What's the Value of a College Degree?

ROI on your B.A.

What's the Value of a College Degree?

In a few weeks, close to 2 million students will head off to college, ready to spend four years studying, socializing, and accumulating the kind of debt load that would make the Greek government blush. With both tuitions and debt loads on the rise—both are now at record highs—college-bound seniors and their check-writing parents will be excused for wondering: Is all this time and money worth it? Not worth it in terms of intangibles like lifelong friends made, ineffable truths revealed, or brain cells killed by things that will cause you trouble at your later Senate confirmation hearings, but worth it in a cold, hard economic sense: If you could buy a diploma on eBay, what would be a reasonable price to pay for it?

Fortunately, there are plenty of studies out there giving answers to the question of what a college degree is worth. In fact, you can find just about any answer you like: Want to learn that a diploma will boost your lifetime earnings by about $700,000? The Census Bureau's American Community Survey has you covered. That putting money into a diploma returns more than twice what you'd get by putting it into the stock market? The Brookings Institution's Hamilton Project has done that calculation. That 40 percent of graduates' first jobs out of college don't even require a four-year degree? Hello, Rutgers Center for Workforce Development!

The basic principle, at least, is easy to calculate: Take the population of college graduates and compare their lifetime earnings to those of the sheepskin deprived. Convert to present dollars. Subtract the cost of a college diploma. Voilà! That's the added value of your four years spent toiling beneath ivory towers.

There are, however, several complications that make the calculus less certain. Because not everyone attends the same school or graduates with the same major, "average" earnings aren't going to mean much if you're weighing, say, a private liberal arts school versus community college. People who go to college are also, well, the kind of people who go to college, which leaves open the question of whether it's the degree producing those increased earnings or their own inherent braininess. And, of course, not everyone who starts college finishes—which as the Brookings study notes, can be a situation "resulting in educational costs but not leading to a degree."

The result is the blind-men-and-the-elephant mess that largely typifies college-earnings studies and massively confuses prospective students and their parents. As Sandy Baum, author of two studies of graduate earnings for the College Board, says: "People really like simple answers. And it's just not that simple."

After a review of the literature and some follow-up calls to those responsible, however, some conclusions are possible:

On average, most college graduates earn back enough to pay off their student expenses within a decade or so. Two studies by Baum found that graduates with a bachelor's and no further schooling—or as the earnings literature calls it a bit too on point, a "terminal bachelor's"—are on average able to repay their college tuition and loans, living expenses, and lost income from skipping four years of work by the time they turn 33. Private-college graduates spend more on their degrees, Baum says, but as they also have slightly higher earning power than their public-college counterparts, they still on the average earn back their college costs before age 40.

Brookings's Hamilton Project took the same numbers and crunched them differently, establishing the total cost of a college degree (including tuition, fees, board, and the lost income from spending four years lugging books for free instead of getting paid to sling French fries) at $102,000 and then estimating whether an 18-year-old would be better off spending that much on a college education or just buying stocks. Their conclusion: Investing in college results in an average return of 15.2 percent a year, "more than double the average return to stock market investments since 1950 and more than five times the returns to corporate bonds, gold, long-term government bonds, or home ownership. From any investment perspective, college is a great deal."

If everybody followed this advice, it might not be true anymore. "If you look at young college graduates, the wages they earn now are substantially below what it was in the year 2000," says Lawrence Mishel, director of the D.C.-based Economic Policy Institute, which has extensively studied relative earnings for differing educational levels. "If we flood the market with more college graduates, this trend will only be exacerbated."

This already happened once before, Mishel notes: In the 1970s, when young American men fleeing the draft emerged with degrees in unprecedented numbers, it led the "education premium" for increased earnings from a college degree to plunge by more than 20 percent.

"We now have a third of the people with a college degree or more. If in 2020, instead of 33 percent, we had 43 percent, do we think there would be jobs requiring a college degree for everybody who had a college degree? The answer would be no."

A college degree is more valuable to those who are on the bubble of getting in. "The return's not the same to everybody," Baum says, noting that people who are not currently going to college, if they enrolled, wouldn't likely end up the highest earners because they wouldn't be the top students. "But some studies show that they get the biggest benefit because they're really in bad shape if they don't go to college." In other words, if you were writing code in sixth grade like Mark Zuckerberg, dropping out of Harvard is likely a more viable career option than if you'll need that diploma to get through a recruiter's door.

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