The Economics of Education: The Cost and Value of Higher Education

Society places tremendous value in education, and this is evident throughout the world. The National Center for Education Statistics, for example, reports that there were 4,726 degree-granting institutions in the United States alone in 2018, including colleges and universities. This number does not include local and community colleges, vocational schools, and other post-secondary educational agencies. 

People understand that higher education is important for a variety of reasons – from increasing one’s earning potential, to gaining a competitive advantage in employment. To understand why so many individuals and families value higher education, however, it is important to understand the economic considerations of the educational system: the costs, the return on investment, and the financial aid system.

Financial Cost of Education

When it comes to higher education, it is important to consider the financial costs associated with a degree. Most four-year educational institutions require full-time enrollment, meaning that individuals must pay tuition fees and living expenses.

Tuition Fees

Tuition fees vary significantly from one institution to the next, depending on factors such as the school’s size, prestige, and geographical location. According to the College Board, the average cost of attending a public, four-year school in 2020 was $10,560 for in-state students, and $27,020 for out-of-state students.

Living Expenses

In addition to tuition fees, students must also pay for living expenses, such as room and board. According to the College Board, the average cost for room and board for a student attending a public, four-year school in 2020 was $11,530.

The Deferred Payment Plan

Many students and their families, especially those who come from low-income backgrounds, find that paying tuition, living expenses, and other fees associated with higher education up front can be a financial burden. As a result, the majority of colleges and universities in the United States offer the deferred payment plan, which allows students to pay tuition fees over a period of time. This can help to financial manage the burden associated with a college degree.

External Factors

In addition to the direct costs associated with higher education, there are a number of external costs that must also be taken into account. These can include the cost of textbooks, transportation, supplies, and other miscellaneous expenses. On average, the College Board estimates that the total cost of attending a public, four-year college, including tuition, living expenses, and other external factors, was approximately $23,830 in 2020.

Opportunity Cost

The cost of higher education, of course, extends beyond monetary expenses. When a young person chooses to pursue higher education, he or she is forgoing the opportunity to gain income for the duration of his or her studies. Depending on the course of study, the degree of flexibility, and the amount of coursework an individual chooses to take on, opportunity costs associated with higher education can be quite significant.

Financial Aid

In order to make higher education more accessible, many schools offer financial aid in the form of scholarships, grants, and loans. Scholarships and grants are forms of financial aid that do not need to be repaid, while loans are typically awarded with the understanding that the borrower will have to pay the money back at a later date. Financial aid can help to offset the costs associated with higher education significantly, making the prospect of obtaining a degree more achievable for those that would not have the opportunity to afford it.

The Greater Value

Beyond the tangible costs associated with higher education, there is also a greater value that is often overlooked. Obtaining a college degree can open up more lucrative job opportunities, which can result in a higher earning potential than if an individual had not obtained a degree. In addition, having a degree may also increase one’s ability to advance within an organization or obtain a promotion, which can lead to an even higher earning potential.

Employment Advantage

Generally speaking, those with a college degree tend to have higher employment rates than those who do not. According to the U.S. Bureau of Labor Statistics, the unemployment rate for individuals with a bachelor’s degree in 2019 was 2.2 percent – the lowest among all educational levels. This statistic indicates that having a degree provides individuals with a competitive edge when it comes to obtaining employment.

Increased Earnings

The opportunity for higher earnings is another important factor to consider when assessing the value of a college degree. According to the United States Census Bureau, in 2018 the median earnings for individuals with a bachelor’s degree was $1,173 per week, compared to just $746 per week for those without a degree. Furthermore, individuals with higher degrees tend to earn more than those with lower degrees. This can have a significant impact on one’s financial security, as well as his or her ability to afford a comfortable lifestyle.

Personal Satisfaction

Finally, there is the intangible benefit of personal satisfaction. Many individuals find that having a degree gives them a greater sense of self-worth and confidence. In addition, having a degree can also increase one’s knowledge and understanding of a particular subject matter, which can benefit an individual in a number of ways.

The economics of education encompasses many considerations, including the financial cost and the greater value of a college degree. The financial cost of a degree includes tuition fees, living expenses, external factors, and the opportunity cost of foregoing income in order to pursue higher education. The greater value of a degree, on the other hand, includes the potential for a higher employment rate, increased earnings, and the intangible benefit of personal satisfaction. Ultimately, the decision to pursue higher education is a personal one, and it is important to consider all of the costs and value associated with a degree before making the commitment.