On ‘average’, it’s still worth going to college

by Grace

Earning a four-year college degree remains a worthwhile investment for the average student. Data from U.S. workers show that the benefits of college in terms of higher earnings far outweigh the costs of a degree, measured as tuition plus wages lost while attending school. The average college graduate paying annual tuition of about $20,000 can recoup the costs of schooling by age 40. After that, the difference between earnings continues such that the average college graduate earns over $800,000 more than the average high school graduate by retirement age.

Beware of basing personal decisions on the “average” case.

Not everyone is “average”.  Therefore, the ROI for a college degree must be based on personal circumstances, which can vary substantially.  For instance, some college graduates take on enormous debt that should be figured into the college premium.

The college premium is also highly dependent on field of study and on characteristics of the student.

Most reports that claim to measure the value of a college degree do not control for a vital factor — the student.  They fail to account for what Bryan Caplan calls the “ability bias“.  This bias favors personal traits like intelligence, work ethic, and conformity — traits typically valued by selective schools as well as by employers seeking candidates for high-income jobs.

Take one example.

On average, a hard-working computer science MIT graduate with a 130 IQ will bump up the average earnings for college graduates while a lackadaisical ethnic studies major with a 100 IQ who graduated from a directional state college will  lover them. But even if neither attended college, the MIT-wannabee would still probably out-earn the second individual.

So, when it is reported “that on average the value of college is high and not declining over time” …

College Earnings Premium by Graduation Decades

20140517.COCCollegePremiumOverTime1
Don’t forget to consider the other important factors, like college majors, costs, and individual ability, that lie hidden beneath the results.

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Mary C. Daly and Leila Bengali, “Is It Still Worth Going to College?”, Federal Reserve Bank of San Francisco Economic Letter, May 5, 2014.

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