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.

Majors matter. “What’s It Worth? The Economic Value of College Majors,” a 2011 study by Georgetown University’s Center on Education and the Workforce, noted that the average graduate with a petroleum-engineering degree earns four times as much as the average counseling psychology major. Of the 10 most popular majors, computer science tops the earnings list with a $75,000 median salary; at the bottom is elementary education, at $40,000.

“When you sign up for your major, they ought to give you a little pamphlet that tells you what happened to people over in that major. I think that given the price of these things, you ought to get a prospectus when you buy in,” says Anthony Carnevale, the Georgetown study’s lead author. “But most young people go to college in order to graduate. They do what interests them—they don’t think at all about how it relates to a career.”

What school you go to matters, but only sometimes. “The selective schools are the best places to get a liberal arts degree, and the best places to go if you want to get a graduate degree,” Carnevale says. “If you go to Harvard to become a schoolteacher, you won’t make any more than someone who went to UDC in Washington.” The main advantage of going to an expensive, selective, high-ranking school, say researchers: You have a much higher chance of graduating in four years, though whether that’s a function of how great the schools are or of how great you are for being accepted there is an open question.

Past returns are no guarantee of future performance. According to EPI’s figures, which control for age, gender, and race, the value of a college diploma versus a high school certificate rose steadily through the ’80s and ’90s—but since then, Mishel says, “It’s grown bupkes.”

That’s overstating things just a bit, as the education premium actually inched upwards by a percentage point or two from 2001 to 2011, per EPI’s numbers. Still, even these modest gains are less because the average college graduate is making tons of money—their earnings actually fell over that decade—than because the earning power of high school graduates has been declining for decades, especially for men. Which leads us to . . .

If college is no sure thing, not going to college is even worse. Just about all the studies agree on one thing: No matter how dicey things look for college graduates, things are so dismal right now for people with only high school diplomas, you better get into whatever lifeboat you can, even if it leaves you $100,000 in debt.

“The underbelly of all of this,” says Hamilton Project director Michael Greenstone, “is this differential between college and no college is a function of two things: One is the level of how much you get paid for going to college. But it’s also a function of what you get paid for only having a high school credential.” And that has plummeted, especially for men: According to figures compiled by Brookings, while the inflation-adjusted median earnings of full-time male workers with college degrees dipped 2 percent from 1969 to 2009, for those with high school diplomas, it sunk 26 percent.

The culprit is easy to pinpoint: As manufacturing jobs have fled overseas, the few low-skill jobs that remain in the U.S. increasingly sport developing-nation wages. “The decline in earnings for people with less than college in real terms is really astonishing over the last 30 or 40 years,” Greenstone says. “It’s just very challenging to have a middle-class lifestyle without having a college degree or more.”

It certainly puts those inevitable tales of overeducated baristas in a different light when you consider all the undereducated baristas who are now stuck in the unemployment lines. If you graduate from college today, Baum acknowledges, “you might work at Starbucks for a year or two until the economy recovers.” But even if recent college graduates are facing crappier work prospects than their older siblings, she predicts, “they’re going to be fine in 10 years. Whereas the people who just graduated high school? They’re not going to be so fine.”