The current debate about higher education has reached an odd status quo: tuition prices and student debt are up, wages for college grads are down, and the wage premium attached to bachelor’s degrees is higher than ever. We’re questioning whether college is “worth it” at the same time that completing some form of postsecondary education is more important to economic success than ever before.
Parsing these trends—and figuring out what they tell us about the value of going to college—is complicated business. To do it right, you’ve got to consider all possible outcomes and the probabilities attached to them, specify the right counterfactual, consider selection effects, and so on.
Unfortunately, this isn’t the stuff of bold headlines, punchy blog posts, or effective advocacy. So the average reader is left to sort through a sea of seemingly contradictory claims: “College clearly worth it;” “college grads drowning in student debt;” “higher education key to economic growth;” “student debt stunting our economy.”
In trying to make sense of the noise, it’s worth keeping a couple things in mind.
Going to College ≠ Completing College
Examinations of whether college is worth it almost always compare the wages of individuals with a bachelor’s degree to the wages of those with a high school diploma. But let’s be precise here: that wage premium shows the value of completing college, not the value of going to college. What if you’re one of the 45 percent of students who don’t finish a degree within six years?
A recent Pew study is a case in point. The headline warned of the “The Rising Cost of Not Going to College” based on this graph:
Look carefully at the figure. What it actually shows is the rising cost of not completing college. The cost of not going to college has to reflect the outcomes of people who started college and didn’t finish. Pew’s own data show that Millennials with some college or an associate’s degree out-earn their high school-educated peers by just $2,000. For this group, the “cost of not going to college” (the gap between the brown and yellow lines) actually shrank over time.
The point? Any answer to the basic question—whether going to college is worth it—must reflect the probability of completing. Looking only at completers is selection on the dependent variable. It’s akin to arguing that betting the trifecta at the Preakness was worth it because I won. Forget all the people who bet but didn’t win. If I were interested in the expected value of betting on the Preakness, I’d want to know the possible payoffs weighted by probability of winning.
College is likely still “worth it” after accounting for the risk of not completing, but the payoff cannot be as large as it is when we look only at graduates.
It’s an elementary point, but one that is routinely ignored in the rush to deliver a verdict. These probabilities are especially important for the very students that are asking whether college is worth it—those choosing between joining workforce and enrolling in school. These students are the most likely to drop out; they often attend open-access colleges with low completion rates. Blanket statements like “college is clearly worth it” have led far too many to blindly invest in any college at any cost.
For me, a more effective message would be to tell a prospective student that yes, completing college is, on average, worth the time and money. But not all postsecondary options are created equal, so choose the one that reflects your talents and abilities and gives you the best chance of success. And if you choose to go, work your tail off to make sure you finish.
Graduates With Debt vs. Graduates Without Debt is the Wrong Comparison
On the other side of the ledger, the doomsday commentary on crippling student debt often seems completely divorced from the evidence on the returns to college. These stories argue that young borrowers are increasingly saddled with excessive debt which leaves them unable to buy houses and cars and creates drag on the economy.
But what about those returns we’ve heard so much about? Would graduates (and the economy) be better off if they hadn’t taken on the debt to buy their degree in the first place? I thought having a college education paid more than ever?
The problem is, researchers have tended to compare college graduates with debt to a strange counterfactual: college graduates who don’t have debt. For instance, Gallup and Purdue’s inaugural study of college graduates’ well being found that those with between $20,000 and $40,000 in debt scored lower on indexes of well being and workplace engagement than those without debt. Another study by Pew found that families headed by college graduates under 40 with student loan debt had accumulated less wealth than college-educated families without debt. This shouldn’t be all that surprising. All other things being equal, people with debt will have less wealth than similarly situated people with no debt. If I buy my house with cash, I’ll have more wealth than if I finance it via a mortgage. I’ll probably be a whole lot happier, too.
But this comparison ignores the relevant counterfactual: people who do not have debt because they didn’t purchase a college degree. How do graduates with debt compare to non-graduates without debt? Gallup didn’t survey the latter group, but the Pew study shows that graduates with debt do have slightly less wealth (about $2,200) than those that have neither debt nor a degree. Remember, though, that most of those graduates will also have higher wages than non-grads, meaning they’ll be able to accumulate wealth more quickly once those debts are paid off.
The Real Crisis
You know who does worst of all in the Pew study? Those who took on student loan debt but failed to graduate. They have accumulated about 14 percent of the wealth that graduates with debt have. This is where the real student debt crisis lies—among the dropouts for whom going to college wasn’t worth it, despite all that definitive evidence to the contrary.
While debating this topic on Twitter recently, a friend and colleague suggested it would be “irresponsible” to “caveat to death” the message that college is worth it. To me, though, it’s far less responsible to gloss over the fundamental reality that these drop-outs know all too well: going to college is typically worth it for those who graduate, but far too many do not.