Where is the Best Place to Invest $102,000 -- In Stocks, Bonds, or a College Degree?

Michael Greenstone and Adam Looney have posted an article on the Brookings site holding that (on average) families would do better economically by putting a kid through college than be investing a comparable amount in stocks and bonds. Of course, I value university education, and have taught at the university level as an avocation for a dozen years or more. However, I do have some doubts about the article.

I wonder first of all whether the graph above is correct. In fact, people with higher income tend to invest more, feeling that the future income from the investments is more attractive than the current consumption. The college education might also lead to more remunerative investments. Should such items be included in the analysis?

More to the point, an individual kid is likely to benefit more or less than the average from a four year college education. Moreover, a kid attending college is likely to find one that is more or less expensive than the average. Sending a kid who will not benefit from a college education to a $50,000 a year college to study something like cultural studies is unlikely to be a good investment.

As an aside, some people who dropped out of college made a lot more money than most people who stayed in college, such as Bill Gates, Steve Jobs, Mark Zuckerberg, Tom Hanks and Tiger Woods. Indeed, each of these people may have done better financially by dropping out of college at the best moment to exploit their financial opportunities.

Certainly there are a lot of people who would do better preparing to be carpenters, electricians, metal workers, mechanics, or other important occupations for our society than going to college to prepare for some occupation that they would enjoy less and at which they would be less successful.

The article, reasonably does not look at the externalities of higher education. College education is subsidized in a number of ways, including faculty who teach for less than the value of their services, cross funding from research grants, scholarships. There are also benefits to the society that accrue from the population of college educated citizens which are not reflected in their remuneration.

I would suggest that it might be interesting to try to estimate the value of a college education in terms of the opportunities that that education opens. One of my old friends who held a BS, an MD, an MPH and a DPH noted that his earning potential went down with every degree past the MD, yet he always had the economic potential provided by that MD degree. In my own case, I chose to volunteer for a couple of years as a Peace Corps Volunteer, to work for the Government when I might have worked for more money in the private sector, and to donate a lot of time to teaching and (other) unpaid services that I could have used to make money. Not only does the potential earning, even if foregone, seem a more appropriate measure of the value of education, the opening of opportunities may be theoretically the real value of university education!