Is College Worth It?

college_moneyI always enjoy a good debate like “Is X worth it, financially?”

When X = College the debate seems particularly fraught.

A friend sent me a link to a blogger Erik Rood who makes a nice case for why investing in college does not pay as well as we might think, compared to competing financial opportunities.

Rood presents the thought experiment of two eighteen year-olds. One borrows the cost of college, but instead of attending college invests in the stock market for twenty-four years instead, and earns the average salary of a high school graduate beginning at age eighteen. The second borrows the same amount to pay for college, attends for four years, and then goes to work four years later, earning the average salary of a college graduate for the next twenty years. The punch line is that the “return on investment” for the 18 year-old high school graduate who invested her tuition in the stock market instead of going to college is higher under a majority of scenarios, compared to the college graduate.

Rood references’s data for approximately 1,250 institutions, and he adjusts for the probability of actually graduating from college when calculating investment returns. He also specifically measures the previous 24 years of stock market returns, from 1993 to 2017, a particular moment in time that yielded a 7.1 percent return. Only about 10% of institutions show a “return on investment” via graduates’ salaries that exceeds the stock market returns over that period.

One obvious caveat to Rood’s analysis is that 18 year-olds generally cannot borrow a few hundred thousand dollars to invest in the stock market for twenty-four years, leaving his analysis purely in the realm of the theoretical.

Still, his big idea compels me: There are plenty of scenarios in which getting a four year college degree hardly makes pure financial sense, versus other uses of the money.

Finance columnist Scott Burns and his co-author Laurence Kotlikoff make a related-sounding argument in their book Spend ‘Til The End

regarding the lifetime consumption power of students attending private four-year colleges, versus someone who goes to work straight out of college. According to their math – which admittedly assumes borrowing money to attend an expensive 4-year college, at full-tuition – the college graduate only enjoys a surprisingly thin 10 percent higher expected lifetime living standard compared to the average high school-only graduate.

Obviously, if an eighteen year-old’s parents can pay, and the entire cost of college doesn’t need to be borrowed, the calculation changes for the student, who can immediately enjoy average higher earnings after graduating. But while that is pleasant for the child of relatively affluent parents, it doesn’t change the economics of the choice to attend, or not to attend, a costly college. It still may not make sense from a pure economic standpoint, given the thin 10 percent advantage gained by the college graduate.

I don’t think the correct conclusion to this analysis is to urge your favorite 18 year-old student to just “turn on, tune in, drop out,” get a job, and just like chill, man. I’d summarize the correct conclusion rather as: The pure financial returns to a costly education may not be as high as you think, and the more you pay, the less likely you are making a sure-fire good-money bet.

We can admit that this type of analysis make big assumptions that weaken the practical uses we might make of the “Is college worth it, financially” analysis for our own specific lives.

First, data on earnings will show the median, or average, of earnings from graduates of college. Many will earn more, many will earn less, but the entire cohort will include people who might not need to work for a living, or include people who decide not to work outside of the home. For people planning a life as the primary breadwinner, the “average earnings” data will probably under-estimate their earning potential.

Furthermore, for people who prioritize earning money after college, we would expect certain types of engineering degrees to lead quickly to higher-paying work, while less-technical degrees have lower pay, at least in the first few years.

We also quickly note that the price of a 4 year undergraduate degree varies tremendously, not only between public institutions which tend to be more affordable than private institutions, but also between the stated “sticker price” of college and the true cost, after merit and financial aid scholarships. Clearly, any financial calculation in which the annual price of the thing being analyzed varies between zero and $65,000 per year has some wiggle room for debate.

Part of what’s unsatisfying about this particular “is X worth it, financially” debate is that we have almost an infinite variety of variables, from quality of educational institution, to course of study, to cost of education, to professional goals around making money. Averages don’t really capture all that complexity.

Of course, the most important answer to the debate is that attending college is not solely, or even primarily, a financial transaction. We are not abstract economic actors mechanically trading dollars and time units of education today for dollars in the distant future. We are also concerned with developing our capacity to understand our world, to develop our greatest human potential, and to expand the limits of our soul.

I’ll have much more to say about that topic in my new weekly philosophy column “An Expanded Soul,” shortly after I launch my weekly sex advice column tentatively titled “The Smug Married.” Juuust kidding. I’ll try to stick to finance topics, as limited as that can sometimes seem, when compared to the wider world.


A version of this post ran in the San Antonio Express News and the Houston Chronicle.


Please see related posts:


Saving for College

529 Accounts for Grandparents

Interview With College Advisor – Part 1 – The Rising cost of College

Interview with College Advisor Part 2 – Is the Financial Model Broken?


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3 Replies to “Is College Worth It?”

  1. Michael, I agree that students and their families should consider a college education like an investment. (There are, of course, non-financial benefits as well!) To address the ROI question, some schools are looking for seriously at income-based repayment and income share agreements. Take a look at Purdue’s Back-a-Boiler program.

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I founded Bankers Anonymous because, as a recovering banker, I believe that the gap between the financial world as I know it and the public discourse about finance is more than just a problem for a family trying to balance their checkbook, or politicians trying to score points over next year’s budget – it is a weakness of our civil society. For reals. It’s also really fun for me.

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