Investing in a college degree has a better return than playing the stock market and it results in higher wages for everyone in a community, an Arizona State University study found.
The W.P. Carey School of Business study found putting money into a four-year college education results in $1 million more over one’s lifetime, compared with people who have a high school education.
The rate of return on the money spent to earn a bachelor’s degree is 12 percent per year, compared with the long run average annual return on stocks of 7 percent, the study shows. The net return is over all costs, including individual contribution and state appropriations, as well as income sacrificed while earning that degree.
The study, "The Value of Higher Education: Individual and Societal Benefits," is part of the university’s Productivity and Prosperity Project, an analysis of the the region’s economic competitiveness.
"What we’re trying to do is engage in a debate," said Dennis Hoffman, a professor of economics and the study’s author. "Going forward, you’ll see us as
being a bit of a focal point for papers designed to inform on these topics."
Despite the high return on investment ASU found, just 25 percent of the adult population in the United States has at least a bachelor’s degree. In comparison, more than 50 percent of Americans invest in the stock market, according to the American Shareholders Association.
Hoffman said the study uses some new information to show investing in college degrees has a spillover in social returns.
"There’s huge returns from an individual perspective to investing in higher education and it’s pretty clear that it makes sense either to privately or publicly spend a fair amount of money to increase the education and skills of the work force," Hoffman said.
In addition to the financial benefits to the individual who earns a bachelor’s degree, the average wage, even for those workers who do not possess a college degree or a high school diploma, is higher in communities with a substantial proportion of highly educated workers, the study found.
The total costs in state support of higher education are offset by higher incomes across the entire labor force after about 13 years, the study says. After 20 years, the net social returns are estimated to be $364 million in today’s dollars.
The study concludes that low family income is not the only impediment to getting a degree. "There are barriers financially, but they’ve been addressed though government loans and scholarship aid," Hoffman said. Less than 10 percent of young people fail to complete college because of a lack of financial resources, the study found.
The academic ability of individuals, shaped by a variety of family and environmental factors, and a lack of information on the costs and benefits may be the underlying reasons why so few people have degrees, he said.