borrow the amount needed for college do not do so out of an aversion to being so burdened with debt. While this may not seem rational, a prospective cohort does not know whether he or she will succeed at college or what return his or her degree, as opposed to the average degree, will generate. Once the student loan debt is incurred, the student is stuck with it even if his or her circumstances change.


Additionally, the loan process is complex and time consuming. Policies directed towards relaxing actual constraints, providing information on graduation rates and projected salaries, narrowing choices to those providing better and more certain returns, and simplifying the process would help. However, the risk to individuals who take on debt for the ever increasing cost of a college degree cannot be eliminated by increasing efficiencies in the financial aid industry, with the result that the high costs of a degree will continue to deter qualified individuals from attending college.

Despite these constraints, many have taken on substantial loan debt to pay for college, which is also creating issues as graduates find themselves unable to repay the loans due to under employment or no employment at all in their fields of study. There are numerous proposals seeking to address the “student loan crisis” by making colleges more responsible for the loans incurred by their students by tying accreditation to loan repayment rates, or requiring institutions to repay a portion of the defaulted loans. While these concepts would, in theory, result in colleges allocating resources to programs that provide better job and salary prospects for their graduates, the real result is likely to be the creation of a byzantine regulatory system subject to manipulation by universities, politicians, and lobbyists. More importantly, this will not drive enrollment. Unless the prospective college student strongly believes that he or she will somehow recoup his or her investment, this is unlikely to impact an individual’s decision on whether to borrow to pay the high cost of a college education.


In America, students self select college with the result that a college degree, like other goods and services in a free market economy, is a product that consumers can decide to buy or not buy. If the cost, whether paid in cash or financed, is not something they can afford or the investment so large that the risks of incurring the debt outweigh the potential return, then the individual will not purchase the investment. If college and university leaders are truly concerned about declining enrollment, and our goal as a nation is to make college an “economic imperative that every family in America has to be able to afford,” the real answer is to make it less expensive and more likely to result in employment. This will require the hard work of cutting costs, increasing efficiencies, and offering degrees that enable graduates to find higher paying jobs, rather than simply making financial aid more readily available and conducting business as usual.

The higher education system is at a precipice, not dissimilar to that of the automobile industry a decade ago, with over capacity, inefficiencies, an inability to make and execute rational business decisions, and numerous l undesirable products (degrees that do not provide graduates with jobs). These changes will be difficult given the current dynamics of how colleges operate. However, like those in the automotive industry that did not respond to their changed environment, many colleges and universities will not survive unless they address these economic realities soon. Colleges and universities need to implement change now, while they still can in an organized and minimally disruptive manner, so they can continue to fulfill their mission and avoid the cataclysmic consequences of their current inefficient operations.