Tuesday, October 8, 2013

Is Beginning a BA Program a Good Investment?

Using data from California’s higher education systems, this paper estimates individuals’ and society’s economic returns to a Bachelor’s (BA) degree and evaluates the quality as an investment of a beginning a BA program .

Most studies of the rate of return to college use a best-case scenario in which students earn a degree with certainty in four years. More realistic calculations that account for students who take more than four years and students who drop out without a degree, etc. result in an average rate of return that is lower than it was in 2000 but still exceeds the interest rate on unsubsidized Stafford student loans – i.e. college remains a good investment by the normal criteria.

Most studies present an average rate of return without considering the investment’s risk. Over the last decade, rising tuition and deteriorating earnings for new college graduates (particularly at the bottom of the distribution) have increased the risk of pursuing a BA – e.g. the risk that a graduate at age 30 will have student loan payments that exceed 15% of their income. This growing risk is one explanation for increased skepticism about the value of a college degree despite the apparently high rate of return. It also underlines the importance of students becoming aware of the government’s income contingent loan repayment plans.

Having adjusted for a fuller range of factors than are typically considered in prior evaluations, including non-completion, time-to-degree, accelerating marginal income taxes, and risk this study concludes that although each of these adjustments reduces the estimated return to a beginning BA program, beginning BA programs generally remains a good investment for individuals and society. However, rising tuition and the widening distribution of earnings among those who has increased the risk individuals do not recoup their investments.

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