Calculating How Much 'Education Pays'

September 21, 2010

The third installment of the College Board’s “Education Pays” series concludes that its title still holds true. But that’s not persuading critics of its validity.

College graduates earn increasingly higher wages than high school graduates and are more likely to be employed, and more likely to receive health insurance and pension benefits from their employers; they are also more active citizens and engaged parents, and maintain healthier lifestyles, according to the report.

Society also benefits, the report argues, from these graduates who are more likely to vote, whose children are more likely to attend college, and whose good health costs taxpayers less.

The general findings of “Education Pays 2010,” released today, differ little, if at all, from those of the second installment. The reports, whose previous editions came out in 2004 and 2007, aim to highlight the benefits of obtaining a college education to individuals and society, at a time when many are questioning the value of a degree.

“Too often, colorful anecdotes about individuals who have had unfortunate experiences capture the spotlight and lead to inaccurate generalizations about the dangers of making this major life investment,” the report reads. “It is no surprise that these stories exist; they are real and they are painful. But frequently, these stories are used to convey the notion that the costs of a postsecondary degree outweigh the benefits, and for most people this simply is not true.”

A co-author of the report, Sandy Baum, a policy analyst for the College Board and professor emeritus of economics at Skidmore College, said the report isn’t trying to sell anything -- including a college degree. “Our goal is not to be convincing people of something so much as it is to provide solid information to which people can refer in order to reach conclusions that are based not on anecdotes but on evidence,” she said.

But Charles Miller, an investment manager, former chairman of the University of Texas System Board of Regents, and former chairman of the Bush administration's Commission on the Future of Higher Education, believes the opposite. In 2008, Miller criticized the College Board and the second "Education Pays" report, which he described as flawed, based on illogical assumptions and inflated benefits. He sees many of the same problems in the third edition.

Graduates’ earnings have been exaggerated for years, Miller says. "The report understates actual costs substantially," he wrote in an e-mail. "It's not just a question of what the student pays, it's what the total cost of a degree is, and whether that cost of education pays."

Furthermore, Miller said, the benefits individuals derive from a degree result not from the degree itself, but from the economic and regulatory policies that create jobs and income opportunities, which college graduates absorb. And with financial aid going to students who don't need it, "the finance system of higher education favors those who have special privileges and therefore maintains an unfair compensation for those able to get a degree."

The report acknowledges that many low-income and would-be first-generation students forgo college because of financial and logistical barriers. “The evidence is overwhelming that higher education improves people’s lives, makes our economy more efficient, and contributes to a more equitable society,” Baum and her co-authors, Jennifer Ma and Kathleen Payea, wrote, saying the demographic gaps are detrimental to those individuals and to society as a whole. The challenge is to open the opportunity to all potential students.

According to the report, in 2008 four-year graduates earned nearly $22,000 more on average than people with only a high school diploma, and the earnings of college graduates increased more rapidly from 2005 to 2008 than the earnings of high school graduates did. Also, from 2005 to 2009, the difference between unemployment rates for bachelor's degree holders and high school graduates rose from 2.3 to 5.1 percentage points.

The data show that median annual earnings for workers 25 and over increase with more education. In 2008, the averages were $33,800 for high school graduates; $39,700 for people with some college but no degree; $42,000 for people with an associate degree; $55,700 for bachelor's degree holders; $67,300 for master's degree holders; $91,900 for doctoral degree holders; and $100,000 for those with a professional degree.

“Nobody is saying everybody should get a bachelor’s degree; of course not. We need all kinds of people in all kinds of jobs. But there’s a growing number of jobs that require college degrees,” Baum said. “People can reach their own conclusions but there’s just so much evidence that it pays off.”

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