Monday, April 07, 2014

The Value of College Education in the USA

College graduates aged 25 to 32 who are working full time earn about $17,500 more annually than their peers who have only a high school diploma, according to the Pew Research Centre, a think-tank. 
We know that different students learn different things in college. To pervert Gertrude Stein's famous line, a college education is not a college education, is not a college education. A degree given to someone who majors in romantic French poetry in a third rate school is not the same as a degree in Engineering from MIT or Cal Tech, nor is either the same as a degree in Economics from an Ivy League university.

The graph shown to the right is from an article in the new issue of The Economist. The blue lines show average costs of degrees (after financial aid) from various universities, and illustrates how much they differ one from another. The boxes on the right show the financial returns from a degree at the same colleges, showing that in many cases it would be better to put the money in a financial investment, and in some cases they returns are negative.

The estimates of rates of return are made comparing people with degrees versus people who did not attend a university, and the article makes clear that the people themselves may be different. I would suggest that people who get to the university may be more motivated or more capable, and thus likely to earn more, or they may be from better connected families and more able to benefit from family connection.
An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000. 
Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education.
 The article focuses on how the future earnings of college and university students increase as a result of the higher education that they receive. It does not seek to measure:

  • benefits obtained by the student other than increased earnings
  • benefits obtained by society but not appropriated by the student as future earnings.
Both kinds of benefits can be significant.

Does the college education allow the former student to get a job which is not only better paid but more satisfying. Does it allow him/her to live a more fulfilling life outside the workplace? Is he or she a better marriage prospect, and thus likely to find a superior marriage partner? Do the children of college graduates do better (in health, education, or careers) than those of people who don't attend college?

Does that university make the graduate a better voter, a more effective participant in community activities, or someone whose work contributes more to the profits of the owners of his company? Public health physicians are, in my mind, people who contribute much more to society than they receive in compensation, as do civil engineers and good teachers. 

While students and their families should consider the costs and benefits to themselves of university education, governments should consider the benefits to society and provide subsidies for students and departments related to the those social benefits not appropriated by students.

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