Education Pays, but How Much?

September 21, 2010

Higher education has a public-relations problem. Family incomes are stagnant, but tuition keeps going up. Many students who begin college don't graduate. Even among those who do, students who borrow are finishing with greater and greater average debt burdens. And then they're walking into a tough job market. So what is a college degree really worth?

The answer to that question is clearly important for higher education. But trying to find it isn't easy and brings a fair bit of controversy.

On Tuesday, the College Board released its latest installment of "Education Pays,"  a report that showcases the financial and nonfinancial payoffs of earning that degree. In the introduction, the report's authors make clear that they know the fray they're stepping into: "Too often, colorful anecdotes about individuals who have had unfortunate experiences capture the spotlight and lead to inaccurate generalizations about the dangers of making this major life investment," they write.

The last iteration of the report, released in 2007, was publicly criticized by Charles Miller, the former chairman of the federal Commission on the Future of Higher Education, who wrote a response letter taking issue with the report's methodology, which he said overinflated the value of a degree.

The College Board is a membership organization representing colleges, and its mission is "to connect students to college success and opportunity." As Richard Vedder, director of the Center for College Affordability and Productivity, puts it, "the College Board is not in the business of turning people away from college."

Despite that mission, Sandy Baum, an independent analyst for the College Board and one of the report's authors, says that "Education Pays" is about data, not advocacy. "This report per se is presenting evidence," says Ms. Baum, who also writes for The Chronicle on its Innovations blog. "We're not telling anyone to do anything."

And she wonders a bit about the criticism surrounding the report's finding that college graduates fare much better than nongraduates. "When people talk about 'well, maybe people shouldn't go to college,'" she says, "ask the people if their kids go to college."

Even Mr. Miller, who says the report greatly overstates the benefit of a degree, doesn't take that to mean people shouldn't go to college. Instead, he sees that as evidence that higher education's financial system is broken.

The report's findings will be no great surprise to anyone who has read the previous installments. Education, it finds, does pay.

Over the course of a 40-year career, the average college graduate earns about 66 percent more than the typical high-school graduate, and those with advanced degrees earn two to three times as much as a high-school graduate, according to the report.

Unlike previous reports, this time around the College Board did not include a dollar figure to show how much money college graduates earn over a lifetime compared with nongraduates. The 2007 report said that college graduates earn up to $800,000 more over a career than nongraduates, a figure that climbs to $1-million with the inclusion of advanced-degree holders. When taking into consideration that some of those earnings are in the future, the bachelor's-degree holder earns an additional $450,000 in today's dollars, or $570,000 when including advanced-degree holders. Those figures were taken out of context, Ms. Baum says, which is why no equivalent numbers were used this time around.

The Value Debate

"The point is, yes, you make more going to college. There's no question about it," says Mr. Vedder, who is a professor of economics at Ohio University and also writes for Innovations. The question is whether the report adequately accounts for those who do not graduate, he says.

The report does show the expected lifetime earnings of students who begin college but do not complete an associate or bachelor's degree, finding that they earn more than high-school graduates but less than degree holders.

"There is evidence that there is a payoff to every year of education," Ms. Baum says. "On average, every year of education does pay off. Every year pays off more than the year before." But those are averages, she adds—that doesn't make taking on $30,000 in loans and then dropping out after six months a good idea.

The financial value of a degree depends heavily on what that degree is in and where it is earned, says Anthony P. Carnevale, director of the Georgetown University Center on Education and the Workforce. That's because what a student majors in decides her occupation, which decides her earnings, he says: "There is no job called 'B.A.'"

At the same time, Mr. Carnevale adds, having a postsecondary degree does lead to higher earnings within an occupation, at least through the bachelor's degree.

Another point of contention—and a moving target—in the value debate is the time and the expense required to earn a bachelor's degree. The new College Board report considers this and finds that by age 33, the typical college graduate has earned enough money to compensate for taking four years out of the labor force and for borrowing the entire cost of tuition and fees at the typical public college.

Mr. Miller continues to take issue with the assumptions used in "Education Pays." For example, he says, the report combines GED recipients and high-school graduates into one group, which pulls down the high-school graduates' earnings, as GED holders tend not to fare as well. Ms. Baum agrees that this isn't ideal, but she says getting separate figures for the two groups is impossible.

Mr. Miller also disputes the authors' decision to assume that students go to a public college and graduate in four years, because a significant minority of students go to private schools, and because many students do not graduate on time. It would take longer to pay back the cost of a more-expensive private-college degree, Ms. Baum agrees, but all that means is the crossover point happens a year or two later for students who attend independent colleges. And many students who don't graduate on time work and are not full-time students.

While some of her assumptions may favor colleges, she says, others—like that students don't work or receive grant aid—are unfavorable from the institutions' perspective.

In addition to earnings data, the report highlights that college graduates are less likely to be unemployed. In 2009, the unemployment rate for those 25 and older with at least a four-year college degree was 4.6 percent, compared with 9.7 percent among high-school graduates in the same age group. Still, a college degree is no guarantee of a job, Ms. Baum says: Nothing is. But having one increases a person's employment chances.

Not Just Money

The benefits of a college degree are not only financial. The report points out other positive outcomes that correlate to having earned a college degree: Graduates are more likely to vote, to volunteer, and to exercise, and less likely to smoke or to be obese. While the report focuses on correlations, other research, some of which is highlighted in the report, shows that education itself is one cause for these behaviors, Ms. Baum says.

Mr. Carnevale is skeptical. He thinks most of the nonfinancial benefits of education boil down to social class: "When you stand on the stage and they give you the degree, how did you become healthier? Was it because you walked up the stairs?"

But Mark Kantrowitz is fascinated by the idea of an education-health connection. While there may be a selection bias that explains part of the overlap between people likely to go to college and those likely to be healthy, it's possible to account for at least some of those factors, says Mr. Kantrowitz, publisher of the Web site FinAid, which provides student-aid information to families. And, he says, he suspects that college graduates make better health choices, in part, because they're better informed. "It's nice to say if you graduate with a four-year degree, you won't just be wealthier, you'll also be healthier."