We’ve spent five weeks looking at the question that continues to be the focus of reports and articles in the media – “Is college worth it?” – from the standpoint of four distinct concerns: its perceived lack of affordability; the burden of debt that faces so many graduates; the relative scarcity of well-paying jobs for recent college graduates; and the risk that a student will borrow money, not complete his or her course of study, and be economically worse off than if he or she had never started. (As an aside, I should note that the question of the worth of a college education has been so frequently asked that it is now being satirized. The Onion recently posted the following headline on its website: “Study Finds College Still More Worthwhile Than Spending 4 Years Chained to Radiator.”)

Before I attempt my own answer to the question, “Is college worth it?” I must express a caveat: The way the question has been posed by the media implies that the only value a college degree has is economic. I hope we will all quickly agree that the benefits of a college education extend far beyond mere monetary return. College graduates, as a rule, are more engaged citizens; they are healthier and far less likely to be incarcerated; they live fuller and more complete lives; they have a deeper understanding of the world in which they are living; they are more tolerant and compassionate. These are generalizations, of course, not universally true for every college graduate – but they are most assuredly accurate at the group level.

Moreover, many people who attend college do so in order to have a career in a field they find meaningful and enjoyable, as opposed to accepting a job only because it will pay well. “Show me the money” is not a fair summation of the value of a college education.

All that said, it is still reasonable to ask whether, from a strictly economic perspective, attending college is a sound investment.

As I pointed out in last week’s blog, a recent study by the Federal Reserve Bank of New York (“Do the Benefits of College Still Outweigh the Costs?”) found that “workers with a bachelor’s degree on average earn well over $1 million more than high school graduates during their working lives.” The report also points out that the differential between the lifetime earnings of college graduates relative to high school graduates has never been greater.

Those statistics would seem to provide an unequivocal answer. Clearly, college is “worth it.” Why, then, does this question keep being asked?

I think there are four answers, three of which we have considered (at least in part) in previous blog posts in this series:

1. The investment for a college degree seems daunting.

   As I showed in my post of July 28 (and as David Leonhardt noted in his column in The New York Times the next day – July 29), using a college’s list price for tuition greatly overstates the actual cost to the student – particularly in the case of private colleges. Leonhardt notes that, over the past 20 years, inflation-adjusted net tuition and fees have increased by 60 percent at public universities (primarily because of the enormous decline in state financial support), but by only 22 percent at private institutions. (In fact, over the past seven years, net cost at most private institutions has actually fallen.) But the public perception, based as it is on list prices, is that colleges have become prohibitively expensive.

   Even though the actual price paid by the average student has not risen appreciably faster than the price of many other staples (gasoline, for example, is up more than 80 percent in inflation-adjusted dollars over the past two decades), the costs of attending college obviously represent a very large investment for most families – and with more students and families now relying on loans to pay for their college costs, their concern about the amount of their debt at graduation is certainly understandable.

   Finally, there is the worry that some graduates may not be able to find a well-paying job, and therefore not be able to afford to discharge their student loan debt. As we saw in Part 4 of this blog series, fears of underemployment are overstated, but nevertheless remain real, especially for graduates in many of the liberal arts, who may struggle to establish a career path.

   Taken together, these concerns understandably give pause to many families whose children are making a decision whether or not to attend college—and if so, how much they can afford to pay.

2. My son or daughter may drop out and be in debt.

   As we saw in Part 5 of this series, the most valid concern regarding the value of investing in a college degree is the fear that the student might not graduate. Many factors contribute, positively or negatively, to the likelihood of completion: the student’s intelligence, ambition, maturity and level of academic preparation; the relative quality of the college or university; stresses within the family, especially financial; whether or not the student is the first in his or her family to attend college; the socioeconomic status of the family. Students and families must be realistic in evaluating these factors as they make a decision regarding college.

3. The payoff is uncertain because it is uneven.

   There is no question that the average college graduate earns substantially more than the average high school graduate. However, talking about average income obscures the significance of the range of income earned by college graduates as a group.

   To illustrate, a recent study (Urban Institute, “Higher Education Earnings Premium: Value, Variation, and Trends,” February 2014) found that, in 2012, the median income of college graduates aged 35 to 44 was $61,255, as compared to a median income of high school graduates of $35,703 – but one in six college graduates in that age group actually earned less than $35,703. In other words, there is overlap of the income ranges of all college graduates and all high school graduates, such that almost 20 percent of college graduates actually earn less than the median salary of a high school graduate. So one way of looking at this issue is to say that more than four out of five college graduates will earn a premium – often, a very substantial premium – for being a college graduate – but a college degree does not guarantee that all college graduates will earn more than those without the degree.

   As we saw in Part 4 of this series, one important factor in contributing to this salary overlap between college graduates and high school graduates is the fact that the economic value of different majors varies enormously, especially in terms of the salaries earned by the most recent graduates.

   There are also significant regional differences in income. In 2011, college graduates 25 and older had a median income of $71,000 in New Jersey and Connecticut, whereas those in Michigan had a median income of just $44,000 (and the median across the nation as a whole was $58,000). Comparing the salary of a college graduate in one state with the earnings of a high school graduate in another could certainly give rise to a misinterpretation about the economic value of a college degree.

4. The economic payoff for having a college degree may not be large enough.

   The size of the payoff is a factor that underlies much of the concern that people feel about the economic benefit of attending college, and it’s a factor that we have not yet considered in this blog series. The Federal Reserve Bank of New York report I referenced earlier that showed college graduates earning, on average, over $1 million more in lifetime earnings than the average worker with just a high school diploma – an income differential that has never been greater. How, then, can anyone question the economic value of the payoff?

   The primary reason there is such a large differential between the earnings of college graduates and those with just a high school diploma is not only because the salaries of college graduates have risen, but also because the salaries of high school graduates have fallen. Over the last decade, the average hourly wage for college graduates is up just one percent, whereas the average wage for high school graduates has dropped by five percent (The New York Times, “Is College Worth It? Clearly, New Data Say,” May 27, 2014).

   These trends are not limited just to the past 10 years. Indeed, between 1980 and 2012, high school graduates saw an income drop of 11 percent, whereas college graduates experienced an income increase of 20 percent – or 56 percent for those who went to graduate school (Bloomberg View, “Is a College Education Worth a Skinned Eel?” May 29, 2014).

   At the same time, the percentage of jobs that are part-time, rather than full-time, has risen from 16.5 percent before the 2008 recession to 18.8 percent today – and almost 37 percent of home mortgage holders are “effectively underwater” – either the mortgage exceeds the actual value of the house, or the sale of the house would not cover closing costs and a down payment on a new home (Associated Press, “Not All Feeling Gains of Better Job Market,” Aug. 3, 2014). These factors inevitably contribute to the general concern that the economy is still not doing well, and the fear by some parents that now might not be the best time to invest large sums of money sending their child to college.

   Finally, the nature of the job market continues to change rapidly, due to technology and globalization. Occupations such as word processors, telephone operators and travel agents have declined by 75 percent since 2000, whereas the number of computer software engineers, physical therapists, nurses and financial advisors have increased by as much as 160 percent over that same time period (The New York Times, “Fear Not the Coming of the Robots,” June 22, 2014). Of course, the good news is that all those growth occupations require a college degree, whereas most of the occupations in decline do not – but these sudden changes in the growth and decline of specific job categories may be unsettling to families contemplating a major investment in their child’s college education.

To summarize, while it is easy to understand a family’s trepidation as they contemplate spending for their child’s academic future, a college education is demonstrably a sound financial investment – but with three caveats:

1. Be aware of the differences in economic value of different majors. The choice of college major is closely linked to the starting salary of the graduate, and to the extent that students and families are seeking an immediate payoff for spending a good deal of money on a college education, a major in a professional program generally provides a higher economic return in the short run than a major in the liberal arts. (As I have noted in a previous blog post, this difference is typically eliminated by age 40.)
2. Do not over-borrow. Students should not borrow more than they expect to earn in their first year of employment: roughly $30,000 for many of the liberal arts graduates, and up to $60,000 for certain of the professions. Use subsidized government loans, and avoid private loans, whenever possible.
3. Commit to actually graduating. Most important, the student must graduate. There is no economic payoff for leaving a college without a diploma – and there are serious negative consequences to leaving without a diploma and in debt.

A college degree does not automatically ensure a prosperous and satisfying life – but it is most assuredly the single best step a young person can take in planning for his or her future.

In previous blog posts on this topic, we have explored concerns relating to how expensive a college education has become; how many students are graduating with considerable debt; and how difficult it is for some graduates to find good jobs – all preparatory to a final discussion on the underlying question: Is college worth it? Before we take that question on, however, we must review a fourth concern:

Not enough college students are graduating, leaving them in debt and without a degree.

This is the most serious and significant of the four topics we have been discussing.

To begin, there are many studies regarding the economic impact on individuals with college degrees in comparison to those with just a high school education.

A very recent, and thorough, report from the Federal Reserve Bank of New York (“Do the Benefits of College Still Outweigh the Costs?” June 2014) found that “workers with a bachelor’s degree on average earn well over $1 million more than high school graduates during their working lives, while those with an associate’s degree earn about $325,000 more.”

Similarly, a study by the Urban Institute in February 2014 (“Higher Education Earnings Premium”) reported that, in 2012, median earnings for college graduates aged 35 to 44 were $61,255, compared to $35,703 for high school graduates in the same age cohort.

However, it is important to note that the higher salary earned by a college graduate does not come in the form of 25 percent increments for each year of college completed. Those with “some college,” but no degree, derive very little economic benefit at all.

The cost of attending college, but not completing a degree, in terms of both out-of-pocket expenses and loss of income (because of choosing to attend college rather than entering the workforce right after completing high school), is dangerously high, especially if the student has borrowed money to pay for educational expenses. As Education Secretary Arne Duncan put it, “But where you have $60,000, $70,000, $80,000 [of debt] and no degree, that is the end of the world. That is catastrophic.” (Inside Higher Ed, July 3, 2014)

In other words, in strictly economic terms, no one should start college unless he or she is committed to obtaining a degree. The economic impact of starting, but not finishing, is just too high.

And it is here that we have a conflict between expectation and reality. A survey by Sallie Mae in 2013 (“How America Pays for College”) found that “92 percent of families are confident that their students will earn their bachelor’s degrees in five or fewer years.” In reality, less than 60 percent actually earn their degrees within six years of beginning their studies. The Economist (June 28, 2014) expresses this statistic differently: 47 percent of American students (and 28 percent of British students) never complete their degrees.

Given those data, the decision to start college is something of a gamble. The student is effectively making a very expensive wager – a wager that pays off many times over for those who finish, but that can economically cripple those who, for whatever reason, do not complete their degree.

Further complicating matters is the fact that it is difficult to hedge the bet. For example, a student could minimize the size of the bet by going to a community college (much less expensive) – but completion rates at community colleges tend to be very low. (Typically, less than 25 percent of the students starting in a given year will earn an associate’s degree within three years.)

Or a student could make a very large wager and attend an expensive private college where the graduation rates are very high (80 percent or more). The odds of a successful wager are far higher, but the “ante” is much greater, and therefore the costs of failure are much larger as well.

To this point, I have been speaking as if all options are open to all students, and of course they are not. Students from economically disadvantaged backgrounds bear a special set of burdens as they contemplate going to college. They often do not have the benefit of someone in their family who is a college graduate, and to whom they can turn for advice and support; their level of preparation is likely to be inferior to students from wealthier K–12 school districts, meaning that they may face having to take remedial courses in college (increasing their time to completion, and decreasing the likelihood that they will ever complete their degree); they are likely to have fewer college options because of both their economic circumstances and their level of academic preparation.

This is the area that is central to the higher education dilemma in America. The economic premium in having a college degree has never been greater – but regrettably there remains a significant difference between the percentage of students from families in the top quintile of family earnings who earn a bachelor’s degree (54 percent) and the percentage of those in the bottom quintile who earn a bachelor’s degree (9 percent). In fact, the achievement gap between these two quintiles has grown significantly wider in the past 20 years (The New York Times, “Income Inequality and the Ills Behind It,” July 30, 2014).

I will devote a future blog post to this issue of growing educational and economic disparity, but next week, I will finally endeavor to answer the question we have been considering for the past several weeks: “Is College Worth it?”