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Is Student Debt a Good Investment?

These days, student debt is featured often in the news. In summer 2013, the allowable interest on federally guaranteed student loans was doubled, and editorials decried the immorality of the federal government turning a profit on educational loans. Congress responded by rescinding the increase and voting to tie this and future rate increases to market rates, which increased the interest on current loans by a modest half percentage point instead. Still, the numbers are sobering: Nearly 40 million Americans have outstanding balances on their student loans, total student loan indebtedness is approaching a trillion dollars, and the average indebtedness per student is about $26,600. Much the same is true in Canada.

Student groups across the nation have clamored for resolution of this student debt crisis. University administrators are also concerned that the perpetually increasing cost of a college diploma will drive many students and their families to the conclusion that a college education isn’t worth the money. Has American higher education begun to price itself out of business?

Not likely. According to the National Center for Education Statistics, in 2011 the median annual earnings of young adults ages 25 to 34 working full-time jobs was $30,000 for those with a high school diploma or its equivalent versus $45,000 for those with a bachelor’s degree, a difference of 50 percent. With the average student debt amounting to about $26,600, students will recoup that sum in two or fewer years. And these are only the income differences among younger workers. The salary gap between those with more and less education widens as age increases.

If one considers lifetime earnings, the differences are much larger. Lifetime earnings for those with a high school education will average about $1.3 million. Those with a bachelor’s degree will average $2.27 million in lifetime earnings. Would you incur indebtedness of $26,600 for a return of almost $1 million? The fact is the payoff from getting a college degree is huge and increasing, and this will almost certainly remain true far into the future.

The slogan “To get a good job, get a good education” was first used in 1965 and has been repeated countless times since. Unlike many timeworn clichés, this one is as true today as
when it was first uttered.


Provost’s Distinguished Research Professor, Sociology