One of the most commonly-cited statistics about college is that the average graduate from a four-year college will earn a million dollars more over their lifetime than a high-school graduate. Most recently, this statistic has been propagated in a study at Georgetown, but this talking point has been around for much longer.
Will a college degree really provide someone with this much additional lifetime earnings? To begin any discussion, one must first ask whether the populations of people who graduate from college are really comparable to those who do not. The average college freshman comes from a much wealthier family, for example, than the average American whose terminal degree is a high school diploma. And, not surprisingly, the odds of dropping out of college are considerably higher for students from poorer families. In other words, graduating from college may, to some degree, be a marker of family wealth rather than being independently predictive of future earnings. In other words, the fact that college graduates earn more may be partly (or even largely) due to the fact that kids who grow up in wealthier families are likely to be wealthier-than-average themselves.
Another problem with simply equating a four-year degree with higher income is that different degrees result in vastly different economic outcomes. To come up with an aggregate measure of future earning potential by averaging philosophy and elementary education majors with engineers and pre-med students is largely meaningless. This sounds obvious, but many graduates are dismayed to discover that their future earnings are insufficient to service their debts and the choice of a major is often a significant factor.
The finding that people with four-year degrees tend to earn $1 million dollars more than high school graduates is not the problem. The problem comes taking the next step to inferring that going to college will result in much higher earnings. There is a correlation, but we cannot tell how much is causal.
There is no question that higher education is valuable, both personally and in terms of building valuable skills. I am a big advocate of higher education. The sad reality, however, is that almost 40% of recent college graduates end up working in jobs that don’t require a college degree. The act of graduating from college does not ensure high earnings. In addition, given the ever-increasing costs of education and the corresponding growth in debt, students and families need to look beyond the surface-level statistics to determine how much it is really worth to go to college and whether the prospects for higher future income justify the cost.
Note: here are the specifics of the Georgetown statistics. The roughly $1 million more in lifetime earnings for college graduates is calculated in inflation-adjusted dollars and the statistics are actually calculated on the median rather than the mean (the average). The Georgetown study assumes a 40-year working career as the norm.
Geoff Considine on Finance and Economics 