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Thursday, May 23, 2024
New research center offers students chance to analyze state economic policy

The Center for Research on the Wisconsin Economy (CROWE), housed within the department of economics at UW-Madison, will allow students to look at the state's economic policy.

The cost of college is increasing. How does a bachelor’s degree hold up?

Amid rising college costs, University of Wisconsin-Madison economists see lifelong value in a bachelor’s degree.

A recent report from the University of Wisconsin-Madison found ongoing value in a bachelor’s degree. 

Economists from the University of Wisconsin-Madison estimated the lifetime financial return of a UW-Madison bachelor’s degree to be around $700,000. The return is expected to remain positive despite tuition and cost of living increases. 

According to the Center for Research on the Wisconsin Economy (CROWE), the median earnings for UW-Madison graduates peaks around $115,000 in their 50s. In comparison, high school graduates' median earnings peak around $38,000 in their 40s. 

Tuition increases

CROWE’s report was published April 3, the day before a 3.75% statewide tuition increase announcement for UW System colleges.

The increase covers rising costs due to inflation, UW System President Jay Rothman said.

Cost of attendance at UW-Madison continues to increase, with residents estimated to pay nearly $30,000 annually — approximately $120,000 over a four-year expected graduation timeline. Out-of-state students are estimated to pay roughly $60,000 annually, resulting in nearly a quarter of a million dollars over four years. 

Ananth Seshadri, economics professor at UW-Madison and an author of the CROWE report, said he believes minor tuition increases will not have a significant impact on the financial returns of a bachelor’s degree. 

“Since tuition and fees for nonresidents are over three times that of Wisconsin residents, the high returns for nonresidents imply that an increase in tuition or living expenses would have little impact on the lifetime return to a bachelor's degree from UW-Madison,” Seshadri said in an email to The Daily Cardinal.

More than half of UW-Madison seniors graduate with no debt, according to the university. However, the average student loan debt for graduating students remains around $27,000. 

Despite an ongoing student housing crisis at UW-Madison, Seshadri said the economic returns of a bachelor’s degree remain strong. 

“A rise in rents affects both high school graduates as well as college graduates,” he said. “Even if there were differences in rents paid by college students and high school graduates, a higher rent today is more than compensated for by the premium to graduating from UW-Madison in the long run.” 

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A report from Pew Research Center found more than 4-in-10 high school graduates did not pursue higher education due to financial difficulties, such as the need to support a family.  

The CROWE report did not include financial aid or grants in its analysis, although it found 48% of UW-Madison students receive financial aid or grants. The average amount received was more than $12,000. 

Workforce trends

According to data from high school graduates from 2016 to 2018, the average income at 18 years old is about $20,000 per year. For 22-year-olds with a UW-Madison bachelor’s degree, average annual income is around $44,000.

College graduates tend to work later in life than high school graduates, the report found. On average, high school graduates retire at 63, while college graduates retire at 66. The report found this difference can be explained by the years lost in the workforce while in college.

Recent college graduates are the most likely to work a job that does not require a degree early in their career, according to Pew Research Center.  

Nearly 4-in-10 Americans aged 25 and older have a bachelor’s degree, according to Pew Research Center, making some fearful of educational saturation in the workforce. 

Seshadri said the team’s findings should remain stable even as the percentage of population with a bachelor’s degree continues to grow. 

“While the future is hard to predict, the past suggests there is little to worry about,” Seshadri said. “There has been a significant increase in the lifetime returns to college education even as the share of college-educated workers increased substantially.” 

Residents vs. nonresidents

Although out-of-state tuition is nearly quadruple the cost of in-state tuition, the CROWE researchers found a similar rate of return for in-state and out-of-state graduates. 

Wisconsin residents can expect an average return of $760,000, while nonresident graduates can expect a return of $680,000. According to the report, these returns are expected when the interest level remains at 5%. 

To cancel out costs, interest rates must be over 22% for Wisconsin residents and over 16% for nonresidents. 

“The relatively small difference between the two groups suggest that the direct cost from tuition and fees are swamped by the earnings premium associated with a bachelor’s degree from UW-Madison over an individual’s working life,” the authors said. 

Impacts of major

Regardless of major, Wisconsin residents see a slighter higher return on investment for educational expenses. 

CROWE published a follow-up report examining the returns of different majors on April 9. 

The highest returns are seen in students who major in Computer and Information Sciences, Economics or Business. 

According to their analysis, majors such as Education, Gender Studies and Agriculture have the lowest returns in median income. 

The median first-year income after receiving a bachelor’s degree is about $45,000. 

The authors also stress that different majors have different financial prospects across their careers. Returns were estimated excluding potential financial aid or scholarships. 

However, students are unlikely to choose a major based on economic returns. The authors reported personal ability and preferences are major drivers in deciding a major. 

Social capital

College can also provide unique social opportunities, such as meeting a partner, friends and networking. 

The authors addressed potential discrepancies in students who chose to pursue college after high school and those who do not. They said that, to be admitted to UW-Madison, a student must present some level of academic achievement that lends itself to a strong career, lending them to be more likely to pursue a higher-paying career. 

Elite institutions can be difficult for first-generation or low-income students due to lack of money or social support

A 2023 study from ECMC group found that only 45% of students from low-income, first-generation or minority backgrounds believe education after high school is necessary.

Attending a college such as UW-Madison may open the door to networking for first-generation college students, who make up around 20% of bachelor’s degree seekers.  

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Bryna Goeking

Bryna Goeking is an arts editor for The Daily Cardinal. She also reports on campus news. Follow her on twitter @BrynaGoeking.

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