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Two-year degrees that pay off faster than four-year degrees

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A four-year degree has long been hailed as a fast track to upward mobility. However, as college costs climb, it might be time for some students to question that investment. The bachelor's degree doesn't always offer quite the same return on investment that it used to, leaving many to wonder if "subbaccalaureate" credentials like associate degrees and vocational certificates are catching up.

In certain professions, there's no doubt. A cross-sectional study of graduate earnings in a few select states by College Measures showed that workers with subbaccalaureate credentials, particularly those with associate degrees in technical fields, frequently outpace earnings of bachelor's degree holders. In Texas, for instance, technical two-year grads had average first-year earnings that were more than $11,000 higher than starting salaries of their four-year degree counterparts. Read more below.

"When you're comparing the two-year to the four-year degree path, if you're able to get into certain careers based on the two-year path when you're starting out, you've invested a whole lot less, and so the [immediate] return on investment is higher. You start with that leg up right from the get-go," says Denise Lawson, product manager for College Measures. She adds, "Right now a lot of students are taking on way more debt than they should based on the likely outcomes of the programs that they're pursuing."

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Loans vs. return on investment

Many recent grads who are just now facing their student loan debt would agree. Seven out of every 10 graduates in the Class of 2013 turned the tassel with student loans, credit card debt or money owed to family members, according to a study by Fidelity Investments, with the average student owing $35,200. The $1 trillion in national federal student loan debt has been credited with slowing the housing recovery, potentially preventing graduates from starting businesses and deterring young people from entering public service professions.

"For those students and their families, who are financially aware and concerned, a community college can be a very wise choice," says Linda Serra Hagedorn, associate dean of undergraduate programs at Iowa State University and former director of the Institute of Higher Education at the University of Florida. "The savings are significant over that of a four-year [school], especially when you factor in the costs of residence if the student will live on-campus."

The climbing cost of a four-year education, combined with the College Measures data, raises significant questions about where students can get the best return on their investments. More than 25 percent of workers with an associate degree earn more than the median salary for a bachelor's degree holder, according to a study published in 2011 by Georgetown University. The pay differential is largely driven by occupation, with associate degree holders in the science, math, engineering and technology fields the most likely to financially compete with typical bachelors degree holders.

"There are earning success stories in the two-year [degree] pathways. but if we look at it from another perspective, which is lifetime earnings … an associate degree [median] lifetime earnings is $1.7 million,'". says Jeff Strohl, director of research at the Georgetown University Center on Education and the Workforce. "For a [bachelors] it's $2.3 million."

Research the options

Overall, the pay gap is widening between the most- and least-educated. A study from the Pew Research Center shows that among young workers ages 25 to 32, the median pay disparity between four-year degree holders and those with two-year degrees or uncompleted four-year degrees has nearly tripled since 1965. But pay is only one piece of the overall financial picture, Strohl says. When assessing the value of a degree, bachelors or otherwise, students will also need to consider how tough it will be to get a job in their industry after graduation.

"If you look at two-year degrees and some subbaccalaureate fields … when you work in-field you have good premium, meaning that you get a good wage bump, but when you don't work in-field, you don't get good earnings gain, so sometimes there's a higher risk factor involved," he says.

Before choosing their educational paths, students should do some serious research on how much they're likely to earn, both fresh out of school and mid-career, and compare it to the level of debt they'll need to take on to get there. The Bureau of Labor Statistics' Occupational Outlook Handbook is a fantastic resource for finding education requirements, median salary data and projected occupational growth for a phenomenal array of professions.

If that's too broad, you can get more geographically-specific information by doing informational interviews with area employers in your industry, chatting with professionals who are already in the field and by looking through local job posting sites to see if companies near you are hiring. Strohl also points out that some states also operate their own occupational databases that can provide regional and statewide data on earnings.

Sources:

"The Impact of Student Loan Debt on Small Business Formation," Brent W. Ambrose, Larry Cordell and Shuwei Ma, Social Science Research Network, March 29, 2014,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2417676

"Just Released: Young Student Loan Borrowers Remained on the Sidelines of the Housing Market in 2013," Meta Brown, Sydnee Caldwell and Sarah Sutherland, Liberty Street Economics, May 13, 2014,
http://libertystreeteconomics.newyorkfed.org/2014/05/just-released-young-student-loan-borrowers-remained-on-the-sidelines-of-the-housing-market-in-2013.html#.U3JLf_ldWSq

Occupational Employment Statistics, Bureau of Labor Statistics, May 2013,
http://www.bls.gov/oes/current/oes_stru.htm

"The College Payoff: Education, Occupations, Lifetime Earnings," Anthony P. Carnevale, Stephen J. Rose and Ban Cheah, The Georgetown University Center on Education and the Workforce,
https://georgetown.app.box.com/s/cwmx7i5li1nxd7zt7mim

"Student Debt Swells, Federal Loans Now Top a Trillion," Rohit Chopra, Consumer Financial Protection Bureau, remarks delivered at the Center for American Progress on July 17, 2013,
http://www.consumerfinance.gov/newsroom/student-debt-swells-federal-loans-now-top-a-trillion/

"Higher Education Pays: But a Lot More for Some Graduates Than for Others," CollegeMeasures.org, Sept. 3, 2013, pages 2 and 11,
http://collegemeasures.org/post/2013/09/View-full-report-here.aspx

"Cost-Conscious College Graduates: A Study of Recent College Graduates," Fidelity Investments, Spring 2013,
http://www.fidelity.com/static/dcle/welcome/documents/Fidelity-College-Grad-Study.pdf

Linda Serra Hagedorn, Associate Dean of Undergraduate Programs at Iowa State University, Interviewed by the author via email on June 2, 2014

Denise Lawson, Product Manager at College Measures, Interviewed by the author on June 3, 2014

"The Rising Cost of Not Going to College," Pew Research Center Social & Demographic Trends, Feb. 11, 2014,
http://www.pewsocialtrends.org/2014/02/11/the-rising-cost-of-not-going-to-college/

"Constrained after college: Student loans and early-career occupational choices," Jesse Rothstein and Cecilia Elena Rouse, Journal of Public Economics, February 2011,
http://ideas.repec.org/a/eee/pubeco/v95y2011i1-2p149-163.html

Jeff Strohl, Director of Research at the Georgetown University Center on Education and the Workforce, Interviewed by the author on June 3, 2014