More Data on the Returns to College

Most people consider attending college to be a good bet in the long run, in spite of the rising cost of attendance and increasing levels of student loan debt. While I’m definitely not in the camp that everyone should earn a bachelor’s degree, I do believe that some sort of postsecondary training benefits the majority of adults. A recent report from the State Higher Education Executive Officers (SHEEO) highlights the benefits of graduating with a college degree from public colleges and universities.

Not surprisingly, their report suggests that there are substantial benefits to graduating from college. Using data from IPEDS and the American Community Survey, they find that the average associate’s degree holder earned 31.2% more (or about $9,200 per year) than the average person with a high school diploma. The premium associated with a bachelor’s degree is even larger, 71.2%–or nearly $21,000 per year. These figures seem to be on the high end (but quite plausible) of the returns to education literature, which suggests that students tend to get an additional 10-15% boost in wages for each year of college completed.

I do have some concerns with the analysis, which does limit its generalizability and/or policy relevance. They are the following:

(1)    Given that SHEEO represents public colleges and universities, it is not surprising that they focused on that sector in their analysis. Policymakers who are interested in the overall returns to education (including the private not-for-profit and for-profit sectors) should try to get more data.

(2)    This study is in line with the classic returns to education literature, which compares students who completed a degree to those with a high school diploma. The latter group of students who just have a high school diploma may have also completed some college but left without a degree, which results in a different comparison group than students and policymakers would expect. I would like to see studies compare all students who entered college with students who never attended to get a better idea of the average wage premium among those who attempt college.

(3)    While the average student benefits from completing a college degree, not all students benefit. For example, welders with a high school diploma may very well make more than a preschool teacher with a bachelor’s degree. A 2011 report by Georgetown University’s Center on Education and the Workforce does a nice job showing that not everyone benefits.

(4)    Most reports like this one do a good job estimating the benefits of education (in terms of higher wages), but neglect the costs in terms of forgone earnings and tuition expenses. While most people are still likely to benefit from attending relatively inexpensive public colleges, some students’ expected returns may become negative after this assumption.

(5)    Students who complete a certificate degree (generally one-year programs in technical fields) are excluded from the analyses for data reasons, which is truly a shame. Students and policymakers should keep in mind that many of these programs have high completion rates and positive payoffs in the long run.

My gripes notwithstanding, I encourage readers to check out the state-level estimates of the returns to different types of college degrees and majors. It’s worth a read.

(Note: This will likely be my last post of 2012, as I am looking forward to spending some time far away from computer screens and datasets next week. I’ll be back in January…enjoy the holidays and please travel carefully!)

Author: Robert

I am an a professor at the University of Tennessee, Knoxville who studies higher education finance, accountability policies and practices, and student financial aid. All opinions expressed here are my own.

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