COLLEGE PAYS

With rising tuition rates and more students taking out loans to further their education, there has been much concern that college may not be a wise investment. A recent study should allay such fears.

Two economists, Lisa Barrow of the Federal Reserve Bank of Chicago and Cecilia Elena Rouse of Princeton University, found that the average college graduate will recoup the costs of their education in just 10 years of receiving their degree. That is a fairly quick return on investment, they conclude in an article in “The Economists’ Voice,” published by The Berkeley Electronic Press.

The economists also point out that in today’s economy slowly raising wages trump tuition increases in making college a good buy. To calculate the true cost of a college education, they figure in not just tuition and fees but also wages that are forgone during the four years that a college student could have been working rather than attended classes.

Tuition and fees in 2003 averaged $7,091. Subtracting out the average amount of grant aid received by students, the average college cost was $5,558 a year. Adding in foregone wages, the total cost for a four-year college education comes to just over $107,000, a large sum of money for sure.

But that’s only half the picture. That college graduate will earn more than $400,000 than if they’d only finished high school. So, the net value of his or her college degree would be nearly $300,000, about three times the cost of the college education.

Chris Farrell, a contributing editor at BusinessWeek, offers further evidence that college costs aren’t unbearable in a last week’s edition of the magazine. The percentage of a college graduate’s income that goes to paying off student loans has remained fairly stable – at about 7 percent – since 1993. Student loan default rates have dropped from 22 percent in 1990 to 4.5 percent last year.

The future also looks bright for soon-to-be college graduates. After five years of stagnant wages, salaries are on the rise, according to a survey by the National Association of Colleges & Employers. And, companies say they plan to hire nearly 15 percent more college graduates than they did last year.

Mr. Farrell’s advice: “Take out student loans and get a college diploma. It’s an investment that pays off over a lifetime – financially, socially, and intellectually.”