Does a College Education Really Make Economic Sense?

by Dave Schuler on May 10, 2014

Let’s start off with a little basic statistics. A “normal distribution” is illustrated in the curve on the left. In a normal distribution whatever is being measured occurs with the characteristic that the mean (average) equals the median (the middle of the distribution of values) equals the mode (the most commonly occurring value in the distribution). Incomes do not occur within a normal distribution. Consequently, average is an extremely poor way to understand incomes.

In a post at the blog of the New York Times Teresa Tritch attempts to explain why even in the face of stagnant incomes for college grads it still makes sense to get a college education:

Graduating from college still means better job prospects. And there are ways to try to buck the wage-stagnation trend, like choosing an in-demand major, though — let’s face it — most people are not cut out to be electrical engineers. College is also valuable for non-economic reasons, including developing one’s intellect and establishing personal, community, institutional and professional ties. It correlates to better health and greater civic engagement throughout one’s life.

I’m much more skeptical than Ms. Tritch. Quite to the contrary, I think that if you exclude the wages of a relative handful of very highly compensated individuals the comparative wage picture of those without college educations and those with college educations looks a lot different. That is what “income inequality” means. Some people get paid a lot more than others.

Here are my predictions for what excluding those wages would do to the income distribution chart. I think it would move the mean income, the median income, and the mode income left. That means that average incomes for college grads would be a lot closer to the average wage of non-grads.

I also think that it makes sense not simply to talk about income but about net income. College grads incur expenses that non-grads don’t. They frequently borrow to pay for their educations and pay interest on those debts—education loans are the fastest-growing form of indebtedness today. Loan repayment reduces net income. Additionally, income over a working life should be taken into account rather than just income. College grads forego years of income and if for most of them the pay they can expect isn’t a great deal more than it would be had they not foregone those years of income, how much economic sense does it actually make?

You won’t find that in Ms. Tritch’s blog post.

The real reason people are pursuing higher education isn’t to increase their average wages. It’s to give them a competitive advantage over people who don’t have a college education. The more people get college educations, the less effective that will be.

And then, of course, there’s the reality that 40% of recent college grads can’t find jobs.

{ 7 comments… read them below or add one }

Jimbino May 10, 2014 at 8:52 am

“Forgo” and “forgone” are the correct spellings.

Dave Schuler May 10, 2014 at 9:00 am

“Forego” is a legitimate variant. Look it up.

... May 10, 2014 at 10:04 am

I’m wondering why Ms. Tritch wants more debt slaves, the creation of which is the main accomplishment of colleges these days. Looking at her bio I see she has career attachments to finance and universities.

PD Shaw May 10, 2014 at 10:10 am

Then there was the study out about a year ago that found only about 150 four-year institutions were worth going to on an ROI basis. Even that probably needs to be further considered on an individual basis (scholarship, grades, course of study), but its better than assuming all college degrees are worth it.

... May 10, 2014 at 10:12 am

Saw a story locally about students from the local state university (UCF) having trouble getting interviews. One EE with excellent grades had managed to get all of one interview. This is with the university helping the students with resumes and such.

It’s only worth going to a university now if someone else is paying for it, or if it is a university where one can establish connections to the ruling class (Harvard, Stanford, Yale and the like).

jan May 10, 2014 at 1:26 pm

My parents were not college-educated, although they were smart enough to have met most academic qualifications. It was a shortage of money, as well as family obligations, that were the major stumbling blocks severing any chances they had of pursuing more than what high school offered. However, for my sister and I, going to college became an unquestioned next step in topping off our education. And, when I became a parent, it was an automatic assumption that our son would follow the same college path my husband and I took, resulting in a college account to be opened right after our son’s birth.

Reality though trumped early presumptions, as college proved to be a mere flirtation, discarded almost from the get go as uninteresting and unworthy of our son’s time and effort. Initially there was a lot of hand-wringing by my husband and I, in coming to grips with the disappointment caused by the abandonment of long-held educational goals, as well as opportunities laid at his feet. However, as time went on, as we witnessed his friends coming back with degrees and having to live at home in order to eke out a living, we grew not only to accept his course of action, but to relish it. This change of attitude is not because he has become some successful, college drop-out entrepreneur, defying the odds of deep-sixing a classy higher education option. No, he continues to struggle, out of work and low on luck It’s mainly because we have come to the realization that, in his case, college would have probably been worthless, due to his own temperament issues, which needed to be addressed before settling into a more conventional, disciplined routine that is ordinarily a prerequisite for a productive college/career outcome.

Consequently, I no longer see higher education as a life-long panacea for everyone, in finding their way and niche in life. And, for those parents who push their children, having them follow in their own footsteps, abiding by dreams set for them, rather than by the young people themselves, it can create a negative backlash rather than be of benefit. Furthermore, when spiraling costs are weighed into the mix, presenting a burden for all involved with the debt pay-back, it seems a more reasonable notion to chose after high school pursuits according to a person’s personality, passions and proclivities — in ferreting out whether it suits them best to enter a trade school, take on-line classes, work, or simply time-off, allowing their energies to be spent maturing and growing in the University of Life, before making their life affirming decisions — ones they will then be able to fully engage in, on their terms, and hopefully fulfill.

Ben Wolf May 10, 2014 at 6:13 pm

That was nicely written, jan.

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