Returns to Higher Education in Hawaii

preamble Jones, Jimmy and Hirashima, Ashley and Page, Jonathan and Mak, James

Abstract

preamble Higher education remains an excellent investment for residents in Hawaii. Our estimates for the projected returns on a degree from a community college or university in Hawaii is lower than estimates form 2000. However, the expected returns of higher education in Hawaii still suggest that college is an excellent investment. We estimate that returns to higher education are XX.X%, XX.X%, and XX.X% for associates degree, bachelors degree, and post-graduate degree holders respectively.

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Executive Summary

Each year in the State of Hawaii, over 11,000 graduating seniors must decide whether to attend college or join the workforce. This report estimates the rate of return for associate’s degrees, bachelor’s degrees, and post-graduate degrees using a standard approach. For a senior graduating high school in 2016,

  • An associate’s degree has a rate of return of 10.8% for men due to an expected increase in lifetime earnings of almost $300 thousand dollars. Women see a similar rate of return of 10.7% due to an expected increase in lifetime earnings of nearly $400 thousand dollars.

  • A bachelor’s degree has a rate of return of 13.5% for men due to an expected increase in lifetime earnings of $1.5 million dollars. Women see a lower rate of return of 10% with an expected increase lifetime earnings of $640 thousand dollars.

  • A post-graduate degree has a rate of return of 13.5% for men due to an expected increase in lifetime earnings of $2.9 million dollars. Women see a lower rate of return of 9.7% with an expected increase lifetime earnings of $1 million dollars.

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Introduction

The State of Hawaii produces around 11,000 high school graduates annually11Source: National Center for Education Statistics (http://nces.ed.gov/ccd/tables/2009-10_Dropout_and_completer_data_for_100_LSD_table.asp). These graduates have an important decision to make, whether to go to college or to enter the workforce. In the short term, going to college is costly. These costs include tuition, supplies, and foregone wages. In the long term, the investment in college pays off handsomely through a lifetime of higher earnings. College graduates also receive nonpecuniary benefits including work-related fringe benefits, better health, and higher levels of self-reported life satisfaction22(Oreopoulos 2011)— provide a survey of the research on the nonpecuniary returns to higher education..

This report estimates the internal rate of return to associate’s, bachelor’s, and post-graduate degrees for a typical University of Hawaii resident student. This rate of return is calculated using an expected stream of future earnings. Since nonpecuniary benefits are not considered, these estimates should be viewed as lower bounds on the expected returns to attaining a college degree.

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Data

We use data from the Current Population Survey (CPS) administered by the Census Bureau. The CPS samples approximately 60,000 occupied households in the US on the calendar week that contains the 19th day of the month, where questions refer to the previous week that includes the 12th day of the month. A household is sampled for 4 consecutive months, leaves the sample for 8 months, and then returns for 4 more months before permanently exiting the sample. All 50 states and the District of Columbia are sampled. The survey itself is computerized with additional questions conducted through telephone interviews. Eligible participants must be 15 years old or over, not serving in the Armed Forces or in an institution. There is no upper age limit and full-time students are counted the same as non-students. The ”reference person” is the eligible member of the household who answers questions on behalf of everyone in the household. The ”reference” individual will usually own or rent the housing location. Questions from the survey include topics about work activity, income, and school enrollment among others.

Our sample covers CPS data from 2000-2015. We include individuals in the working population ages 15-75 with positive earnings. All costs and weekly earnings are in real terms deflated by the Bureau of Labor Statistic’s US Consumer Price Index (CPI). We subset the data for different specifications by gender and education level, i.e. high school graduates, associate’s degree holders, bachelor’s degree holders, and post-graduate degree holders. We obtain the data on tuition costs and fees from the University of Hawaii system. We make the assumption that an associate’s degree student will take three years to complete a degree, a bachelor’s degree student will take five years to complete a degree, and a post-graduate student will take five undergraduate plus three graduate school years to complete a degree. Bachelor’s and post-graduate tuition and fees come from the University of Hawaii at Manoa. We report tuition and fees in Table 2. Associate’s degree tuition and fees come from Kapiolani Community College. We use currently published tuition and fees through 2019. For 2020 and beyond, we assume a 2% nominal growth rate to calculate estimated future tuition, while fees are kept the same. Future CPI estimates come from the Congressional Budget Office’s quarterly inflation projections for August 2016. We average quarterly estimates to obtain a yearly value. We report summary statistics of the data in Table 1.