Is Ambivalence Warranted? (Part II)

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Last week I shared some recent research on the issue of the value of a college degree. A study entitled, The Economics of BA Ambivalence: The Case of California Higher Education provides a more balanced perspective on the return on investment of a college education. While concluding that a degree is likely worth the investment, the findings of this study suggest that the question of value is not simplistic and requires additional analysis. According to their findings, the ambivalence to a college education expressed by many families and prospective students may be more justified than some of us may realize.

The authors point out that too many studies about this issue assume best case scenarios that likely create a bias in their findings. For example, most other studies assume that the student completes his/her baccalaureate degree in four years. In fact, many graduates take five years or more and a good number drop out before completing their degree. Some begin at a community college and complete their bachelors degrees at a four-year institution.

The authors also clarify that most other studies determine their estimated earning power on pre-tax earnings without consideration of progressive tax rates. These other studies also assume a single rate of economic return without consideration of the graduates ability, the chosen profession, the economy, etc. Their point is that the investment in a college degree, while clearly worthwhile, has a degree of risk. A college degree is a good investment for both the individual and society, but factors like rising tuition rates and the widening distribution of earnings among those completing baccalaureate degrees has increased the risk for every college graduate to recoup his/her investment, earn enough to repay loans, and increase overall earnings in their lifetime.

As indicated last week, the data analysis for this study was drawn from the California higher education system. While this educational system of public institutions may not mirror all of higher education, this study is broadly illustrative. Furthermore, the California job market and economy may not be typical of every state or region, but this study identifies clearly the complexity of this issue and the types of analyses necessary before drawing unequivocal conclusions. Here are their key findings:

The BA is a good investment for the average student. The graduates earnings will be greater and outpace interest rates on loans.

The BA is a good investment for both society and the individual. College graduates contribute more to the economic stability of the community and their increased earnings help to fuel the economy.

The investment in a BA is increasingly risky. Because of rising tuition rates and the potential of low earnings in certain professions, more college graduates will experience student loan problems in the years following graduation.

What can be done about this? This study concludes with these helpful insights. They suggest that students should receive more and better advising about their choices of a major, postgraduate study and career pursuits. Students need to be better informed about the economic realities of some professions.

They also contend that students need to be better informed about their options for financing their college education. There are a good number of income-based and income contingent repayment plans. The enrollment levels in these programs are low, likely because of a lack of awareness.

The conclusion to their study provides both the optimism and reality necessary:

College remains a good investment for both individuals and the state but it is a stepping stone to the middle class not a ticket. As such, it deserves the scrutiny an individual would give to any risky investment.

(As always, your comments and questions are welcome.)

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Guest Wednesday, 23 April 2014