The new Holy Grail in American life appears to be a four-year college degree. Almost all high school students and their parents aspire to go to college, and high school graduates are enrolling in much higher numbers than in the past. The problem is that too few of them are graduating. Dropout rates from four-year schools are over 40 percent and from community colleges they are closer to 70 percent. The need for remedial courses to compensate for what kids are not learning in high school is distressingly high and not all that effective.
For those who actually graduate, a college degree can pay off handsomely in the labor market. After adjusting for other confounding variables, the extra lifetime income associated with a bachelor’s degree is $570,000, and the rate of return is high – somewhere around 10 percent. However, those figures are averages. The benefits of a college degree vary widely depending on the quality of the school and a student’s choice of major. Not all college degrees are created equal: there is a huge variation in the return to a bachelor’s degree, depending on choice of major and occupation; school type and selectivity level; as well as the likelihood of graduating. The details are spelled out in a newly released Brookings brief that notes that 170 of 853 unique schools, or 1 in 5 of those schools analyzed, have negative returns on investment.
With college costs at record highs, many students are incurring debilitating debt. Student loans are the second largest item on household balance sheets after mortgage debt. It may actually be irresponsible to tell young people that college is always the best choice, and that they will be able to find jobs that make these debt levels affordable. If a student is able to get into a school with high graduation rates, generous financial aid, and he or she chooses a major with high expected earnings – such as engineering or science — they can greatly improve their lifetime prospects. But an expensive degree at a non-selective four-year school with a low graduation rate may not be a wise decision.
How can we help students make smarter investments in their postsecondary years? First, we need to make sure they have better information on financial aid, graduation rates, earnings levels, and other relevant information about the institutions they are considering. Some of this data exists, such as the PayScale college rankings and the Obama Administration’s College Scorecard, but should be more broadly publicized. Second, we should encourage more students to consider less traditional postsecondary alternatives such as job training programs, apprenticeships, vocational certificates, and associate degrees that train students in skills that are in high demand by employers. Finally, financial aid should be tied to academic performance: research suggests that students with financial aid that has strings attached are more likely to complete their degrees.