The value of a college education

By Felix Salmon
September 5, 2009
Drew Gilpin Faust likes to talk about the "worrisome impact" of "America’s deep-seated notion that a college degree serves largely instrumental purposes", she's still happy coming out with stuff like this:

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For all that Harvard president Drew Gilpin Faust likes to talk about the “worrisome impact” of “America’s deep-seated notion that a college degree serves largely instrumental purposes”, she’s still happy coming out with stuff like this:

A widespread perception of the value of universities derives in no small part from very pragmatic realities: a college education yields significant rewards. The median earnings for individuals with a B.A. are 74 percent higher than for workers who possess only a high school diploma.

This is the kind of lying-with-statistics which academics should be debunking, not propagating. If you want to know what the rewards are of going to college, you need to compare the lifetime earnings of people who went to college with those who could have gone to college but didn’t. It’s trivially true that the kind of people who go to college will earn more than the kind of people who don’t. What’s interesting is whether the kind of people who can go to college benefit financially from doing so.

Here’s Rolfe Winkler:

How much more will you make if you go to college than if you don’t? Are those extra earnings enough to pay back your loans with interest, along with the opportunity cost of forgoing full-time wages while you’re a student?

A common misconception is that a college degree is worth a million dollars over the average working lifetime. But a paper published late last year by the National Association of State Universities and Land Grant Colleges pegs the value at close to a tenth of that, $121,539.

The study I’d love to see is the one looking at the lifetime earnings of Harvard dropouts, and comparing them to the lifetime earnings of people who graduated from Harvard. If you include Bill Gates, it’ll seem as though dropping out of Harvard makes you more money than completing your studies there. Even if you don’t, it’s far from obvious what the results of such a survey would be.

There are good non-financial reasons to go to college, as Faust says. But as the cost of going to college increases, the purely financial cost-benefit analysis is becoming non-trivial, especially if you end up having to take out enormous student loans.


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As an individual who took college prep courses in High School, I can say at this time that the benefits of a higher education were undersold by public educators.

I wound up quitting high school to get into the workforce. Damn glad I did because if I hadn’t, I’d never have experienced firsthand the last days of opportunity for working men. Since then, I’ve come to find that I can read, spell, use mathematics and write better than most college boys. All that does me little good in the workplace because I don’t have the paperwork declaring my status as capable of thinking. What my guidance counselor should have told me was “get a degree, compartmentalize my niche in life and get paid handsomely for poor utilization of the scope of my abilities. I’d probably have a cush job somewhere telling blue collar workers to do more with less or be laid off. Refusal to think about the wonderful diversity of ideas which spring from individual people is one of the reasons that we American workers have been left behind. Cookie cutter hiring and advancement practices do no one any benefit, it simply makes it easier for college educated people to make choices their education left them unable do effectively.

Posted by RH Pyle | Report as abusive

I suspect that Harvard and a few other elite institutions are not very representative of the real cost of not graduating because (1) getting in is much harder than graduating once you are admitted (this is one of the sales pitches to parents, that the school will make sure you get a degree), and (2) most students are from affluent families and unlikely to have to leave for financial reasons.

What this means is that students who leave Harvard without a degree are more likely to do so because they have other more lucrative options to pursue, not because they have to leave due to academic or financial reasons. In contrast, in many state schools, getting admitted is fairly easy but getting a degree is relatively harder. So some people find they cannot do the academic work, and some people run out of money. (Hence also the much lower graduation rates.)

But why the preoccupation with Harvard? They and their peers are only responsible for a tiny fraction of the graduates. The question about the value of a degree will depend primarily on how the other 98% of schools do in lifting their graduates’ salaries.

Posted by TS | Report as abusive

Having a college degree normally does nothing for the prospective job seeker. They are a dime a dozen, and soon will be the same as a HS diploma in value. Colleges however are selling the idea that with their degrees you can “get ahead”, when in reality all they are doing is boosting their income. Additionally, colleges know exactly how much any given student can get in federal loans and they raise their tuition accordingly. Pretty cool idea and it works great. The new college grad now has at least $500 a month in studen loan repayments and finds himself working at jobs that could have certainly been obtained right out of high school, 4-5 years earlier and $400,000 less debt.

Posted by Frank | Report as abusive

Someone who went to Chico State and got a BA in Womyn Studies is in a far different position from someone who went to Harvard and got a degree in economics. The Chico State degree holder has a lot higher chance of going to work at Home Depot and being supervised by a store manager who started work four years previously after high school. Faust is being disingenuous if she elides this distinction. The Chico Stater also likely had a lot less native talent than the Harvard student.

One reform I would like to see is to allow students to discharge student debts in bankruptcy. What this would do would be to tell lenders that they would have a very high chance that they would not be repaid if they bankroll a degree in a low-demand specialty, and would make them more cautious about making the loans. The message to students would be very helpful: go to community college for the first two years. If people won’t lend you money to study something, it suggests that that course is not a very good idea.

Posted by dave.s. | Report as abusive

Felix, your example would make the same mistake Faust does. I’m sure there’s a HUGE selection bias in who drops out of Harvard (Stanford, Princeton, etc) to start their own businesses. I’d guess that these folks tend to (a) have a business in mind (b) be extremely motivated and (c) know what they want to do with their lives (to some degree). Mark Zuckerberg is not representative of the average Harvard dropout.

Posted by ab | Report as abusive

I think the study you want is students who went to Harvard vs students who were accepted and choose not to go. Students who drop out presumably gain some of the benefit of the ‘Harvard Experience.’

Posted by Krishna | Report as abusive

The cost benefit study should include what benefit that individual is likely to produce over their life time. In light of the recent debacle in the financial area and the failed leadership of the auto industry, including some dollar value to their expected success or failure could give a clearer picture of what is what.

A college degree is the minimum entry requirement for consideration for hiring into a office job nowadays. The elements of a college education are 4 years attendance at a school where tuition is charged, plus satisfactory completion of the “requirements” for the degree.

It has little to do with “what you learned” at the school for many/most disciplines. How many folk studied X in school but five years later are doing Y as a career.

And nowadays a BA is insufficient to pass the Human Resource department’s credentials requirements — an advanced degree has been required for most graduates since 1990-95.

Take a look at the ever-increasing education requirements over time (see Harry Braverman’s book, Labor and Monopoly Capital, ital-Degradation-Twentieth/dp/0853459401 for more details.)

More interesting in the internet age is the recent article in the Washington Monthly on College at $99/month, ( e_guide/feature/college_for_99_a_month.p hp?page=all) where we discover it is in large measure about accreditation or credentiation, not what-you-know.

Dean Baker keeps harping on globalization, but not for labor, so the value of a college degree depends, in large measure, on how effectively the boundaries are kept so that returns to college education stay high.

BTW only about 25% of US population actually has college degrees, so the comparator is median income vs median at some place above the 75th percentile by income, which in most cases links to parental income.

Posted by fred | Report as abusive

Degrees and certifications of all kinds, ceteris paribus, reduce the informational asymmetries inherent in the hiring process.

Haven’t we been down this road before, i.e., borrowing ever more money in the belief that our “investment” (housing or education) will always make money??? I mean, most college is paid for through loans, right?

Posted by fresno dan | Report as abusive is the first reasonably decent link I can find — I have to run out now — but I seem to recall that it misrepresents the finding: people who *apply* to good schools end up doing as well as people who graduate from those schools, even if they’re rejected by those schools. Or so I recall. Maybe I can find a better link later.

My two cents. Not all college grads have what it takes, but the degree does mean something… I’ve supervised with and without, and in general, college educated kids are rarely useless, but kids w/o the degree are with a discouraging regularity. Don’t get me wrong, I’ve managed non-degreed standouts, and degreed people who definitely did not belong, but in general the degree means something. Now I personally made the decision not to go back and get my MBA – the cost benefit never made sense to me. Now, with all the off-shoring happening (right in front of my eyes, I’ve had a front row seat for the past 5 years)I may find that if I’m layed-off the lack of MBA does end up hurting me somewhat… maybe… but so far it hasn’t. One thing i do wonder, however, is whether the value of a college education is shrinking over time? Is it worth less, adjusted for inflation, than 30 years ago?

Posted by American_Fool | Report as abusive

1. Thanks for bring attention again to the fallacy of correlated variables. Sadly, most people with advanced degrees never seem to get it.

2. I often give the same advice to people about Business School. I’ve seen bankers take a career reversal of more than the two years they spent in business school to go. I advise that business school is only useful if you want a significant career change or a break from the working world.

Another interesting study would be to compare part-time students with full-time students. I wonder if there is any difference in career advancement between these two groups.

Posted by Incentives | Report as abusive

The opportunity cost I grant you, but an analysis of student loans says more about the folly of borrowing than the wisdom of enrolling. Too many kids are borrowing $50,000 for an English Lit degree, and you don’t need an economist to tell you that makes no sense. There should be more emphasis on getting a useful degree at a solid school that you can afford–I’m convinced that _that_ is one of the best financial decisions people can make in their lifetimes.

Posted by Craig | Report as abusive

For some perspective, I went to a private university (class of ’08), and my ~$16,000 loan payment is $220/month.

In my current position, I don’t use much that I learned in college. What I do use isn’t directly from my major courses. However, I wouldn’t have gotten this job if I didn’t have my degree. It’s an entry level position, but my chances for advancement are greatly improved less by my degree and more by the skills I aquired getting it.

A person who went straight to the work force may be just as capable as me, but they’ll have to work longer to prove it to their employer. I’ve already got a written document saying I’ve proved it before.

Felix, that $121,000 number you cited is described in the paper like this:

The estimates of benefits of attaining a college degree are significantly understated. The
premium for earning the bachelor’s degree has been growing over time but our calculations
hold it static. College graduates also experience lower rates of unemployment, are healthier
and are more likely to receive employer-paid benefits. In addition, only those who earn college degrees are able to earn master’s, doctoral and professional degrees, the returns to which are
significantly greater than those of the bachelor’s degree.

Posted by Noumenon | Report as abusive

I have no doubt that many of the men and women who attend HArvard earn more than their counterparts. You have to be part of a pretty select group to get into Harvard, so either drive, amibtion, or family connections have put those students in a pretty select group to begin with. Hence, the characteristics that are probably going to help make them more sucessful over all in life.
I also think, like some others who have posted here, that employers who take the safe route, of eliminating any one without a college degree, are just plain lazy. Rather then get to know your applicants, or use your gut when you might feel someone is a good fit for your company, just check and see if they have a degree…So many people in California are graduating with degress from great universities, and they are doint the jobs that high school graduates did two years ago…so both parties are out of luck now…It would be nice if more employers would care about who can do a good job for them, rather then what kind of piece of paper is hanging on their walls…

I believe in higher education, however, the way things exist at this moment, it’s higher education just for the sake of it. It is not necessarily the contributing factor in most people’s sucess or failure, but rather a false measuring stick, used to include or exclude certain people from the job pool… It would make sense if there were some better guidlines formed by an association of hiring managers to help people hire employees on qualifications versus degree.