The Value of a Degree

Over the past two weeks, I’ve examined two forces that may be contributing to the college bubble—that is, to the possibility that the cost of a college education is exceeding its value and thus may result in a sudden drop in both enrollment and prices. Those two forces are enrollment figures (which may be temporarily excessive) and tuition prices (which have been skyrocketing for years).

This week, I look at the third piece of that bubble: the declining value of bachelor’s degrees. I’ll show that college graduates, on average, neither earn nor learn enough to keep up with the rising costs (in both money and time) of a bachelor’s degree. While it’s impossible to predict the future with certainty, the trends are troubling.

Nearly everyone has heard the soothing words that the average lifetime earnings of college graduates is a million dollars higher than those of high school graduates. But Mark Schneider, vice president of the American Institutes for Research, conducted a study for the American Enterprise Institute that pours cold water on that figure.

He found that the average lifetime earnings advantage for college graduates is well below the million-dollar figure when forgone wages and the cost of a college education are factored in. Incorporating those figures and using the Department of Education’s 2003 Baccalaureate and Beyond Longitudinal Study, Schneider estimated that the lifetime earnings advantage for college graduates ranges from $150,000 to $500,000. The differences reflect earnings from open admissions schools to selective private schools, as the chart below indicates.

Lifetime Earnings: College vs. High School

And, of course, the premium isn’t consistent across industries or employees; the Census Bureau’s 2009 Current Population Survey shows that 20 percent of individuals making less than $20,000 per year have bachelor’s or master’s degrees. Recent graduates, age 24 and under, are experiencing a jobless rate of nearly 10 percent.

Even more problematic for future generations is that the gains from college aren’t growing over time. As the chart below shows, in 1991, young workers with bachelor’s degrees earned, on average 1.48 times the amount that those with only high school diplomas earned. Young college graduates’ earnings peaked in 2000 at 1.68 times that of diploma holders then declined to 1.54 times more in 2009. (Keep in mind that the price of tuition increased nearly 300 percent during this same period.)

Earnings Over Time

Moreover, university students aren’t learning much. According to the National Assessment of Adult Literacy, only 29 percent of 4-year college graduates read at an advanced level. As the chart below indicates, over time, graduates’ literacy across categories has declined. (Literacy rates of adults with associate’s and advanced degrees also declined, although they are not shown here.)

Literacy in 1992 and 2003

In a new book, Academically Adrift, sociologists Richard Arum of New York University and Josipa Roksa of the University of Virginia show that nearly half of university students show little to no academic progress by their sophomore year.

And it’s no wonder: according to researchers Philip Babcock and Mindy Marks, today’s students study only 14 hours per week outside of class—compared to 24 hours in 1961. In a typical semester, one-third of the students Arum and Roksa followed for Academically Adrift did not take “any courses that required more than forty pages of reading per week” and half did not take “a single course that required more than twenty pages of writing.”

Right now, a bachelor’s degree is still a good option for many students. However, as prices continue to rise and gains in academic achievement and lifetime earnings stagnate, the bubble—the discrepancy between cost and value—will inflate further. Future students should carefully consider their options before they choose a path—before the bubble bursts.