Costs of a Postsecondary Education
Abstract
The premium that belongs to obtaining post-secondary education seems to slowly be slipping away. With the advent of rising tuition to Universities and Colleges, students now face a potentially life-changing decision of whether or not to incur the (expensive) cost of higher education. A striking statistic that jumps out however is that postsecondary enrolment has been increasing over the past few decades despite the increase in tuition and other related costs associated with attending a college or a university. To put this in perspective, total enrolment has increased at a rate of 2.78% between 1973 and 2005 even though the costs of attending a postsecondary education increased by a real annual rate of
6.53% over the same time period (Hu & Miao, 2010). Human capital theory (HCT) suggests that investments in education allow individuals to increase their stock of human capital, which in turn increases productivity. Another interpretation of HCT suggests that differences in human capital can also help explain wage differentials, i.e. the higher the human capital accumulated by an individual, higher the wages. However, with the rising costs of postsecondary education over the past three decades and projections showing these costs will only go higher, is undertaking a postsecondary education worth it? Are the wage differentials and net benefits (personal as well as social) for someone with a university degree as compared to someone with a high school diploma high enough to justify pursuing a postsecondary education? This paper aims to explore these issues with the help of mathematical tools such as earnings premiums, net present value, and also look at the positive externalities generated by acquiring a postsecondary degree while determining whether further education is worth the cost.
1
Introduction
The cost of postsecondary education has been on the rise for students since the early 1990s when the average tuition
The premium that belongs to obtaining post-secondary education seems to slowly be slipping away. With the advent of rising tuition to Universities and Colleges, students now face a potentially life-changing decision of whether or not to incur the (expensive) cost of higher education. A striking statistic that jumps out however is that postsecondary enrolment has been increasing over the past few decades despite the increase in tuition and other related costs associated with attending a college or a university. To put this in perspective, total enrolment has increased at a rate of 2.78% between 1973 and 2005 even though the costs of attending a postsecondary education increased by a real annual rate of
6.53% over the same time period (Hu & Miao, 2010). Human capital theory (HCT) suggests that investments in education allow individuals to increase their stock of human capital, which in turn increases productivity. Another interpretation of HCT suggests that differences in human capital can also help explain wage differentials, i.e. the higher the human capital accumulated by an individual, higher the wages. However, with the rising costs of postsecondary education over the past three decades and projections showing these costs will only go higher, is undertaking a postsecondary education worth it? Are the wage differentials and net benefits (personal as well as social) for someone with a university degree as compared to someone with a high school diploma high enough to justify pursuing a postsecondary education? This paper aims to explore these issues with the help of mathematical tools such as earnings premiums, net present value, and also look at the positive externalities generated by acquiring a postsecondary degree while determining whether further education is worth the cost.
1
Introduction
The cost of postsecondary education has been on the rise for students since the early 1990s when the average tuition