Is a College Degree Really Worth the Cost?

Research on twins, salaries, and citizenship suggests that a college degree is a valuable asset.

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As the values of real estate, stocks, and bonds evaporate, people seem to be questioning whether investing time and money in a college degree is worthwhile. The answer, it turns out, is pretty clear: A wide variety of studies show that, on average, college pays off in financial and nonfinancial ways. But some college graduates—especially those who attend low-quality institutions or take worthless courses—will be below that average and might very well be wasting their time and money. Those who are lucky, smart, and diligent enough to attend high-quality colleges and earn in-demand degrees will be far more likely to reap big rewards.

This is controversial stuff. Our story summarizing research that shows that the average real net present value of a college degree is about $300,000 drew hundreds of comments. A new software program developed by computer whizzes and journalists at Ohio State University and the University of Delaware analyzed the nearly 700 comments and found that those who wrote were split nearly 50-50 over whether a degree was really valuable.

Is it the person and not the degree? Many of the doubters argued that successful people will be successful with or without a degree. College graduates typically only earn more because, on average, smarter people attend college, they said. Bill Gates and many other wealthy dropouts have shown that it's the person, and not the degree, that determines success, they said.

The "selection bias" of smarter people attending college certainly could inflate the average dollar value of the return somewhat. But several intriguing studies of identical twins indicate that education alone accounts for a significant part of the difference in workers' earnings. The twins research is crucial because it compares people of exactly the same ages and likely natural abilities who were raised in the same homes—eliminating most, if not all, selection bias. In the early 1990s, for example, two economists visited the annual twins festivals in Twinsburg, Ohio, and surveyed pairs of twins who happened to have different levels of education. They found that twins with more education generally earned much more than their genetic copies with less schooling. Economists around the world have done similar analyses of twins in their countries since then and found earnings premiums for better-educated twins around the world.

Where's my bonus? Many other doubters noted that they had degrees but felt they had wasted their money and time, in part because they were not earning anywhere near the $50,000 a year or so that the average bachelor's degree holder makes.

Of course, in the real world, few people are exactly average. Most are above or below. But research sheds some light on why some degrees don't seem to pay off: The sad truth is that not all colleges or degrees are equal. Lots of research shows that those who study math, sciences, or career-related courses generally end up earning more than those who focus on the humanities, for example. And generally, graduates of better-ranked and more-selective colleges do far better financially than others, even better than similarly qualified students who turn those colleges down to attend lower-ranked colleges. (Students sometimes do this if the lesser college offers a bigger scholarship, thus reducing their out-of-pocket costs.) One study found that it usually took no more than 10 years of work to recoup the full, painful cost of the very top schools, and higher earnings after that made the choice profitable. But the study also found that there sometimes wasn't much difference in payoff between middle- and lower-tiered schools. So, students who don't have a shot at first- or second-tier colleges might be better off if they choose their cheapest options.

The reasons for the payoff from the top schools might surprise you. It's not just that students make good connections with other smart people and get to put an impressive name on their résumés. One study showed that they tend to work longer hours on their jobs after they graduate. Perhaps the competition of being surrounded by top students trains people to work harder. So, they earn more because they work more.

Of course, every college argues that it is high quality. Students choosing among colleges can gauge quality by checking with the federally approved accrediting agencies, rankings like ours, or schools' scores on the National Survey of Student Engagement, the Collegiate Learning Assessment, or similar tests.

Can that math be right? Many commenters questioned the math behind the $300,000 figure. Several argued, for example, that the $30,000 subtraction for tuition and fees was too small. That may sound small, but it's a reasonable estimate. It's not fair to subtract out living costs like room and board, because workers and students alike have to pay those costs. As for tuition, almost half of college students attend community colleges where the annual average sticker tuition price is about $2,400. The average in-state tuition at public universities is about $6,600 this year, but the average net price students pay, after tax breaks and financial aid, is less than $3,000. Add another $1,000 or so for books and supplies, and the typical cost is more like $4,000 a year.

Naturally, the costs tend to be higher at private schools, where tuition averages more than $25,000 a year. But fewer than one quarter of undergraduates attend private schools. And even subtracting $120,000 from the return still leaves a hefty profit.

In fact, some could argue the $300,000 value is too low, because it doesn't account for the tendency for people with degrees to get jobs with better benefits, such as health insurance. And that's worth big bucks these days.

It isn't about the money! Finally, many, many defenders of college argued that education is valuable because it opens and raises minds. No argument here! And, in fact, research shows that college graduates are typically all-around better citizens.

So, even if you don't happen to need a degree to get a good paycheck or to think big thoughts, your life will be better if lots of people around you graduate.

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