The College Degree [Mortality] Advantage

By the NBER

Working Paper 29328), Anne Case and Angus Deaton

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The Persistent Mortality Advantage of a College Degree
In 2019, Americans with a four-year college degree had six years greater life expectancy at age 25 than those without a degree. These educational differences in mortality have been growing in recent decades and are apparent across demographic groups. In Mortality Rates by College Degree before and during COVID-19 (NBER Working Paper 29328), Anne Case and Angus Deaton explore the evolution of these differences during the pandemic.

If every American faced an equal threat of infection and death from COVID-19, then the mortality gap between more and less educated individuals would have narrowed during the pandemic. However, the risks from COVID-19 were plausibly greater for those without a college degree for a variety of reasons. For example, people without college degrees disproportionately work in occupations where working from home to avoid infection is not feasible. They are more likely to use public transportation and to live in crowded housing arrangements, heightening their risk of exposure. Conditional on infection, less educated individuals may experience worse outcomes due to higher average rates of pre-existing conditions and poorer access to health care.

Using provisional mortality data from the National Center for Health Statistics, the researchers determine that a college degree was protective against mortality during the calendar year 2020, which encompassed the first nine months of the pandemic. They express the mortality advantage of a college degree using the ratio of the mortality rate for those without a four-year college degree to the rate for those with a degree. The researchers calculate these ratios for 60 different demographic groups, identified by two genders, five age groups, and six racial/ethnic categories (Hispanic, non-Hispanic White, non-Hispanic Black, Asian, American Indian/Alaskan Native, and those who report two or more races).

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  Across all demographic groups, the ratios were all above one in 2020, reflecting higher mortality rates for those without college degrees. The ratios were highest for younger age groups: in the 25 to 39 age group, mortality rates for those without college degrees were as much as seven times the rates for those with college degrees. The researchers argue that the association between education and mortality is concentrated among preventable deaths, which are more prevalent causes of death among younger adults. In addition, older Americans are more likely to be retired, so additional risks that less educated workers faced due to occupational differences were less relevant for older age groups.

The overall finding that those without college degrees were at greater risk of death during the pandemic may not seem surprising, given their differential risks of infection, higher rates of pre-existing conditions, and worse access to care. A more unexpected finding is that these differences in mortality risk, as reflected in the mortality ratio, were very similar to the differences in mortality risk in the year prior to the pandemic. The figure, which plots the ratios for each demographic group in 2019 and in 2020, shows that the mortality advantage of a college degree was little changed during the pandemic relative to the prior year.

The figure highlights a few exceptions to this pattern. For Hispanic women aged 25 to 64 and for non-Hispanic American Indian/Alaskan Native women aged 25 to 39, the mortality advantage of a college degree was substantially higher in 2020 than in 2019. But for most demographic groups, the mortality ratios during the pandemic were strikingly similar to those before the pandemic. In fact, for over half of the demographic groups, the ratio was slightly lower in 2020 than in 2019.

The results suggest that the mortality advantage of a college degree during the pandemic was a continuation of pre-existing health differentials between those with and without college degrees. “The mystery,” the researchers conclude, “is not why the [college degree] was protective during the pandemic, but why the effect was proportionately as large before the pandemic.”

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Is the cost of a college education really worth it?

MAYBE NOT?

Rick Kahler MS CFP[By Rick Kahler MSFS CFP®]

How do you know when the cost of a college education is really worth it? A lot of factors—both financial and emotional—go into making that decision. Weighing the pros and cons can be daunting.

Example:

Let’s consider a couple of examples that will help conceptualize the process of determining if a college education makes financial sense.

First, here are some numbers for traditional students. The cost of an average four-year education at Yale is around $240,000, and the average starting salary for its graduates is $55,000. The monthly payment on a student loan for that amount would be $2,420, or $29,159 a year. That equals 53% of the starting salary. There are a lot of other variables to consider, like potential scholarships that would lower the tuition, or lowering the loan payment by stretching out the amortization period (which actually increases the overall cost). But given these facts the answer to whether this education makes financial sense is a no-brainer. No; find another school.

At the South Dakota School of Mines, by contrast, the cost of an average four-year education is around $65,000 and the average starting salary is $68,000. The monthly payment on a student loan for that amount would be $648, or $7,897 a year. That equals 12% of the starting salary. The cost of this education makes complete sense.

For traditional students, my personal rule of thumb is this: don’t pay more than one and a half times the average starting salary of a job for the education to obtain it.

For non-traditional students who are looking to switch careers, the calculation is a little more involved. You must weigh the salary you earn in your current career with the cost and net increase in the career you are considering.

Example:

Recently a reader emailed me this question: “I have a bachelor’s degree in my chosen career and am unable to find a full-time, benefitted, permanent job. When is it no longer a good financial decision to not go back to college? I can pick up a degree in a different field for $8,000. If I am 12-13 years from retirement, is it worth it?”

The average salary for a job in her career field is $20 an hour, or $42,000 a year. The problem is that she has not been able to find employment in her career field. She has only been able to find temporary jobs with earnings of $9.77 to $12.75 per hour.

So far her four-year degree has netted her around $12,500 a year. Her research shows that if she went back to school for two years she could switch to a career field more in demand in her area and earn $45,000 a year. That’s $32,500 more per year. If she invests two years and $8,000 in education, then works in her new career for 10 years, she can earn an additional $325,000 before retirement.

If she were to borrow the funds needed for her education and repay the loan at 4% for 10 years, her monthly payment would be $81, or $972 a year. That equals about 2% of her salary. Given these facts, going back to school makes clear financial sense.

Hopkins Medical School

Assessment

Of course, financial factors are not the only ones to consider in deciding whether to invest in education. Looking at the numbers is essential, but it’s equally important to find a career field that suits your talents and interests. It makes no sense to spend time and money preparing for a career you don’t want. The most rewarding college investment is one that provides worthwhile returns in emotional satisfaction as well as financial success. 

Conclusion

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The High Cost of College Loans

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Slowing Down the Speeding Train of Educational Debt

By Rick Kahler MS CFP® ChFC CCIM

www.KahlerFinancial.com

Trying to improve on the free market system almost always ends badly. Take medical school or college tuition as an example. It’s an important segment of our economy, since for most a college education is a door to higher wages and a better lifestyle.

Tuition Due in Cash

In the days before college loans were as ubiquitous as mountain pine beetles in the Black Hills of SD, college costs were like any other service. They were due in cash. Students and their parents had to save money or pay tuition out of their earnings. Many students worked their way through college. Those whose parents didn’t save, who couldn’t or didn’t want to work, or who didn’t have high enough grades to get scholarships didn’t go to college.

Supply and Demand Basics

Since colleges competed for students, of course, schools had to keep a close watch on their tuition rates. Raising tuition too much resulted in fewer students. Fewer students meant falling revenues. The two forces of supply (college capacity) and demand (the ability to pay the tuition) kept college costs in check.

Political Fiat

Understandably, getting a loan to pay for college tuition was difficult. What sane bank or investor would make a loan to an unemployed teenager with no collateral to speak of? If you could find someone willing to make such a risky loan, the interest rate was more like the high rates charged by credit card companies.

Well-intended politicians decided it wasn’t fair that those who didn’t have the means to pay the tuition were denied college educations. They decided the solution would be to require the taxpayers to loan unemployed teenagers the money they needed to pay their tuition, sometimes at interest rates lower than what the most creditworthy could obtain.

Easy Money

With tuition money easy to obtain through loans, demand for a college education increased. With the increased demand came higher tuition costs. This easy money is the primary reason that college tuition costs have far outpaced inflation and gone up twice as fast as medical costs since 1985.

Unfortunately, one consequence of loaning money to someone the private sector deems a poor risk is that many of those borrowers will be unable to repay the debt. That’s why the private sector took a pass on making the loans in the first place. It should come as no surprise that 60% of all student loans are currently in default. According to The Kiplinger Letter, December 2, 2011, that default rate will only get worse, as the unemployment rate of those aged 20 to 24 is around 14%. Today, taxpayers are on the hook for over 70% of the $1 trillion in outstanding student loans.

Rising Appetites

And the appetite for loans continues to rise. This year we will add another $100 billion in college debt to the books. Today, the average student graduates with over $27,000 of debt owed to institutions or the government and another $7,000 owed to parents. It isn’t uncommon for a medical student to amass over $200,000 of student loan debt.

College Loan Debt

The more college loan debt that graduates take into the workplace, the less they have to spend for vehicles, rent, and consumer goods. The 60% who are in default on their debt will also mar their credit ratings, so their purchasing power will suffer for years to come.

Assessment

If taxpayers ever decide to quit footing the bill, many colleges’ tuition rates will fall. They may crash as hard as housing prices did in Florida, Arizona, and California. It will be a buyer’s market. But, that day could be years away. In the meantime, savvy students will do whatever they can to minimize their college tuition and graduate debt-free. 

Conclusion

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