Is College Still a Good Investment?

In 2014, NY Times journalist David Leonhardt published a column with the provocative title: “Is College Worth It?” Despite the mounting debts incurred by many students to obtain a post-secondary education, “The decision not to attend college for fear that it’s a bad deal is among the most economically irrational decisions anybody could make in 2014. The much-discussed cost of college doesn’t change this fact.” According to a recent paper, said Leonhardt, “Over the long run, college is cheaper than free. Not going to college will cost you about half a million dollars.”

But, over the past few years, an increasing number of articles have questioned whether college is still a good investment. “Was your degree really worth it?,” is one such article, published earlier this year in The Economist. “That question once seemed a no-brainer,” said the article. “For decades young adults in rich countries have flocked to higher education. Governments have touted college as a boon for social mobility and economic growth. Yet as fees rise and graduate earnings stagnate, disillusionment is growing.”

The Economist cited a recent poll published in the Wall Street Journal (WSJ) that found that a majority of Americans, 56%, think that a four-year degree is no longer worth the time and money, a marked reversal from the 53% of Americans who were bullish on college just a decade ago.

“Skepticism is strongest among people ages 18-34, and people with college degrees are among those whose opinions have soured the most, portending a profound shift for higher education in the years ahead,” wrote the WSJ. “Enrollment in U.S. colleges declined by about 15% over the last decade while the growth in alternative credentials, including apprenticeships, increased sharply. In 2017, doubt over the value of a college degree was greatest among men, Republicans and people living in rural areas. That disaffection preceded a widening gender gap in higher education as hundreds of thousands of men left college during the pandemic.”

The climbing costs of a college education is a major factor in these recent changing attitudes. In “The Costs of College Continue to Climb,” the first of two articles published in June of 2019, NY Federal Reserve economists Jason Abel and Richard Deitz noted that the net price of college, — the  average price of tuition minus financial aid, — has increased from around $2,300 in the 1970s to about $8,000 in the late 2010s. “Thus, if a student completed a bachelor’s degree in four years, he or she could expect to pay an average of roughly $32,000 out of pocket.”

However, out of pocket expenses are only a small part of the cost of college once opportunity costs are considered. “Attending college on a full-time basis typically requires delaying entry into the labor market and forgoing wages that would be available to those with a high school education. … “Someone pursuing a bachelor’s degree could expect to forgo more than $120,000 in wages — almost four times net tuition costs.”

But, in their second article, Able and Deitz argued that “Despite Rising Costs, College Is Still a Good Investment.” “In recent years, the average college graduate with just a bachelor’s degree earned about $78,000, compared to $45,000 for the average worker with only a high school diploma. This means a typical college graduate earns a premium of well over $30,000, or nearly 75 percent. … Notably, while the strong labor market has boosted the wages of those with a high school diploma in recent years, the wages of college graduates have gone up by as much or more, keeping the college wage premium near an all-time high.”

“We find that the average rate of return for a bachelor’s degree has edged down slightly in recent years due to rising costs, but remains high at around 14 percent, easily surpassing the threshold for a good investment,” they added. “Thus, while the rising cost of college appears to have eroded the value of a bachelor’s degree somewhat, college remains a good investment for most people.”

The US Bureau of Labor Statistics (BLS) agrees with this assessment. Every year, the BLS publishes its analysis of whether education still pays. “Education pays, 2022,” its last analysis released in May of 2023, once more showed that “workers’ earnings increase as educational attainment rises.”

The latest BLS data shows that in 2022, the median earnings for workers age 25 and over without a high school diploma was $682 per week; for workers whose highest level of education was a high school diploma: $853 per week; some college, no degree: $935; associate’s degree: $1,005; bachelor’s degree: $1,432; master’s degree: $1,661; professional degree: $2,080 perweek; and doctoral degree $2,083 per week.

But, as The Economist points out, aggregate surveys of large populations hide a very wide range of outcomes, — in particular, which institutions of higher education and which degrees give students the best economic returns. Recently, some think tanks have released anonymized data bases showing actual earning for millions of university students, making it easier to compare the economic returns of different institutions and degree programs. The disaggregated data reveal that a high share of students graduate with degrees from institutions that aren’t worth their cost.

In April of 2020, Third Way, a public policy think tank, published a report that introduced the Price-to-Earnings Premium (PEP), a new approach for estimating the economic return of an education based on the amount of time it generally takes a student to recoup the cost of obtaining a credential at a particular school.

For each school, the PEP is calculated by looking at the net price that the average student pays out-of-pocket, — beyond scholarships, grants, or other financial assistance from the school or other sources, — relative to the additional yearly earnings beyond what a typical high school graduate would earn.

The PEP is based on the College Scorecard data from the US Department of Education. The College Scorecard includes institution-level data files for 1996-97 through 2020-21 containing aggregate data for 3,218 institutions, of which 44% (1427) granted four-year bachelor degrees, 26% (846) granted two-year associate-degrees, and 29% (945) granted one-year certificates. 48% (1,563) of the institutions were public, 31% (984) were private, and 21% (671) for-profit.

Let me summarize some of the Third Way findings.

Overall, 63% of students recouped their costs within 5 years of getting their credentials, — 86% from public institutions, 54% from private institutions, and 24% from for-profit ones; and almost 80% recouped their costs after 10 years, — 94% from public institutions, 86% from private, and 36% for-profit. But 14% (442) showed no ROI whatsoever, - meaning that students will likely never recoup the investments in their education.

More specifically, 66% of students attending bachelor degree-granting institutions recouped their costs within 5 years while 92% did so within 10 years; 77% of students attending associate degree-granting institutions  recouped their investment within 5 years while 87% did so within 10 years; and 47% of students attending certificate-granting institutions recouped their costs within 5 years while 53% did so within 10 years.

In August of 2021, Third Way published a follow-up report that applied its Price-to-Earnings Premium (PEP) methodology to the economic return of an education based on a student’s field of study, e.g., engineering, nursing, performing arts. This second report analyzed the College Scorecard’s field of study data files from over 38,000 programs that graduated more than 2.2 million students at many institutions across the country.

Overall, students in 46% of the programs earned enough after graduation to recoup their costs within 5 years, and students in 64% of the programs recouped their costs within 10 years. But, 16% of programs failed to show any ROI whatsoever, meaning that over 350,000 students paid tuition and graduated from these programs but saw little to no financial premium. About two-thirds of the programs (25,691) were aimed at bachelor degree students, 20% (7,882) were aimed at associate degree students, and 12% (4524) were certificate granting programs. A lot more details can be found in the two Third Way reports.

“What you study generally matters more than where you do it,” said The Economist. “That comes with caveats: the worst colleges and universities provide students with little value, whatever they teach. But on average people who enroll in America’s public universities get a better return over their lifetimes than students who go to its more prestigious private non-profit ones,” primarily due to the high fees of the prestigious private schools.

“Already there are signs that the higher-education market is evolving. People are already searching out better returns of their own accord at different educational stages. In America the number of degrees conferred annually in English and in history fell by around one-third between 2011 and 2021. The number of degrees in computer science more than doubled in that time. Others are skipping college altogether. The number of people enrolling has fallen every year since 2011.”

“To many, a growing focus on the financial returns to higher education is crude,” wrote The Economist in conclusion. “Graduates in public service are bound to earn less than those on Wall Street. Many disciplines are worth studying for their own sake. Yet students frequently tell pollsters that improving their earning power is a priority. Good returns are vital to the poorest learners, for whom the financial burden of degrees is highest. Today bad degrees are surprisingly common. A combination of better information, market forces and smarter policy can reduce their prevalence.”

Comments

[Howard Richmond]

Most colleges have diluted The rigorózus of The ír curriculum whichnaccounts. In Soma part for The diminshed vált-e of a degree.

[Irving Wladawsky-Berger]

Point cleverly made!!