A mortarboard on money (Image: Shutterstock)

Faced with the prospect of a semester or year of virtual, yet still expensive, schooling, some families and students are considering a year off from college.

But a gap year could have steeper costs than they think, researchers from the Federal Reserve Bank of New York warn.

Jaison Abel and Richard Deitz, both assistant vice presidents of the bank’s Research and Statistics Group, compared the costs and benefits of attending college now during the pandemic to the costs and benefits of not attending, with a focus on the question of whether to take a gap year.

On the cost side are direct costs, such as tuition and fees, and indirect costs, such as opportunity costs, or the money one gives up by attending school instead of working. Both have declined during the pandemic, according to the researchers — direct costs, because many schools are cutting tuition to attract students, and opportunity costs because the job market has shrunk. 

Moreover, the increase in unemployment due to the pandemic has not been “nearly as steep for college graduates,” the researchers note, explaining that many jobs held by college graduates can be done more easily from home than jobs held by workers without a college degree.

The benefits of a college education center on the college wage premium — the extra wages a college graduate earns compared to the wages of a high school graduate. “If you can’t find a job, going to school is less costly,” the researchers write. Despite greater uncertainty about the path of future earnings, there is little reason to think that the college wage premium will shrink.” 

They explain that even when wages stagnate or decline, they tend to fall as much or more for those without a college degree.”

They mention, however, that networks developed through personal relations at school could be damaged with extensive remote instruction.

Long-Term Costs

Delaying college for a year forfeits a year’s worth of wages that could have been earned with a college degree had the student graduated a year earlier. In addition, entering the job market a year later damages a student’s entire lifetime earnings profile from which they can “never really catch up.”

For example, someone who graduates in four years at age 22 would earn, on average, about $43,000 their first year on the job and by the time they reach 25, an average $52,000. A student who takes a gap year and graduates at age 23, earning the same starting wage as the 22-year-old graduate, would earn just $49,000 at age 25, or roughly $3,000 less. 

“These differences add up each and every year, so that those graduating later never catch up to those who graduated earlier,” according to the analysis. “Together, these costs add up to more than $90,000 over one’s working life, which erodes the value of a college degree.”

The researchers acknowledge that monetary gains are not the only factor students and their families should consider when deciding whether to go to college now. Health and safety are also important considerations as well as the experience of attending college, but their analysis does not take those factors into account.

“Nonetheless,” they write, “given the high cost of a gap year, perhaps some students will think twice before delaying.”

Unemployment for Recent Graduates

(Chart: Federal Reserve Bank of New York)

The job market for recent college graduates is worse than it’s been in recent history but not nearly as bad as the job market for young people without a college degree.

According to the Federal Reserve Bank of New York’s latest labor market report for college graduates, the unemployment rate for recent college graduates as of June 1 was 13.3% compared with 21.9% for their counterparts who lack a college degree.

Both rates are the highest in at least 30 years —the published New York Fed data goes back only to 1990 — and exceed the national unemployment rate of 11.1% in June.

Moreover, the gap between the unemployment rates of recent college graduates, aged 22 to 27, and all college graduates, aged 22 to 65, is the widest it’s ever been, at 5.4 points in June.

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