College Does Pay Off, but It’s No Free Ride
The swelling ranks of unemployed young college graduates are left with a diploma, stacks of student-loan bills and lingering questions about just how much that degree is worth. A million dollars? Sorry, say economists, but that widely reported figure significantly overstates the boost a bachelor’s degree gives to earnings over a career. The estimate isn’t baseless, but it doesn’t account for the cost of college, nor the opportunity cost of forgoing income during school. Another complication: Even before stepping foot on campus, students who attend college generally have better earnings prospects than their high-school classmates who go straight to work. So any estimate of college’s monetary value needs to separate out those factors. There is good news, though, for the ivory tower. College does pay off for most, and just completing a year or two boosts future income.
In addition, prospective students who are on the fence about college are the most likely to benefit, according to several studies. Underpinning these conclusions are studies spanning decades, a rich but imperfect set of research that attempts to disentangle the effect of attending college from everything else that separates those who enroll from those who don’t. No study has done this perfectly, but most have found consistent results: Each year of college adds around 6% to 10% to annual income. “In the end, the world runs on fuzzy measures,” says Anthony Carnevale, director of the Georgetown University Center on Education and the Workforce. Mr. Carnevale’s Georgetown center, as well as the U.S. Census Bureau, have produced estimates of the lifetime earnings advantage for college graduates. Both groups use census data to build what researchers call a synthetic working life for typical Americans at each level of education. They assume that a typical student graduating from college now will, at each age, earn as much as the typical college graduate does at that age today. From that, researchers can estimate how much more someone who stops at a bachelor’s degree will make than someone with just a high-school diploma: about $1 million, among those in each group who will work full-time from age 25 to age 64.
But they don’t account for tuition—and student-loan interest—nor lost wages. They also don’t discount future earnings, which are worth less than money earned today. The chief flaw, though, lies in assuming that the only difference between college graduates and high-school graduates who don’t attend college is the additional diploma. Compared with their high-school classmates who don’t continue their studies, college-bound students have higher family income, higher high-school grades and better standardized-test scores. Some researchers think they may also differ, on average, in ways that are difficult to measure, such as motivation. Those factors increase earning potential, independent of a college degree.