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Cleveland Fed Study Shows It Pays to Finish College

By    |   Friday, 10 August 2012 09:48 AM

New research from the Federal Reserve Bank of Cleveland shows a college education still comes with a significant payoff — particularly for those who graduate — even as student debt loads are soaring and unemployment levels are high among college graduates.

The Bureau of Labor Statistics says the unemployment rate for Americans with less than a high school degree was 12.7 in July, while joblessness for those with a high school diploma and no college was 8.7 percent. Unemployment among those with some college or an associate’s degree was 7.1 percent, The Wall Street Journal reports. The rate for those with a bachelor’s degree or higher was 4.1 percent.

College also leads to better wages. The median worker with a high school diploma earned $638 a week in 2011, 39 percent less than someone with a college degree, according to The Journal.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

The Cleveland Fed data break out career choices and how the differences have evolved over time.

In 2010, Americans with college degrees earned more than 80 percent more than did those with just a high school diploma. Back in 1970, the wage premium was about 40 percent.

Those who attended college but never finished make 15 to 20 percent than do those with just high school degrees, up from about 15 percent in 1970.

For workers with just a bachelor’s degree, the wage premium rose to more than 60 percent in 2010 from a little over 30 percent in 1977.

But that premium hasn’t grown much over the past decade. To really get ahead these days, an advanced degree is required. That boosts earnings about 30 percent over those with a bachelor’s degree and 120 percent versus high school-degree holders.

In addition, different majors have different earning power. Business and economics majors make about 75 percent more than those with high school diplomas do, while communications majors claim barely a 50 percent premium.

So, college is worth the cost, even though many families can’t afford it, The Journal states.

Meanwhile, college tuition has increased at about twice the rate of inflation for decades. The American Institute for Economic Research calculates the increase from 2000 to 2011 at 112 percent, the Minneapolis Star Tribune reports.

Federal subsidies to colleges have helped drive some of those costs by promoting wasteful bloat in colleges, such as an increase in highly paid administrators, writes Vicki Alger, a research fellow at The Independent Institute in Oakland, Calif.

Lawmakers should demand that federally subsidized institutions provide information about their graduates’ success in the job market, so students can make better-informed choices when they enroll, she writes in the Star Tribune.

Moreover, post-secondary institutions should implement outcomes-based reforms that ensure federal assistance is based on course and degree completion rates, instead of enrollment, Alger writes.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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