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Wednesday, June 25, 2014
Surprising Findings On Two-Year Vs. Four-Year Degrees
A college degree is worth it even as the cost of going to school rapidly escalates and real wages decline for graduates, WSJ's Mark Peters reports on Lunch Break with Tanya Rivero. Photo: Getty
Return on Investment Holds Steady at About 15% for Recent Graduates
MARK PETERS and
Updated June 24, 2014
Who earns more, a recent graduate from a flagship state university with a bachelor's degree or one who finishes a two-year program at a little-known community college?
The answer isn't so clear.
As states for the first time mine graduates' salary data from public colleges, they are finding that paychecks for holders of associate degrees in a technical field are outstripping many grads with four-year degrees, at least early in a career.
The growing body of data, from states including Texas, Colorado and Indiana, provides a sober new look at the value of a postsecondary education in a slowly recovering economy.
Overall, the findings reinforce the belief that a college degree is worth the investment. But they highlight the reconsideration of a long-held article of faith that a four-year college degree guarantees at least a middle-class life, while an associate degree is its poor country cousin.
In Indiana, figures show that after a year in the workforce there, a graduate of Ivy Tech Community College makes more on average than a graduate of Indiana University.
In Colorado, Tessa DeVore earned a two-year nursing degree from Front Range Community College in 2010. The degree cost her $23,000, but her starting salary was $53,000.
"At my hospital, the salary doesn't increase any faster if you have a four-year degree," she said. "For me, this was absolutely the way to go."
Oncology nurse Tessa DeVore in Denver says her associate degree 'was absolutely the way to go.' It cost $23,000; her job started at $53,000. "Jonathan Castner for The Wall Street Journal
A New York Federal Reserve study released Tuesday found that both associate and four-year degrees remain solid investments, even as the cost of going to school rapidly escalates and real wages decline for graduates.
New York Federal Reserve Bank economists Jaison Abel and Richard Deitz in the study calculated the annualized return on investment for the money put into a college degree over a graduate's career, pegging it at about 15% for current graduates. The figure, which far surpasses typical returns for stocks and bonds, has held largely constant for more than a decade.
Surprisingly, the economists found that the rate of return on a bachelor's and associate degree is largely the same and has remained that way for several decades in the U.S. And the difference in wages between the two degrees also has remained relatively constant, with a bachelor's-degree holder last year making about $65,800 and an associate-degree holder making about $46,300.
The cost of either degree—including tuition and lost wages from not working during the two- or four-year period—has remained largely the same over recent decades as well, at $110,000 to $130,000 for a bachelor's and $40,000 to $60,000 for an associate degree, according to the economists.
That is because while tuition has rapidly escalated for a four-year degree, the lost-wage cost of leaving the workforce for high-school graduates to attend school has fallen.
Degree-holders of all stripes shouldn't rejoice just yet. Helping to keep up the value of all college degrees is the declining prospect for those without one. The drop in real wages for high-school graduates has helped to keep the earnings premium for a college degree near its all-time high.
"The good news for college graduates is that the return to college remains high on average," Messrs. Abel and Deitz write. "However, the bad news is that college students are paying more to go to school and are earning less upon graduation."
While the Fed study focused on the overall returns of degrees, some states aim to provide students, parents and policy makers with more specifics, such as starting salaries for holders of certain diplomas.
"This comes from an increased focus on the value of higher education, and how to increase it," said Teresa Lubbers, Indiana's commissioner for higher education. "That's happened more in the last few years than ever before."
The Indiana commission for higher education issued its first "return on investment" report last year and found the average salary for a graduate with an associate degree eclipsed a bachelor's-degree holder's after a year in the workforce. But the earnings of a four-year degree started to surpass those of an associate-degree holder five years after graduation, with the gap growing to nearly $7,000 annually after 10 years.
In Colorado, a study conducted by College Measures, a partnership of the American Institutes for Research and Matrix Knowledge, looked more specifically at grads' first year in the workforce. Associate degrees in nursing, industrial production, fire protection and engineering all generated starting salaries above $60,000.
By comparison, the average starting salary for a graduate with a bachelor's degree in Colorado in any field was $38,860. Results in Texas and Arkansas were similar.
"If you know how to fix something or to fix people, you're going to do well with a two-year degree," College Measures President Mark Schneider said. "So if you're in construction, IT, high-tech manufacturing or if you're in a health profession, a two-year degree pays off."
To be sure, there are concerns among four-year colleges of an overemphasis on starting salaries. Some argue the measure is narrow and doesn't account for differences in a school's mission or location—or on a student's eventual earnings.
Still, the ramp-up in data is affecting how students and parents look at schools and degrees.
"Prospective students and their parents are asking much tougher questions about [return on investment] and outcomes," said Mitch Davis, spokesman for Fort Lewis College, a four-year school in southern Colorado.
At Front Range Community College, construction is under way on a new training center to keep up with demand for welding degrees. President Andrew Dorsey said the school works to strike a balance between technical competency and broader skills such as problem-solving to ensure careers with longevity.
"That is definitely on our minds in all programs," he said.
Corrections & Amplifications
An earlier version of this article incorrectly referred to the University of Indiana. The school's name is Indiana University.