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Is college still worth it?

from John Schmitt

Catherine Rampell had a post last week declaring that “College is (Still) Worth It“. The piece is the latest in a series that she and her Economix blog colleague, David Leonhardt, have written on the financial benefits of college.

I agree with Rampell and Leonhardt that college is, on average, a good investment for the people who make it. But, Rampell and Leonhardt’s posts completely sidestep the key issue: why is it that when confronted with compelling evidence that college pays a big financial dividend, so many young people still don’t get a college degree?

Heather Boushey and I argue that the short answer  is that for a surprising share of college graduates, the large price tag may actually not pay off.

Rampell’s latest installment includes this nice graph of weekly earnings by worker characteristics, including educational attainment on the right-hand side:

Weekly earnings by worker characteristics.Source: New York Times, Bureau of Labor Statistics

For Rampell, the figure makes a slam-dunk case for the financial benefits of graduating from college. Here is her take on what the graph shows:

The median weekly earnings for college graduates are $1,043. Not bad, especially when you consider that the median weekly earnings for a high school graduate are $643.

What’s more impressive, though, is that even the economic underachievers among college graduates earn more than the typical high school grad: A college graduate at the 25th percentile makes $730 per week, which is still 13.5 percent more than the median high school grad.

But, other ways to read this graph can lead to a different conclusion. The figure also shows, for example, that something approaching half of college graduates (the figure doesn’t allow for too much precision) make less than the top 25 percent of high school graduates. And somewhere approaching half of high school graduates make more than the bottom 25 percent of college graduates.

In other words, after shelling out for four years of tuition, not to mention enduring four or more years of low or no earnings, perhaps 40 percent of college-educated workers make less than the top 25 percent of high school graduates.

This alternative reading of the figure helps to explain why many young people have not responded so enthusiastically to the “market signals” about college. On average, college pays off, but for a sizeable minority of college graduates, the arithmetic is not so convincing.

Imagine that you are a recent high school graduate deciding whether to enroll in college. You know that, on average, you will earn more with a college degree, but you probably have also observed that some college graduates don’t fare so well. As a prospective college student, you have to ask yourself, am I likely to be above average, average, or below average? The answer to that question will depend on a variety of factors, such as your grades in high school, whether you will have to work while studying, or whether you have family responsibilities. And you’ll be making that decision in a context where you will almost certainly be asked to take on a hefty amount of debt in order to make college possible.

If you conclude that you might fall in the “below average” category, the graph in Rampell’s piece suggests that you might be better off skipping college, and saving yourself the direct and indirect costs, including student loans, which you’ll be responsible for paying off even if you don’t finish. (More than 40 percent of college enrollees do not finish within six years of starting.)

I’m not saying that blowing off college is the “right” thing to do. I am just saying that it is understandable that many young people would decide against seeking a college degree. Moreover, in a strictly financial sense, for a portion of college graduates, the decision to attend college may well have been the wrong one. (Of course, there are many non-financial reasons to attend college.)

Recent high school graduates already know that college graduates generally earn more than high school graduates. But, they also know that college is expensive, involves taking out loans, postponing earnings, maintaining a grade-point average, and making personal sacrifices. Recent high school graduates need help surmounting these very concrete barriers, not more information about how much better off they’ll be if they can only finish college.

  1. john mcdonald
    August 13, 2011 at 3:44 pm

    One simple, but important comment. College degrees are not only about “how to make a living” but also about “how to live.” And while I am at it I will add another cliche, “the best things in life are not things.”

  2. Podargus
    August 13, 2011 at 7:34 pm

    Well,john mcdonald,if college degrees purport to teach people how to live the system has failed at that too.The evidence for this seems to be obvious just from reading the main stream media let alone more profound publications.

    I guess the vast majority of the financial services class are college educated, just to give one example.The widespread belief among the “educated” classes as a whole that we can continue business as usual is another

    It seems to me that these days a university education,in the majority of faculties,is just a glorified and expensive trade school.The days of a generalist,truly liberal education seem to have been over for some time.The students are not taught how to think rationally.They are taught how to get a ticket to a casino,maybe.

  3. Lucy Honeychurch
    August 14, 2011 at 8:49 pm

    If you live in a wealthy suburb, you’re better-off skipping college, to work for Town, and get a pension. You’ll end-up much more secure, happier, and much more well connected to your community and family, than a college graduate.

    You can work in the town for 35 years, and net/net earn a stable retirement income anywhere from $65-200K/yr. Or you can work in Corporate America for 35 years and live off $30-75K in 401K proceeds, depending on the stock market.

    You may not experience the joys of Macro 101, Biology 101, taking a crack at Calculus, or musing over political philosophy – but I’ll skip all, that for NOT having to agonize over the question of ‘how to live’ for the rest of my life.

  4. becca
    August 16, 2011 at 2:36 am

    I think college degrees, by teaching us “some things are worth going in to debt for” teach us how to sell out and go with the status quo. I mean really. Did you see “Thank you for smoking?” The Yuppie Nuremberg defense (‘hey, I gotta keep my job, even if it consists of advertizing poison to children. I’ve got a mortgage!’).
    And Lucy Honeychurch- that works well until your town defaults and can only pay 1/2 of your pension. Which, by the by, is 29,000 a year (before that 1/2 off), not 65,000. Also, because you were a government employee, they saved money so you’re not eligible for social security. There is no sure bet in life anymore, in college or out of it.

  5. Lucy Honeychurch
    August 16, 2011 at 6:38 pm

    … all I can tell you is the local Chief of Police in my town will be retiring with $200K/yr. for life. And that’s not limited to the top brass. Dog Catcher retring with $125K/yr. for life. Head of Parks & Rec. guaranteed retirement income? $150K/yr. Town Maintenance worker, started with the Town at 16 years of age, can retire at 40 with $70K/yr. retirement pension.

    Work for Citigroup/IBM for 35 years, you MAY (if you’re lucky) retire w/$65K/yr. income.

    Much of Corporate America has renegged on their pensions, but not a single Town in my County has – they’re running surpluses.

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