I write frequently about college affordability. From my perspective, it’s easier to provide a return on investment for a college education if the cost to attend college doesn’t saddle the graduate with student loans for a lifetime. A graduate with low or no debt is also free to pursue a career that may not pay so much—such as being a teacher—but one that provides them with personal gratification. It’s important for any student or parent advisor to understand the college wage premium that college graduates receive over a lifetime—which I often call the college earnings premium. I tell friends that the average is a little more than $1 million, but the average is boosted by the earnings of the people in the top 10 percent.
Generally, the higher the level of education attainment, the more you earn.
Understanding College Access
On July 30, 2024, The HEA Group released three primers on college access, college affordability, and economic outcomes. According to its website, HEA was commissioned to write these papers “to inform the Carnegie Postsecondary Commission’s work to produce transformational change within the U.S. higher education system.”
I follow Michael Itzkowitz, the author of these primers, on social media and visited The HEA Group website to read the papers. The second sentence of the Understanding College Access paper reads, “On average, a bachelor’s degree holder earns approximately $2.8 million more than someone who has earned a high school diploma.”
I was startled.
The average cited for the college earnings premium is much higher than what I believed it to be, so I looked for the source of his footnoted statement. When I entered the link to the normally reliable Georgetown University Center on Education and the Workforce reports, The College Payoff opened with this statement: “A Bachelor’s degree is worth $2.8 million on average over a lifetime.” I commended the work of the researchers who wrote the College Payoff in 2023.
You have to read to Page 22 of the full report to find a statement that the dollar gap between bachelor’s degree holders and high school graduates is “nearly $1.3 million.” So, The HEA Group’s opening paragraph leads off with a major misstatement. I assume it was inadvertent, but nonetheless, it’s off materially.
Other Sources for Earnings Data
The source cited by Mr. Itzkowitz was published in 2011. I decided I would take a few minutes to find other reliable citations to compare the range of published numbers. One of the first that I located was another Georgetown University Center on Education and the Workforce paper titled Learning and Earning by Degrees. I had not previously reviewed it.
Learning and Earning uses more recently published data from the U.S. Census Bureau as its source for earnings by educational attainment than College Payoff published 13 years earlier. Page 22 provided the data I was looking for: “The net lifetime earnings gains for those who completed a bachelor’s degree are $1 million.”
The Hamilton Project, first published in 2015, states that the lifetime earnings premium for a bachelor’s degree recipient over someone earning a high school diploma is $610,000. The site also provides career earnings for 80 different majors for college graduates compared to workers with less education.
Going down the search engine rabbit hole, I looked at more than 12 Google search results pages. Many studies insist that the earnings comparison needs to be reviewed on a net present value or discounted basis. This is because high school graduates begin earning money well before bachelor’s graduates and even longer before those who complete graduate school. On a discounted basis, the gap shrinks to about $600,000.
Some researchers insist the earnings calculations use the median and not the mean because the earnings of the highest earners skew the average. I reviewed the book The Global Auction when it was published in late 2010. The three UK economists who co-authored it pointed out that removing the top 10% of college graduate wage earners from the overall population reduced the average earnings premium by 40%.
Many studies provide earnings by gender (men earn more over a lifetime), race (White grads earn more than Black and Hispanic grads), socioeconomic background before completing college (lower, middle, upper income), state, program, college, college selectivity, and type of college.
College Wage Premiums Declined Recently
According to a report from the Federal Reserve Bank of San Francisco, the college wage premium was flat to down in recent years but declined notably since the pandemic. Its analysis indicates that the decline is due to an acceleration of wage gains for high school graduates rather than a decline in wages for college grads.
The wage gap peaked at 79% in 2010 but declined by 4% in 2022 to 75%. The decline is most notable for groups other than White workers. Data was analyzed through the full year of 2022.
Learning and Earning by Degrees
I thought the Georgetown University Center on Education and the Workforce report, Learning and Earning by Degrees, covered many of the issues that surfaced during my search and provided more recent earnings data through 2022. I asked ChatGPT-4o to provide me with an overview of the report after I uploaded it. Its response is printed below:
The Georgetown University Center on Education and the Workforce’s report, “Learning and Earning by Degrees,” examines the substantial economic and social benefits of increased college degree attainment in the United States from 2010 to 2020. The report outlines how higher education has led to significant lifetime earnings gains, highlighting a $14.2 trillion increase due to a 6.7 percentage point rise in the population holding a college degree.
Key Findings and Themes:
- Economic Benefits of Degree Attainment: The report reveals that higher education has a profound impact on individual and national economic prosperity. Individuals with higher educational attainment generally earn more, have better employment prospects, and enjoy greater job stability. For instance, net lifetime earnings gains associated with obtaining an associate’s degree are approximately $495,000, while those with bachelor’s and graduate degrees see gains of $1 million and $1.7 million, respectively. The economic benefits are not limited to individuals; society also benefits from higher tax revenues and increased consumer spending.
- Persistent Inequality: Despite the overall benefits of higher education, the report highlights persistent racial and gender inequalities in both degree attainment and associated earnings. While all racial and ethnic groups experienced increases in degree attainment, the gains were not sufficient to close the attainment gaps with white adults. For example, the attainment gap between white and Black/African American adults widened slightly over the decade, reflecting deeper systemic issues. Additionally, women, despite achieving higher educational levels than men, continue to earn less, with the median lifetime earnings for women with graduate degrees being less than for men with bachelor’s degrees.
- State-Level and Demographic Insights: The report provides detailed state-level analysis, noting that the District of Columbia had the most significant increase in the proportion of adults with higher education degrees. This increase is attributed to the district’s unique labor market, which demands highly educated workers. The report also discusses the varying impacts on different racial and ethnic groups, highlighting that white adults saw the largest cumulative gains in lifetime earnings, followed by Hispanic/Latino and Black/African American adults.
- Challenges and Recommendations: The authors discuss the challenges of achieving economic justice solely through educational attainment. The report argues that while “college for all” is a valuable goal, it does not guarantee equal economic opportunities. Structural inequalities, such as wage discrimination and occupational segregation, continue to limit the economic benefits for marginalized groups. Therefore, the report calls for comprehensive policies that address these systemic barriers alongside efforts to increase educational access and completion.
- Non-Monetary Benefits: Beyond economic gains, the report emphasizes the non-monetary benefits of higher education, including better health outcomes, lower crime rates, higher civic engagement, and greater resistance to authoritarianism. These benefits contribute to individual well-being and societal stability, making a strong case for continued investment in higher education.
- Future Outlook: The report predicts that the demand for college-educated workers will continue to grow, with 55% of all jobs expected to require a college degree by 2031. This trend underscores the importance of increasing access to higher education and addressing the quality and equity of educational opportunities.
In summary, “Learning and Earning by Degrees” presents a comprehensive analysis of the economic and social benefits of higher education in the U.S. It highlights significant lifetime earnings gains and other positive outcomes associated with increased college degree attainment. However, it also underscores the persistent racial and gender inequalities that limit these benefits. The report calls for a multi-faceted approach to achieving economic justice, emphasizing the need for both educational and structural reforms.
However, it also underscores the persistent racial and gender inequalities that limit these benefits. The report calls for a multi-faceted approach to achieving economic justice, emphasizing the need for both educational and structural reforms.
Final Thoughts
Despite the recent decline in the lifetime earnings premium of bachelor’s degree recipients versus high school graduates, the undiscounted premium continues to approximate $1 million. The premium varies substantially by program major for undergraduate degree recipients and graduate degree recipients. It also varies by college attended and race.
My review and analysis triggered by a mistake in a paper indicates that prospective college students should investigate not only the earnings potential of specific degrees but also the return on investment of those degrees based on the cost of attendance and salaries earned by graduates of those institutions.
Preston Cooper’s recently published paper, “Does College Pay Off? A Comprehensive Return on Investment Analysis,” examines the return on investment for 53,000 different degree and certificate programs. He finds that 23 percent of four-year degree programs have a negative ROI, and 43 percent of two-year programs have a negative ROI.
Cooper’s analysis includes data from the College Scorecard. I have written about my concerns with the Scorecard in the past. Most of these relate to its dataset only capturing data from full-time students and from those who borrow. An institution whose students are mostly part-time students who do not borrow is sorely represented.
Cooper has used a methodology to forecast future earnings, using the four years of earnings currently reported by the Scorecard. This technique is necessary to calculate a lifetime earnings estimate by program. Perhaps one day, the U.S. Department of Education will be able to include the earnings of all college graduates in the Scorecard.
Cooper’s executive summary comment, “The decision to attend college is less important than the choices that come next: which school to attend and which subject to study,” mirrors my comments in the first paragraph of this section. ROI and earnings are inextricably linked.
The cost of attendance (the denominator in ROI) may or may not be a factor depending on the graduate’s lifetime earnings. At the same time, lower-income families may choose lower-cost community colleges, where 43 percent of the degrees have a negative return on investment.
It’s my opinion that many low-income students do not have access to advisors who can explain these differences and coach them to an appropriate degree and college choice. If we want better outcomes, we should fund the availability of additional qualified advisors.
