Is College Worth the Money?

In a Brookings policy brief Isabel Sawhill says that for the past few decades, it has been widely argued that a college degree is a prerequisite to entering the middle class in the United States. Everyone assumes that, on average, college graduates earn significantly more money over their lifetimes than those with only a high school education. Brookings’ Hamilton project has estimated that the average bachelor’s degree holder makes $570,000 more over a lifetime than the average high school graduate. What gets much less attention is that the college premium varies widely by the choices students make.

For example, the value of a bachelor’s degree depends heavily on choice of major and later occupation. No surprise here: the highest paid major is engineering. If on the other hand you studied education (but didn’t go on to get a master’s degree), you can only expect to make half of what those engineering majors do.

Not everyone ends up working in the field they studied in college, so it’s also useful to look at earnings by occupation. The highest-earning occupation category is architecture and engineering, with computers, math, and management in second place. The lowest-earning occupation for college graduates is service.

Of course, plenty of people choose to study art or become teachers because they derive intrinsic value from those fields that can’t be measured by a paycheck. Personal preferences and noneconomic benefits are important, too. Few among us would want to live in a world with all programmers and no artists, or all investment bankers and no philanthropists.

But getting into college and choosing a school is only the beginning, Sawhill observes. College isn’t worth much unless you graduate. Part of what sets certain schools apart is how many of their incoming students actually come out with a degree.

Notice that there is a wide range of completion rates within each school selectivity category, particularly for the less selective colleges. Not every student can get into Harvard, where the likelihood of graduating is 97 percent, but students can choose to attend a school with a better track record within their ability level.

Writing in The Wall Street Journal recently, Jack Hough observed that when sizing up a college degree it pays to think like an investor. He says that the College Board, a not-for-profit association, calculated in a 2010 report (based on 2008 data) that a typical student who enters a four-year college at age 18 and borrows his way through earns enough by age 33 to make up for his costs, including foregone wages and loan interest.

If a bond paid for itself that quickly, the return would be between 5% and 6% a year. That’s a handsome payoff; stocks have historically returned around 7% a year after inflation. And it says nothing of college’s other benefits, such as enlightenment, fun and higher job satisfaction.

Hough adds two big caveats: The College Board math assumes everyone goes to a public college. Those usually cost less than private ones—often a lot less—and that skews returns higher. The report also doesn’t account for dropouts or extra college years. Only 56% of students who enroll in a four-year college earn a bachelor’s degree within six years, according to a report last year by the Harvard Graduate School of Education.

PayScale, a Seattle data firm, examines the links between pay and variables like colleges and majors. Its analysis, which also ignores dropouts but accounts for students who take longer to complete their degrees, finds an average yearly return of 4.4% for degrees from 853 schools. That assumes students get financial aid, as most do.

Returns vary sharply; they are negative for more than 100 schools and over 11% a year for ones like Harvey Mudd College in California, the Georgia Institute of Technology and the University of Virginia. Dartmouth, Harvard, Stanford and Princeton are over 10%, but so is Queens College in New York—where state residents pay just over $5,000 a year in tuition, versus about $41,000 for Stanford.

The worst returns tend to come from schools whose programs focus on nursing, criminal justice, sociology and education, says Katie Bardaro, an analyst at PayScale. The best returns are often from schools with strong engineering, computer science, economics and natural-science programs.



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