For many individuals and their families, the choice of a college and major are among the most significant economic decisions they will ever make. I have read a wide range of research on this issue and I have put two kids through college, as well as having spent more than my fair share of time as a student. In this post, I will share my thoughts as to the key considerations.
First, do not be deluded into thinking that a more expensive or “elite” school will necessarily confer an economic advantage over going to any other school. Two major peer-reviewed studies, conducted in 2002 and 2011, found that there is no economic payoff from attending an “elite” school. The exception to this conclusion is for students coming from disadvantaged backgrounds and for people of color. I have been told, anecdotally, that certain law and business schools have a strong preference for students with undergraduate degrees from “elite” schools and also that some employers favor applicants from Ivy League and similar schools, but I have never seen a study to this effect.
Second, it is very important to consider both the income associated with a major and college. While it is common to read that a college degree adds a million dollars in lifetime earnings, the realistic numbers vary dramatically across majors and colleges. The PayScale.com college return-on-investment (ROI) calculator is a great free resource for exploring this issue. Going to an expensive school and majoring in a field with low earnings potential may not matter for students from wealthier families, but this could be an economically devastating choice for less-well-off students. I am not suggesting that students should choose majors because they lead to higher-paying jobs, but rather that students should select a school and major with a fully-informed understanding of the economic implications.
Third, many people will pursue some form of post-graduate degree after a 4-year degree. In planning for expenses and selecting schools, it is important to consider the likely post-graduate paths. Some careers essentially require a graduate degree in order to advance. Veterinary medicine, for example, is in an emerging crisis because doctors of veterinary medicine have average debt loads that are very high compared with their incomes.
Fourth, it is useful to make educational decisions that don’t lock you into just one career path. Over the years, I have spoken to many young people who pursue a degree with a singular focus on a specific path, only to change their minds late in their educations of after a year or two of work. There are ways to make your degree program more flexible so that you have more options to pivot if your interests change.
In the United States, we are extremely fortunate to have an enormous array of top-notch educational institutions that cater to a wide variety of interests and needs. Many students from other countries want to study at U.S. colleges and universities. At the same time, 49% of U.S. college graduates regret their choice of major. This number jumps to 68% for those who graduate with debt. We have a wealth of choices but there is need for more guidance for students as they navigate these decisions.
Even among wealthier families that can pay for an expensive education, I wonder about whether this choice will ultimately seem like the best use of the resources. Today, the difference in cost between going to an in-state public university and an expensive private school can reach $200,000 for a 4-year degree. Payscale.com estimates that the all-in cost of a 4-year degree from UNC-Chapel Hill, an excellent public university, is $98,500 (in-state). The University of Chicago and Columbia University cost slightly over $300,000 for a 4-year degree (also according to Payscale.com). There are many other schools that are not far below $300,000 for a 4-year degree and the students who could get into these schools are likely to qualify for merit-based aid at one of their in-state institutions. Assuming a 5% real rate of return on investing (real=corrected for inflation), a cost difference of $200,000 would grow to $1.4 million (in current purchasing power) over a 40-year period (from age 20 to age 60 for the student). Even for well-off families, this is a substantial amount of money that could, for example, be a large part of retirement savings or pay for a future generation’s college costs.