Is College Expensive?

Is College Expensive?
Profile photo of David Howden

college studentsI gave my last lecture of the semester on Monday, which means it´s that time of the year again. Graduates throughout the country will soon be walking the stage, in a proud display of their four (or more) years of hard work, grit, and determination. (At least, in my mind.)

Yet the reality is setting in that for the first time in these young peoples´ lives, they are faced with the reality of exiting the education system and starting “real life”. Find a job, move into less spartan digs, and possibly revise your wardrobe (and resume) to something a little more “mature”. And let´s not forget paying off those pesky student loans.

Last year seven in 10 college graduates completed their education with student loan debt. The average amount was $29,400. This is an average, so the actual levels of indebtedness are skewed across the country, as we can see below.


Despite their large public University systems to help lower-income students have access to higher education, the average Californian, New Yorker, Floridian or Illinoisan had the highest debt in the country – over $25,000 per student. Some States, such as Wyoming, the Dakotas and Oklahoma, seemed to graduate students with relatively low debt levels, if your definition of “low” is less than $20,000.

With all this discussion of debt comes the related question of whether college is a good deal for the average student. Another way to phrase the question is: “is college expensive.”

To the economist, questions of price are always relative. Whether something costs a lot or little is determined by what the alternatives are, or more to the point, what the foregone opportunity cost is. Whether a college education is “expensive” is determined by what the alternative option would be for the average student.

The opportunity cost for a student spending four years in college includes the obvious tuition expense, but it also means four years out of the work force. Taken together the total cost for a four-year degree could be nearly $300,000 – not exactly chump change. Since someone who graduates high school does not incur this opportunity cost, one could say they are $300,000 ahead of a college graduate after these four years. Seems like a no-brainer, right?

Well, it could be if you based your decision to attend college solely on the preceding paragraph. But the decision to not pursue a college degree and enter the workforce directly also comes with a cost. It seems like a good deal at first, but for most it means fewer opportunities, less promotions down the line, limited access to higher paying jobs, and ultimately, lower life-time earnings.

Luckily two economists at the Federal Reserve recently answered the question of how much the average high-school graduate will forgo by eschewing a University education. This figure depends on how many years after graduation we are looking at (University degrees are often prerequisites for career advancement), and also what type of degree the student earned.

It turns out the average college graduate today can expect to earn an additional $800,000 over their career compared to their high-school educated friends. Not bad I´d say. The average annual earnings premium is around $20,300 per year. Obviously not too many recent graduates are making $20,000 more than their nondegree coworkers, but the salary spread widens as these workers age.

To get a feel for how the salary advantage of a University degree evolves over time, consider the figure below.


This figure graphs out the salary advantage of a degree over a high-school diploma against the number of years since graduation. It also shows this advantage for three different cohorts. For those readers graduating soon, your parents are likely included in the red cohort, attending college in the 1970s or 80s. It´s even possible that your grandparents, if they went to college at all, are included in the blue-lined cohort who attended University during the 1950s or 60s.

The salary advantages of higher education take a few years to kick in, but when they do they are pronounced. Not only that, they are even larger than they were for previous generations. Of course, this might suggest that University educated people are earning higher wages, or that their high-school educated counterparts are earning less. (I suspect that the truth involves both of these affects.)

Now, despite this salary advantage of going to college and earning a degree, there is the thorny issue that a college degree doesn´t necessarily secure that dream job that it once did. This “might” be true, but it is the wrong question. High school diplomas don´t exactly guarantee you the middle-class job that they once did. One just needs to consider that the unemployment rate increases as the level of education decreases, as we can see below. If you think it´s hard to find a job when you have a degree, consider what it is like for those who lack this piece of paper. The unemployment rate for those with only a high school education is over two times higher than that for University graduates, and over three times higher for those that haven´t completed high school.


University education might not guarantee that great job it once did, but neither do the other options. What matters is the spread between what a University graduate earns over his high-school educated counterpart. This figure has declined over the past 20 years, but not by much, as we can see below in a figure showing the University earnings premium over high-school education.


It appears that college degrees still pay off for graduates, and even if you don´t make it through the grueling four years you can still expect to have some payoff compared to a high school graduate.

The cost of college might seem high, but you can only get a real feel for how high when you compare it to the other options. While it´s convenient to talk about the Bill Gates, Steve Jobs or Mark Zuckerbergs of the world, for the average student the cost of not completing University is high. It may seem onerous to pay back student loans, but the alternative is monetarily far worse.

  • mark brensletter

    College education sis getting expensive with each passing day. It is getting difficult for an average person to afford college education because of the rising cost of the tuition fees and burdensome student loan. I had to discontinue my education because of the same issue and I had no option to take up a job to survive. It makes me wonder if college education is really worth investment. I read a post that addresses the same issue.

  • David Howden


    since higher ed is a long-dated investment, it´s most definitely interest-rate sensitive and skewed in the current environment. (And the subsidies don´t help much with that, either.) It´s more that the maintained demand for college in the face of rapidly rising costs probably speaks more about the value of a high school diploma than it does about the quality of the degree.

    • hunter lewis

      What perhaps ought to be discussed further here or in an additional post is the role of the student loan program in elevating college costs. It seems that the more debt the poor young people take on, the higher the fees they have to pay, and this is not likely to be coincidental.

      • David Howden


        that is a follow up point I want to address. College is still a pretty good deal, all things considered, but the gains that used to accrue to students in terms of higher wages are now being transferred to Universities through loan programs.

        • Keith K.

          The issue with all of these studies concerning the cost of college vs. benefits is that a vast amount of college education is education which either should not have occurred at all, or education which ought to have been successfully done in highschool.

          A much more pertinent question would be: how really necessary would college be if it were the case that primary and secondary education were done in the manner suggested by E.G. West. Namely, that the state acts strictly as a financier to individual students and those students shop for what they want to learn. Upending the current system for this one would lead to vast changes in the entire structure of education, and thus the returns on going further up the educational ladder.

          Would many students really get much benefit from college if primary and secondary education worked as efficiently as they theoretically could if free from the tentacles of the state? I think the answer is no; that most of these gains would vanish entirely.

          • David Howden

            Keith K.:

            I couldn't agree more. One of the drivers of students still paying as much as they do for college is because high school diplomas have lost so much value in the market.

        • catalina

          "[T]he average Californian, New Yorker, Floridian or Illinoisan had the highest debt in the country – over $25,000 per student"

          how are you reading the data? looking at the link to the state-by-state data you provided, california and florida are not the most expensive states. in fact, their public offerings are at the lower end of cost for states whose data was provided:

          california -> private ($29,035 62%), public ($17,994 50%)

          whether you're looking at the proportion that's indebted, or the average debt, something is wrong with the way you interpreted the data, including the next sentence:


          the dakota's are amongst the worst in average debt and proportion of indebted students:

          south -> private ($33,425 82%), public ($23,642 77%)
          north -> private ($28,970 81%), public (not provided)

          i could provide further breakdowns but maybe you update the article or maybe i missed something so an explanation is in order.

          • David Howden


            take a look at the links provided in the article. There are lots of estimates for the actual amount of debt per student, and they all differ from each other. It's not really all that important relative to the broader point of the article.

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