College Is Not a Ludicrous Waste of Money

A couple of weeks ago former Secretary of Labor Robert Reich published an article under the unfortunate and misleading headline “College Is a Ludicrous Waste of Money.” Readers who did not finish the article might have assumed Reich was arguing that a college degree is vastly overpriced, offering graduates little in the way of an economic return.

As a well-informed observer of U.S. labor markets, Reich knows this frequent complaint about American colleges is flatly untrue. The economic reward from attending and completing college has probably never been higher. The fact that many parents, students, recent graduates, and, yes, economic reporters believe differently reflects confusion rather than a sober appreciation of the facts.

Two different trends have combined to persuade many people that college is just not worth it anymore. One highly publicized trend is the sustained increase in the sticker price of college, especially four-year public colleges. These colleges saw average tuition double between 1988 and 2013, even after adjusting for the general rise in consumer prices. In other words, public college tuitions climbed much faster than the prices of other goods and services. Of course, many students do not pay the full sticker price charged by the college they attend. Low-income students and students with strong qualifications often obtain financial aid, which reduces their net cost of attendance, and many elite colleges are now free for families with incomes under a certain amount. Even so, many middle-class and affluent students face higher charges than they would have paid two or three decades ago.

A second trend visible to many recent grads and their parents is the shrunken paychecks available to students after they’ve graduated from college. Many students finishing college cannot even find a job that requires a diploma let alone the skills they learned in their field of specialization.

With steadily higher tuition and stagnant or even declining wages for new college graduates, how can it be that the economic return to college may be near an all-time high? The simple explanation is that the prospects for twenty-somethings who do not complete college are much worse than those of the ones who do. What is more, the economic prospects of the young adults who do not complete college have worsened over time, and much faster than the prospects facing new college grads.

A student’s economic reward from completing college depends on more than just her cost of attending and the expected income she will earn after graduation. It also depends on what she would earn if she did not enter or finish college. One reason the nation’s colleges have not seen a drop in in enrollment despite the supposedly gloomy prospects of new graduates is that for most 18- to 22-year-olds it still makes sense to pay the price and get the degree.

In one crucial way, the worsening economic outlook facing non-college-bound youngsters has made college cheaper for the students who attend. The (often discounted) sticker price of attending college is only one of its two major costs. The other is the earned income a student gives up because she is sitting in a classroom or studying rather than holding down a job. Because the wages of high school graduates and college dropouts have shrunk, the “opportunity cost” of attending college has also dropped.

Many new college graduates are understandably disappointed by the job market they have entered. A large fraction of them are forced to take jobs for which they may feel over-qualified. It is worth remembering, however, that holding a job for which one is over-qualified can be far preferable to the outlook facing a job applicant whose education ended in high school. In many situations where business owners can hire either a college or high school grad, they will hire the college graduate, even if the position only requires the skills picked up in a high school classroom. This gives college graduates a leg up in getting jobs when there are many non-college applicants for the same jobs.

The unemployment rate of high school graduates has been more than twice that of college graduates over the past two decades. At the same time, the employment rate of high school grads has been 16½ percentage rates lower. Last year, the employment rate of high school graduates past age 25 was 54 percent while that of college graduates was a bit less than 73 percent.

There are many good reasons to be disappointed with the current state of the job market. Americans with just a high school diploma have a lot more reasons for discontent than those who have graduated from college, however. The big current payoff from a college degree is not due to the soaring prospects of the average college grad. It is due instead to the worsening prospects facing youngsters who fail to enroll in or complete college.