Brookings: College Degrees Aren’t a Foolproof Investment

Stephanie Owen and Isabel V. Sawhill attempt to answer a deceptively simple question in the latest paper for the Brookings Institution: is college a good path for all American high school graduates? Owen and Sawhill – who is the co-director of the Brookings' Center on Children and Families, Budgeting for National Priories and a Senior Fellow on Economic Studies — try to determine if the return on investment in a college degree still warrants the expense, the risk and the time in every circumstance.

Owen and Sawhill write that the most straightforward way to perform a cost/benefit analysis on a college degree would be to look at the earning gains made by students for every additional year they invest in their education. Yet using such a direct approach has downsides. Success is not guaranteed and students who are more motivated and driven are both more likely to attend college and are more likely to succeed in their post-graduation careers.

Researchers have attempted to get around this problem of causality by employing a number of clever techniques, including, for example, comparing identical twins with different levels of education. The best studies suggest that the return to an additional year of school is around 10 percent. If we apply this 10 percent rate to the median earnings of about $30,000 for a 25- to 34-year-old high school graduate working full time in 2010, this implies that a year of college increases earnings by $3,000, and four years increases them by $12,000. Notice that this amount is less than the raw differences in earnings between high school graduates and bachelor's degree holders of $15,000, but it is in the same ballpark.

There's also the complication that not all college degrees are created equal. Although on average, college graduates substantially outearn peers with only a high school degree, the earning advantage varies substantially based on the major, the school granting the degree, and the post-graduation career.

That doesn't even take into account the fact that those who attend college without graduating will see this advantage eroded substantially, especially when factoring in their student debt load.

While the average return to obtaining a college degree is clearly positive, we emphasize that it is not universally so. For certain schools, majors, occupations, and individuals, college may not be a smart investment. By telling all young people that they should go to college no matter what, we are actually doing some of them a disservice.

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