Maybe college isn’t for everyone. But it’s probably for you.

May 10, 2013

Stephanie Owen's and Isabel Sawhill's Brookings report, "Should Everyone Go to College?" is getting a great deal of well-deserved attention. But some of the coverage misses the report's main implication. The Wall Street Journal opened their article, "Even in a weak job market, the old college try isn’t the answer for everyone." The LA Times' headline was, "College is a bad financial bet for some, study says."

The study does say that, and is framed by its authors as casting doubt on the assumption that everyone should go to college. But the most interesting part of it is that it shows that the majority of people should. Indeed, the report is more of a testament to the poor quality of some colleges and universities than to the inappropriateness of college for a large number of students.

Let's back up. What's at issue in the Owen-Sawhill report is the "return on investment" (ROI) to college. That's the amount of money one can expect to get, having gone to college, in excess of what they would have gotten had they not gone at all. Generally speaking, the annual ROI for college is enormous. Michael Greenstone and Adam Looney at the Hamilton Project calculate that it's stayed at around 16 percent for the past few decades:


And that's not including financial aid. Once you factor the increase in that in recent decades into the equation, the ROI has actually grown. And compared to the return on stocks (around 6.8 percent), corporate bonds (2.9 percent), gold (2.3 percent), long-term government bonds (2.2 percent) and housing (0.4 percent), it's really, really high:

But Owen and Sawhill point out that these are just averages. What happens when you break down the ROI by college major? Unsurprisingly, engineering, computer science, and math majors see their life earnings increase, and humanities majors see it fall relative to the average:


And more selective institutions have a higher ROI than less selective ones:


Pretty damning, right? No! Check the majors chart again. Note that every single one of those majors reports higher lifetime earnings than the average high school graduate. It may be the case that some schools are expensive enough that the gains to, say, a low-earnings education degree aren't worth the tuition, and the ROI is thus negative. But there isn't a major that reduces lifetime earnings relative to earnings without college.

Meanwhile, the school category with the lowest ROI, noncompetitive private schools, still has returns of about 6 percent. Worse than the stock market, sure, but still better than just about any other investment you can think of.

The most bracing part of the report is that it notes up to 200 schools with actually negative returns on investment for their degrees. The Savannah College of Art and Design (SCAD) and Judson University are at the bottom of the list, costing their graduates about $160,000 relative to if they hadn't gone to college. You can see the full list at PayScale's Web site here. Those schools really aren't any good as investments, though they may well make for a fun four years, if you're willing to spend $160,000 on that sort of thing.

And a caveat is in order that ROI as used above doesn't adjust for graduation rates. These are the returns for those who go and graduate, not the (many) who drop out midway through. Then again, in 2011 PayScale accounted for that, and actually didn't find any schools with negative ROIs. SCAD even had a positive one. That casts some doubt on the reliability of the data being used to make these judgments, if they change that dramatically from 2011 to 2013, but it also suggests that the graduation rate issue doesn't change the overall story.

All told, the case for college triumphalism remains much stronger than the case for skepticism. Even marginal students on the border between attending and not attending tend to benefit from college. Seth Zimmerman, a PhD student at Yale, compared the earnings of Florida students whose GPAs were just above and just below the Florida State University system's cutoff. There's a huge effect of being just above the cutoff (3.0, for most students), suggesting that students at the margin still gain substantially from college.

Owen and Sawhill's report is important and worth taking seriously, but trying to make it into a case against college is wrongheaded. College really does come with additional earnings, and no research to date has persuasively refuted that as a general point.

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Neil Irwin · May 10, 2013