Is a College Degree Worth Anything?

One of my favorite questions, the monetary value of a college degree, is back in the buzz. Last week the Wall Street Journal ran an article asking What’s a Degree Really Worth, with the alternate title "Earnings Gap Between College and High School Grads Small."

It seems that for some number of years the College Board, the lobbyingGrads Kit group  for colleges, had been citing $800,000 as the difference between lifetime earnings of college and high school graduates. They got that number by taking the difference in average annual salary for high school and college grads as measured by the Census Bureau (about $20K) and multiplying that by a lifetime of work. (Which apparently is 40 years. I would have guessed higher.)

It is a very crude calculation, but then I am not sure that the College Board ever claimed otherwise. According to the WSJ, until December their website did say that

Over a lifetime, the gap in earning potential between a high-school diploma and a bachelor of arts is more than $800,000. In other words, whatever sacrifices you and your child make for [a] college education in the short term are more than repaid in the long term.

That may oversell the value of a degree, but it is not, I don’t think, actually deceptive. $800K is a perfectly fair estimate for the lifetime total earnings difference, just like they say.

However, for somebody who wants to know if going to college is a sound investment, which is the underlying premise here, $800K is the correct answer to the wrong question. What a person in that position really needs to know is  the net present value of a college degree. The degree will result, presumably, in an increased income over the decades. If we imagine that increased income in the form of 45 annual payments, what is the value of that annuity today? Is that more or less than you have to pay for it?

The WSJ cites research by Mark Schneider, who was Commissioner of Education Statistics at the U.S. Department of Education under the previous administration. Last year he wrote a paper working out the actual net present value of a college degree, discounting the future pay differentials back into today’s dollars and netting out tuition, although not the income lost from not working during the college years. (It’s a good paper worth reading, available at if you sign up for a free account.)

The number Schneider gets for the net present value of college is $279,893. The WSJ article implies that the difference between this value and $800K is revelatory and weaves it into a narrative of how the College Board was hounded into removing the $800K figure from its website.

But for the same reasons that $800K answers the wrong question, comparing it to $280K is apples to oranges. If nothing else, the $280K is net of costs, that is, it is the profit from college, rather than the gross revenue number that the $800K approximates. In principle, college would still be a good deal if Schneider had come up with $1 as his number.

Moreover, all this misses an important larger point. Saying that college grads make more than high school grads is not the same as saying that college grads make more because they went to college. All these calculations beg the question of how much of the relationship between college and income is cause and effect and how much is mere correlation.

It could be, for example, that teenagers who are bright, hard-working, and ambitious tend to go to college. And then later in life they make more money because they are bright, hard-working, and ambitious adults. I am not saying that this is the whole story, but you’ve got to admit it qualifies as plausible.

From the point of view of a hypothetical 17-year-old considering the to college or not to college question, $280K is not the right number. What the teenager needs to know is not the net present value of the difference between average college and high school earnings but the net present value of his own expected earnings if he does or does not go to college. I do not know how to find that number, but it is fairly clear it is meaningfully less than $280K.

Of course, it could be argued that even meaningfully lower is probably still positive, and by definition if it is positive then college is a profitable investment. That is a valid argument for some teenagers thinking about some colleges, but not for all of them.

The Schneider paper calculates net present value numbers for different types of college. At the top of the heap were "nonprofit most selective" colleges, a.k.a. Ivies, which, despite astronomical tuition, had an average net present value of $500K. At the other end were the nonprofit minimally selective and nonprofit open enrollment colleges, with net present values around $170K. (Public open enrollment colleges did much better, presumably because of lower tuition.)

Discount that $170K because of the cause and effect vs. correlation problem, and factor in four years of lost wages while attending college, and it is quite reasonable to conclude that for the colleges at the bottom end of the prestige spectrum, particularly the private ones that charge high tuition, the degree is not worth it after all.

[Photo: Kit]


  • By Kosmo @ The Casual Observer, February 9, 2010 @ 1:10 pm

    Plus there’s the fact that your job might suck less. If I could choose my current job or a job of stable mucker, and the jobs paid the same, I’d pick my current job, since it involved a desk and good working conditions.

  • By Adam, February 9, 2010 @ 1:23 pm

    One thought, I think for a lot of bright and hard working kids, they will hit an earnings cap working for someone else if they do not have a degree (or two). There are people at my office that will never be officers of the company because they don’t have college degrees or designations and refuse to get them, even if the company pays. They are great at their jobs, but they can’t be promoted due to perhaps silly rules that require a certain pedegree before one can reach senior executive status.

    However, if they are really bright, they could become business owners and start their own companies, and blow that cap out of the water without any collge at all. So maybe that’s a net null…

  • By jim, February 9, 2010 @ 2:45 pm

    On average a college degree has value. But the average doesn’t give us much useful detail. I think a bigger factor is what you get your degree in.

    Individually we’re all different and it may or may not make sense for an individual to go to college. A smart entrepreneurial person might be better off starting a business. A smart person interested in medicine would likely be best going to college to become a nurse or doctor.

    I do think that too many young people are going to college just cuase they’ve been told its important and pushed into it even though they have no desire and lack aptitude to succed in college. 40% of college students don’t get a degree within 6 years. Thats not good.

  • By TJR, February 9, 2010 @ 2:56 pm

    Not every person can do every job. I am pretty successful at my current “brains” job, but I’d be a dismal failure at unskilled labor. (I’ve tried it for a month.) That difference makes my college degree even more valueable to me than statistics predict.

  • By Mt, February 9, 2010 @ 4:27 pm

    I agree with Kosmo – there is reason found in the fact that the degree gets you out of the weather and into a better milieu.

    The fair comparison would be college graduates versus accepted college applicants who declined the invitation to attend.

    Colleges administer most exams with paper and pencil, and conduct most courses by lectures. The world has changed completely, and colleges have mostly not. Both the institution and many people within them are ignorant dinosaurs. Why does anyone expect value anymore?

  • By Kelly, February 10, 2010 @ 12:14 am

    College grads also have a significantly lower unemployment rate than high school grads. I suspect that the average salary figures don’t take this into account.

  • By Stephen, February 10, 2010 @ 12:52 am

    I joined the Navy right after high school, and worked in IT immediately after. I make extremely good money without a college degree. I’m 26.

    At this point, going back to school would have a *negative* effect on my career. I’d lose 4 years of experience in the constantly changing IT field, and not gain a whole lot of knowledge since i learned most of it outside the classroom. Thankfully, IT is a field where sensible companies value experience and knowledge over a piece of paper.

  • By Hibryd, February 10, 2010 @ 3:09 am

    As Adam pointed out, a lot of larger companies have blanket requirements for college degrees. Hell, I’ve seen “college degree” as a requirement for a receptionist position. My husband works for a very large corporation, and while his department *can* hire people who haven’t gone to college, it takes a LOT of extra reviews and paperwork to make it happen.

    Equal blame lies at the feet of HR departments who think that a degree, *any* degree, even if it’s in something totally unrelated, makes for a better candidate.

  • By Kosmo @ The Casual Observer, February 10, 2010 @ 8:31 am

    “Equal blame lies at the feet of HR departments who think that a degree, *any* degree, even if it’s in something totally unrelated, makes for a better candidate.”

    In their defense, it does prove that you have the ability to achieve a relatively long term goal, typically without constant guidance.

    I see some value in that – more than the value in the actual academic knowledge.

  • By Atticus, February 10, 2010 @ 2:35 pm

    Not to mention that college grads are a lot more likely to be employed, particularly today. From what I’ve read unemployment currently skews drastically higher for the less educated.

  • By Hibryd, February 10, 2010 @ 4:34 pm

    Kosmo – “In their defense, it does prove that you have the ability to achieve a relatively long term goal, typically without constant guidance.”

    Not all degree programs are challenging. Probably the hardest part of your average 4-year degree is being able to pay for it – not just the tuition but being able to forego around 4 years of your life working full-time. Someone who built a career for themselves in those four years would have shown more determination and discipline than the frat boy who had mommy and daddy pay for High School Part 2: Now with More Parties!

  • By Kosmo @ The Casual Observer, February 10, 2010 @ 5:20 pm

    Kosmo – “In their defense, it does prove that you have the ability to achieve a relatively long term goal, typically without constant guidance.”

    Not all degree programs are challenging.

    * * *

    Well, the HR folk are also aware of the fact that a General Studies degree from PartyTown U isn’t as rigorous as an engineering degree from MIT, and take this into account.

    I definitely agree that it’s possible to demonstrate substantial determination and discpline in a route that forgoes college.

  • By Hibryd, February 10, 2010 @ 7:46 pm

    Yes, but my point is that having a college degree does not automatically mean that you’re smarter or more determined or a better candidate than those that don’t. Thus the companies that require their receptionist to have a bachelor’s (even if it’s in philosophy) are adding to the problem.

    Again, look at Adam’s example. If HR departments had their heads in the real world enough to realize that MIT degree > Party U degree, then they’d also realize that Real World Experience > Party U degree, and would promote accordingly. But they don’t. They live in a land where college degrees are some kind of iron-clad indicator and make their rules accordingly.

  • By Kosmo @ The Casual Observer, February 11, 2010 @ 10:43 am

    Right, I get that. But it does provide an easily verifiable achievement.

    Have an engineering degree from MIT with a 3.8 GPA? I can verify that pretty easily.

    Real world experience is a bit harder to verify and quantify. It can be done, of course, it’s just harder – particularly if you get into situations where there is potential for bias (your experience is in a family business and your dad was your boss, for example).

    I’m not saying that it is RIGHT to base hiring decision on this, just that this is a big reason.

    Basing promotions on whether or not you have a degree is a bad practice. Once you’re in the job and performing, your experience from 5, 10, 15 years ago isn’t particularly relevant.

  • By Monevator, February 12, 2010 @ 1:37 pm

    Here in the UK the government decided it would be great for the nation to get 50% of people into university. They never achieved their aim, but they did massively increase the university intake.

    Great, right? Of course not. What happened was lots of less capable people did degrees that don’t add any real value to their lives beyond letting them grow up a bit more away from heavy machinery and chainsaws.

    Worse, to fund this massive intake, it had to introduce the sort of fees you have in the US. (20 years ago University was free in the UK – you even got a grant to pay for education).

    Net result is it costs far more for bright people who do courses where the university education is a benefit to society (e.g. science) to go to university, with the result that poorer bright people increasingly don’t bother.

    Great result. Not!

  • By Brian, February 26, 2010 @ 8:28 pm

    One who obtains a college degree gains more than just a certificate of qualification for a particular line of work or income expectation. The intellectual exercise (if taken seriously) cannot be measured by or reduced to monetary value alone. I realize that the income expectation of a college degree is the whole point of the discussion, but perhaps some of the figures flying around need to be adjusted for the overall intelligence that may be nourished and developed during the serious attendance of college. After all, I think most would agree that people who make very serious money (excluding some sports celebrities) tend to also be very intelligent in a number of different categories or measures of intelligence.

  • By Carolyn, April 7, 2010 @ 9:19 pm

    The problem lies in people attending college with the goal of a obtaining good job and employers using it as a credentialing device, not for becoming educated.

    Four or more years of expensive courses is not necessary for most jobs. Job training, along with good writing and quantitative skills are necessary. And why isn’t physical labor valued more as it should be? We just don’t value the dignity of work. My favorite jobs were a summer job of picking up garbage and later, a job in food preparation.

    If you want to learn more about a subject, go ahead and attend college. But you could also read extensively, attend the theater and symphony, etc. to be liberally educated.

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