Paying for college: how much are degrees worth? By Kierran Petersen

BBC Echo Chambers Published duration 5 September 2014

image copyright Thinkstock image caption Experts disagree on whether the value of a college education is falling

It's back to school time in the US. That may spell panic for parents of young children realising they are way behind on saving for university fees, which can over four years run on par with the cost of a new home.

As parents pinch their pennies, economists and academics are at odds over whether a four-year degree is even worth such a princely sum.

Two employees of the Federal Reserve Bank of New York are offering some potentially good news for prospective students and their parents.

Writing for the New York Fed's blog , Liberty Street Economics' Jaison R Abel and Richard Deitz claim that the value of an average US university degree has been hovering around an all-time high for more than a decade. And the amount of time an average student spends paying off their school debt is at least half of what it was in the 1970s.

But they also point out that the value of a college degree may be so high only because the alternatives are so bleak.

"Wages of high school graduates have also been falling, reducing the opportunity costs of going to school and keeping the college wage premium near its all-time high," they write.

In another post, they find the value of that college degree plummets if the student takes more than four years to graduate.

image copyright Federal Reserve Bank of New York

But, according to the National Center for Education Studies , more than 40% of full-time students seeking bachelor's degrees at four-year institutions fail to graduate from that school within six years.

Abel and Deitz argue the extra years affect the value of a degree because the student ends up paying an "opportunity cost", essentially money lost by not entering the job market.

In the first additional year a student spends at school, they miss out on $2,500 (£1,528), a sum which more than doubles if a student spends two extra years at school.

"This earnings 'wedge' persists throughout one's career," Abel and Deitz write. "The difference add up each and every year, so that those graduating later never really catch up to those who graduated earlier."

However, Abel and Deitz still view their findings as an overall positive sign.

"For students who require five or six years to graduate, the value of a bachelor's degree no doubt remains substantial, but staying on in college certainly takes a financial toll."

Devin Fergus, an associate professor at The Ohio State University, disagrees.

"This fall, I'll be teaching some of the most financially distressed students in America," he writes for The Washington Post.

Fergus says his pupils are facing a student aid crisis, the seeds of which were sown in the 1980s when then-President Ronald Reagan helped pass a slew of tax- and budget-cutting measures.

These changes were responsible for the government reducing spending on higher education by about a 25%over five years.

"Effectively, these changes shifted the federal government's focus from providing students higher education grants to providing loans," Fergus writes, arguing students are now drowning in debt.

image copyright Thinkstock image caption Recent graduates have begun to question the traditional academic path

One recent graduate sees Abel and Deitz's results as yet another reason for students to question the traditional academic path.

NJBIZ.com's Andrew Sheldon says he often wonders if he should have postponed his 2010 degree in order to start his own business.

"Your early 20s are a time when you are most financially malleable, so isn't that the perfect time to take a risk?" he asks.

"If it doesn't work, college will be waiting for you and that education might be even more valuable because you've probably learned a few things about yourself."

He may be onto something. Vox's Danielle Kurtzleben writes that while the overall value of a university degree may be close to its all-time high, the numbers seem to indicate a downward trend.

"If college costs accelerate or if graduate wages continue to be stubbornly low, that could continue and make the decision to go to college all the tougher for future high school grads," she writes.

It doesn't take a degree in math to realise the costs of US university may someday no longer add up.