What college affordability debates get wrong on the returns to college

Higher education’s reputation has suffered greatly from the widespread attention to the soaring cost of college and the declining returns to a college education. Remedying these two issues is going to be very, very difficult because (1) the return to college has not declined, and (2) the cost of college has not risen for years. It’s tough to fix problems that don’t exist.

The truth is not any secret. In fact, Brookings has nailed the facts on the return to college here and the facts on the cost of college here, here, and here. There’s also a good piece on the general impression left by the media compared to the facts by Robert Kelchen. And the College Board has an insightful report on the most recent prices, along with trends over time. Here, I concentrate on providing some pictures to help make these facts obvious to everyone.

It’s probably not surprising to be told that, on average, people with a bachelor’s degree earn more than those with a high school diploma. The following graph, taking the most recent (2023) data from the American Community Survey, shows what economists call an “age-earnings profile.” Figure 1 plots median earnings at different ages for two groups: one curve for people whose highest education level is a high school diploma and a second for people whose highest education is a bachelor’s degree. (In principle, the college earnings premium might reflect factors other than going to college, such as underlying skills, that make it both more likely students get into college and end up in higher paying jobs; however, there’s ample evidence that the college advantage really is causal for students on the margin of enrolling.)

For almost all of a typical career—once past the first few years—the median college grad earns more than the median high school grad. A lot more. Getting a college degree does two things in the job market: A college degree leads to higher earnings, and it leads to more steady work. College-educated workers are more likely to be in the labor force, have less unemployment, and are more likely to land full-time rather than part-time work. The standard numbers on workers’ median earnings the Federal government publishes also show a large earnings win for getting a bachelor’s, but not so big a win as the gap shown above because the government numbers separate full-time, year-round workers from others. Figure 1 above combines both the higher salary and more steady work by calculating a weighted average of both groups. That’s why the college earnings premium is so high and why it may also be easy to overlook.

Is the college premium getting larger or smaller? The next picture shows what’s happened to the ratio of median college to high school earnings going back a bit over 20 years.

Figure 2 takes account of earnings differences for all ages between 18 and 65. While the estimate bounces up and down a bit from one year to the next, the first striking fact is that over the years the median person with a college degree has earned between twice and threefold the typical earnings of a worker with only a high school diploma. That enormous gap is why college pays financially. Even more, the gap has risen, not fallen, since the year 2000. The ratio is not at its all-time high, which hit in the five years following the Great Recession. However, the college-to-high school ratio was 2.1 in the year 2000 and rose to 2.7 by 2023.

Let’s turn to the second issue: the cost of college. The next chart shows the inflation-adjusted cost of tuition (and all required student fees) as well as that cost minus financial aid. (Loans are not counted as financial aid since they generally have to be paid back.)

Tuition and net cost, defined as the cost of attendance after grants and scholarships, are shown for public and private nonprofit universities; solid lines indicate tuition and dotted lines indicate net cost, with public institutions in yellow and private institutions in blue. Costs at the former are, perhaps unsurprisingly, much lower than for the latter. Note as well that the gap between stated tuition and the actual cost net of financial aid is much larger at private institutions. In both cases, tuition and net costs have been essentially flat since the Great Recession, even dipping down a touch in recent years.

There are two different ways of calculating net costs. In Figure 3, I’ve used tuition plus required fees as the “list price.” An alternative is to include room and board and books. There are two things to consider with room and board costs. First, these costs are high. Second, these costs are high for all people–and even if a person doesn’t go to college, they still have to eat and live somewhere. Consider the measure that counts only tuition and fees as an “economic” measure, reflecting the opportunity cost of attending college. Measures that include all living expenses are “accounting” measures. The economic measure better captures the extra costs of college, though neither measure is perfect

The government provides data using the second “accounting” measure, which is shown in Figure 4. (Caveat 1: The government data focuses on students receiving federal aid while Figure 3 above covers all students. Caveat 2: For public institutions, the government data is for in-state students only, while Figure 3 above again covers all students.)

Adding in the room and board costs does increase the level of costs (on the y-axis). Despite the caveats, though, the main message is unchanged: The real cost of college has been flat for years now.

If you want more detailed breakdowns of net costs, including by income level, check out Phil Levine’s comprehensive graphs. If you are researching colleges, CollegeScoreCard.ed.gov lets you explore both net costs and typical post-graduation earnings for any college you choose.

If the cost of college has been flat for so long, why do so many seem to think the cost has skyrocketed? There is one reason that is understandable. The flat costs are really only true for trends covering the last decade or so. From the 1990s up until the Great Recession, tuition costs increased significantly over and above inflation. In other words, college costs more today than a generation or two ago, which may explain why parents and grandparents perceive it as expensive. For example, the in-state, inflation-adjusted tuition sticker price at the University of California where I teach has increased by more than a factor of four in the past 40 years. But note that today the majority of California students at UC pay zero tuition.

Because the widespread perception that college doesn’t pay—and that it’s gotten worse over time—persists despite the facts, here’s an easy way to illustrate the point. Let’s ask the following question: How long does it take a college graduate to make up for lost earnings and the cost of tuition?

The answer might surprise you: College grads come out ahead by age 26 or 27.

Here’s what I did: I took the data you’ve already seen and just made a few additional calculations. First, I added up the net cost of four years of college (excluding room and board) plus inflation-adjusted median earnings for high school graduates between ages 18 and 21. That’s my measure of how far behind a college student starts off. Then, starting at age 22, I offset this by the gap between high school and college median earnings (from Figure 1). For a few years, college graduates fall a little further behind. (High school graduates generally have more work experience at age 22 and college graduates’ first jobs are often a bit underwhelming.) But in just a few years, by age 26 or 27, college graduates begin to come out ahead, even after accounting for the costs incurred to get an education. That general picture hasn’t changed in more than a decade.

Due to data limitations, this isn’t a perfect measure. The data is for pre-tax earnings, and on an after-tax basis it will take college graduates a little while longer to catch up. On the other hand, many college students work part-time, and I’m not giving them any credit for income they earn while studying. Also, many college grads have part of the loans they took out forgiven, which I’m also giving them no credit for. So, age 26 or 27 probably isn’t exactly right—and of course will vary from student to student depending on the college attended and their chosen major—but it’s pretty close to right.

Figure 5 will nail the point home. I ran this calculation for the cumulative advantage of a college degree through age 65 for the most recent year available. Here’s the picture:

So, it does take a few years for a college graduate to catch up for tuition and missed work years, as evidenced by the values that dipped below zero at the earliest ages in the figure. But the advantage is clearly on the side of college graduates and continues to grow over their careers. By retirement age, the typical college graduate will be ahead by well over a million dollars.

It’s tempting to feed into public discourse and media frenzy about “rising college costs” and the affordability crisis. And there are still very real affordability concerns prospective students face trying to pursue a degree, with college costs still out of reach for many low-income students and many students struggling to cover costs of living while enrolled. But we can, and should, have policy discussions that start with accurate information about college costs over time.