Share  |  Print
The Tom Joyner Show
Money Mondays

June 10, 2019

College is Expensive. Is It Worth It?
Mellody Hobson on the Tom Joyner Morning Show - Money Mondays
Mellody discusses the impact a college degree has on earnings.
We are covering the benefits of a college degree this morning. Why is this on your mind?

We often talk about the costs associated with college. Tuition prices have risen steeply in recent decades and student loan burdens now accompany millions of Americans after their studies. These concerns have led many to ask whether the costs associated with an undergraduate degree are worth it. But a report released last week by the New York Federal Reserve reminded me that we have rarely highlighted the massive financial benefits college graduates accrue! I am here this morning to tell you that college is not only worth it, it is directly tied to increased lifetime earnings and a secure financial future.

What did the report find?

The big number from the report was $33,000. That is the earning difference between the average college graduate, who makes $78,000 a year, and the average high school graduate, making $45,000 annually. Tom, that is a 75% premium! If you figure that over the course of 20 years – from the middle of your career to retirement – that comes to $660,000! According to the Department of Labor, Americans with four-year college degrees earn nearly twice as much per hour (over 95%) than people without a degree. That’s up from 64% in the early 1980s.

Those are remarkable numbers, but the costs are still very high. Is it still worth it if you have to take out student loans?

You are absolutely right: The cost of college is not low. According to the College Board, the average cost of tuition and fees for the 2017–2018 school year was $34,740 at private colleges, and $9,970 for state residents at public colleges. The average debt load of college graduates last year was $28,650. But when you consider the earnings over a lifetime, it is absolutely worth it! In fact, according to the same report, as an investment, a college degree has an average rate of return of 14%! And it is not just the wage differential that you must consider. A college degree also conveys employment security. The unemployment rate for college graduates is currently 2%, and even in the wake of the Great Recession, it peaked at just over 5%.

What if you have some college credits? Does that help?

Here is the sticky middle ground, Tom. The wage difference persists even if you have some college but did not graduate. Earnings for people who have some college but have not obtained a four-year degree — a group that includes community-college graduates — have remained stagnant. The big economic returns go to people who have obtained a bachelor’s degree.

Are the benefits of a four year degree the same for Black graduates too?

Great question, Tom. We know that when it comes to employment rates, a college degree is always a positive factor in your favor. That is true across the board, regardless of race. However, disparities certainly remain. A college degree does not close the racial wage gap between white and Black students. Today, young Black college graduates are paid, on average, 12.2% less than their white counterparts. The unemployment rate for Black degree holders is also higher than that of their white and Asian counterparts. And Black students tend to graduate with a higher student loan burden due to disparities in household wealth between racial groups. Clearly, much remains to be done to ensure that recent Black graduates derive the same advantages from their education as the general populace. However, the data does show that that gap narrows over time, and these differences do not negate the value of a college degree over a lifetime.

The information on this page is provided for educational purposes only and is not tax, legal, financial planning or investment advice. You should consult a tax professional. Neither the information nor any opinion expressed in this section constitutes an offer to buy or sell any securities or advisory products. The information provided is general and is not information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. You should not regard this information as a substitute for the exercise of your own judgment. Investing involves risk.

Past performance does not guarantee future results. © Ariel Investments, LLC. This website and all of its content is for informational and educational purposes only and should not be considered to be investment advice or a recommendation to buy or sell any particular security. The mutual funds offered by Ariel Investment Trust are distributed by Ariel Distributors, LLC, a wholly-owned subsidiary of Ariel Investments, LLC. Use of this website is subject to our Terms & Conditions. The Ariel mutual funds referred to in this site may be offered only to persons in the United States. This web site should not be considered a solicitation or offering of any investment products, funds or services to ineligible investors, investors for whom such products, funds or services are not suitable, or investors outside the United States.

Check the background of this firm on FINRA's BrokerCheck
Ariel Distributors, LLC is a member of the Securities Investor Protection Corporation