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By Christine Benz and Adam Zoll | 07-24-2014 01:00 PM

What's the College Degree Payoff?

College remains a good long-term investment, but years of stagnant wages and student debt await recent graduates.

Christine Benz: Hi, I'm Christine Benz for Welcome to College Radar. Joining me to discuss some recent developments on the college-funding front is Adam Zoll. He is assistant site editor for Adam, thank you for being here.

Adam Zoll: Thanks for having me.

Benz: Adam, a recent study looked at whether college is worth it. Let's talk about the findings there.

Zoll: The Federal Reserve Bank of New York recently came out with some numbers looking at the return on investment for a college degree today and in years past. What it found was that, over the past decade, there has been a pretty consistent return rate of about 15% on having a college degree. This is basically the difference between wages for somebody with a college degree versus someone with only a high school degree once you factor in the cost of going to college. That 15% rate has been pretty consistent. It’s kind of a good news/bad news story, though, because part of the reason for this persistent gap--even considering the higher rate of inflation--is that wages for people without a college degree just have not been keeping pace. So, there is a hidden undercurrent that is explaining the persistence of what they call the college wage premium.

Benz: The study also looked at which majors give you the best return on your investment. Let's talk about the best-performing majors in terms of financial remuneration.

Zoll: As one might expect, the STEM areas of study [science, technology, engineering, and mathematics] did particularly well. Number one on the list, engineering, provided about a 21% return on investment, followed by math and computer-related majors at 18%, then health at 18%, and business at 17%. Bringing up the rear was education at 9%. Across the board, you see there is some variety. But regardless of major, having a college degree obviously does pay off.

However, one of the takeaways here is that your choice of major is going to probably weigh into how much you earn once you leave school. So, [it's important to] factor that into your decision in terms of how much you spend with regard to where you go to college.

Benz: Another study just released, Adam, looked at the rate of wage growth for new graduates. It showed a pretty bleak picture for new graduates since the Great Recession. Let's talk about that.

Zoll: College grads may be outearning people without college degrees, but recent college grads are having trouble keeping up in terms of wage growth with older workers who have been in the workforce awhile. A study by the Federal Bank of San Francisco found that since 2007 workers overall have received, on average, about a 15% pay raise--that's overall during that time period--whereas new graduates have only gotten about a 6% pay bump.

One of the reasons for this is that new grads are generally in entry-level jobs that are a bit more vulnerable to the economic cycle, whereas older workers or more experienced workers may be a bit more stable in terms of their job security and their potential to earn raises.

Overall, it's important that people who are in college now or those who will be graduating soon as well as recent college grads keep in mind that, while having a college degree is a great entryway to the workforce, if you are hoping for a high-paying job or even a job that is paying up to a certain standard, you may need to be a little more patient than in years past.

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