Ten years ago, the collapse of the investment bank Lehman Brothers brought the international financial system to the edge of collapse. A collapsed housing market bubble and global financial strain turned a recession into the Great Recession.
Those days are behind us. But the 10-year anniversary of Lehman’s implosion has spawned weeks of media reviews about the causes and consequences of the financial crisis and Great Recession. Could a banking crisis happen again? (The answer is yes, by the way.) I wondered what have we learned about the economic value of higher education over the past decade?
In the 1980s and 1990s, hardly anyone questioned the value of a college degree. Parents complained about the tuition bill, but cheered when college acceptances went out. A college degree represented the ticket to a good job and career. Scholarly research supported their optimism.
The audience of doubters expanded exponentially with the Great Recession and slow recovery. Student loans topped $1.4 trillion. Recent college graduates found themselves unemployed or underemployed. Many graduates find themselves financially handicapped by their student loans.
Yet with the benefit of hindsight, the experience of the past decade suggests much of the conventional wisdom about the value of a college education remains correct. The skeptics made many valid points, but their criticisms went too far. The unemployment rate for bachelor’s degree recipients ages 25 to 34 was 2.5 percent in August. Wages for young college graduates have grown steadily since 2012 (although just above 2000 levels). The demand for college educated workers is strong.
Despite the steep cost of college, rising student loans and the Great Recession, the return on earning a bachelor’s degree remains high. The return on investment has averaged about 14 percent to 15 percent over the past decade, according to the Federal Reserve Bank of New York. Put somewhat differently, the return on an undergraduate education is more than double the average annual return to stock market investments since 1950 and five times the return to bonds.
What have we learned? Yes, college pays. But students and parents should keep borrowing for a bachelor’s degree as low as possible. Choose your college not by its name or its reputation. Instead, pick the institution that offers a total price tag with minimal debt obligations. This way, your graduate will have the freedom to seize the opportunities created by their degree.
Chris Farrell is senior economics contributor, “Marketplace,” commentator, Minnesota Public Radio.