NCPA - National Center for Policy Analysis

College Does Pay Off, but It's No Free Ride

November 28, 2011

The swelling ranks of unemployed young college graduates are left with a diploma, stacks of student-loan bills and lingering questions about just how much that degree is worth.  While the traditional estimate is a million dollars, economists say that widely reported figure significantly overstates the boost a bachelor's degree gives to earnings over a career.  The estimate isn't baseless, but it doesn't account for many of the costs of attending college, nor does it isolate key distinctions in personality, wealth, and intelligence between college-going students and their working contemporaries, says the Wall Street Journal.

  • First, many of these studies that arrive at the figure of a million-dollar disparity between college and high school education fail to account for the cost of college -- a figure that has been on the rise for decades and has therefore eaten away at the relative advantage of college graduates.
  • Second, they often fail to discount future income -- much of the money that a college graduate makes over and above the high school graduate comes later in life, but discounting techniques explain that income in the distant future is not nearly as valuable as present income.
  • Third, opportunity cost is often ignored entirely, such that the income forgone by college attendees who didn't work during their college years is not taken into account.
  • Finally, these studies are largely unable to control idiosyncratic differences between students who finish education after high school and those who continue on to college.

This final difficulty is one of the greatest problems faced by those studies that would assess the benefits of college, because it is nearly impossible to identify all the differences between the two populations.  Some, such as the fact that college attendees tend to have wealthier families, are relatively simpler to control.  Others, such as distinctions between degrees of determination of college and high school-graduates, are much more difficult to hold constant.  Thus, any such study that would establish a definitive value of a college degree is plagued by numerous problems that compromise their effectiveness and scientific validity.

The inability to evaluate the benefits of college attendance has left many graduates with a diploma but no job.  To resolve this issue, potential attendees will need to be made more aware of the benefits and costs of college before investing.

Source: Carl Bialik, "College Does Pay Off, but It's No Free Ride," Wall Street Journal, November 19, 2011.

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