The value of a college degree
I’m a long-time vocal proponent of higher education. For me, it’s personal. I was raised in a poor family with parents who had briefly attended college, but never with any real gusto. (I’m not sure my father had a plan. My mother studied home economics. Not kidding.)
My uncle got a math degree from a now-defunct community college, and his son (my cousin Duane) went to school back East. I’m not sure if he got a degree, though. (I’ll ask him tomorrow when we get together to bake Christmas cookies!)
But from a young age, I knew that I wanted to go to college. I knew I was a smart kid, and I viewed college as a Way Out. It was an escape from the trailer house I grew up in, an escape from menial labor.
Too bad then that I squandered my college education. I entered Willamette University intending to be a religion major, but eventually ended up with a psychology degree — chased with an equally useless English minor.
My college degree hasn’t really proved useful in my life. Well, I guess I apply both the psychology and English education in my career as a money writer, but I don’t make direct use of the things that I learned. And that’s the rub.
College degrees are valuable — but not if you choose the wrong one.
Although it’s popular in some corners to bad-mouth college degrees, according to the U.S. Census Bureau your education has a greater impact on lifetime earning potential than any other demographic factor. Education matters more than age. Education matters more than race. Education matters more than gender. When it comes to making money, education matters most.
So, I’m always interested when I see knew reports and/or research regarding the value of college. In October, the Foundation for Research on Equal Opportunity (FREOPP) released an excellent report entitled “Is College Worth It? A Comprehensive Return-on-Investment Analysis”.
I like this report because it goes beyond averages. Sure, FREOPP says, the median bachelor’s degree is worth $306,000 for students who graduate on time, but…
…the median conceals enormous variation. Some fields of study, including engineering, computer science, nursing, and economics, can produce returns of $1 million or more. Others, including art, music, religion, and psychology, often have a zero or even negative net financial value.
FREOPP argues that “the decision to attend college is less important than the choices that come next: which school to attend, and which subject to study.”
The analysis reveals that a student’s choice of program is perhaps the most important financial decision he or she will ever make. Most bachelor’s degree programs in engineering, computer science, economics, and nursing increase lifetime earnings by $500,000 or more, even after subtracting the costs of college. But most programs in fields such as art, music, philosophy, religion, and psychology leave students financially worse off than if they had never gone to college at all.
Differences in ROI between programs can amount to millions of dollars.
The FREOPP report — which is very long — includes plenty of interactive stats and charts and graphs. Readers acan compare the value of college majors, expected earnings, and more.
The FREOPP report echoes some of the findings of Georgetown University’s 2015 report on “The Economic Value of College Majors”. The Georgetown study found that engineering majors earned a median starting income of $50,000 per year. Folks with an art degree started with annual salaries of around $28,000. And high-school graduates who didn’t go to college? Well, they had average starting salaries of $22,000 per year.
The bottom line? FREOPP says there are three main messages to draw from their report.
- First, major is the most important factor when predicting the return-on-investment for a college education. Degree subject accounts for half almost half of ROI variation alone.
- Second, elite colleges can pay off, but not always. FREOPP found that there is a weak correlation between the cost of a school and how much a degree from that school is worth. But, as with majors, there’s plenty of variation. A film degree from Harvard is likely to be worth less than an engineering degree from a “no name” university.
- Finally, there are a lot of bachelor’s degrees that don’t make sense from a financial perspective. You might want an art degree or a religion degree for other reasons, and you might be fulfilled with those degrees, but they’re poor choices when viewed through the lens of money.
Here’s what I always say when I write about this subject: The more you learn, the more you earn. And it’s true. No, a college degree isn’t a guarantee that you’ll earn more, but it never has been. But, generally speaking, the more formal education you have, the more money you’ll make during your lifetime. This report only reinforces that conclusion.
[“Is College Worth It? A Comprehensive Return-on-Investment Analysis” at Foundation for Research on Equal Opportunity]
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There are 18 comments to "The value of a college degree".
It’s so nice to have you back, J.D.!!! I feel joy every time I see a new article posted ?
I always get a chuckle out of posts like this. After achieving identical respectable scores on the verbal and math portions of the SAT, 17-year-old me threw up his hands in confusion and went for a music performance degree. It definitely had a relative negative impact on my salary over the years but in the Before Times I actually put it to good use in local performing groups 3-6 nights a week!
My wife, who makes significantly more than I do in a field unrelated to her psych degree, is envious that I achieved fluency two dozen years ago in all the musical stuff that she’s bashing her head against to learn now. oops.
Exactly! It sounds like this degree improved your quality of life.
Yeah I feel similarly. If you get something out of it, even if it doesn’t necessarily have a direct payoff then go for it. I don’t directly use my master’s degree but I absolutely loved the experience and for that alone I think it makes it totally worth it.
I do see the issue when someone is pressured into going to college when its not right for them or when they are not ready for it. That seems to be when people end up feeling it was a waste.
“Yeah I feel similarly. If you get something out of it, even if it doesn’t necessarily have a direct payoff then go for it. I don’t directly use my master’s degree but I absolutely loved the experience and for that alone I think it makes it totally worth it.”
This is really only for the very privileged. The vast majority of people looking toward college are looking to improve their lives financially because it is an understatement to say it sucks to be poor. People looking for fulfillment from college without a financial benefit don’t understand that struggle, IMO. Sure, you can hopefully also find some personal fulfillment in the career path you choose but that is far from your primary motivation.
Or perhaps I am just projecting my own financial insecurities. Anyone growing up with a lower middle class childhood or less want to disagree?
[edit] I can’t seem to get the formatting right…
Hi Travis. Rereading I see how I did come off weird and insensitive. I actually did grow up in poverty/lower middle class. I would say my undergrad degree in engineering was very much to pull me out of poverty and I had the extreme good fortune to get scholarships for that, which made it a possibility. I feel my master’s, however, was absolutely a luxury I didn’t need financially but benefited my quality of life as a person. I think my real point was college isn’t only a financial decision and the value may not be quantifiable on paper or an obvious 1:1. Or maybe I am just a weirdo who loved grad school.
I was a first generation college student, and my motivation was to be able to get a good paying job. In hindsight, neither I nor my family had the slightest clue how college or financial aid worked. The guidance counselor at my high school was not very helpful either. My life path would have been very different if I had more guidance and information about all these things at age 17. My financial literacy was poor until probably around age 30 I started reading books about money management from the library, and I thankfully began following Suze Orman and Dave Ramsey.
I don’t think it’s necessarily the major – it’s what you make of it. I was an English major, frequently cited as a “useless” degree. However, I now work in publishing in the pharmaceutical industry, and my salary is on par with many software engineers. I also have a “useless” master’s degree in Art History, which I don’t use now, but I didn’t pay for it – I chose a program that offered me a full scholarship. It’s probably not the BEST decision to get an advanced arts degree at an expensive college, taking out loans for the whole thing. But I encourage people to be flexible with their careers, because there is a way to make humanities degrees pay off.
Similar experience and sentiment here. English degree. I had done lots of research at the time and knew that the degree, for the most part, was simply the entrance ticket into the corporate world. The actual major, for most, was not that critical back then and still isn’t unless you want to do a specialized field such as engineering, nursing, accounting, teaching. Had multiple job offers the week I graduated and never looked back since. I’m in the 1+ million ROI (times 2 or 3) 22 years post-graduation.
Also, one of the other appeals to a college degree that is never considered is the portability. I personally know many college grads who, after working in one field for a number of years, decide to transition to another. They usually can do it without taking a pay cut. I have some relatives in the trades who have been spouting the anti-college angle for a few years now. They’re cops, electricians, etc. They make a fair wage, but not as much as my college degree earning friends do. But more important than money in some respects – good luck changing careers/fields without a degree. I don’t know of any electricians who became plumbers at age 45.
Once you’re in the corporate world the degree remains a requirement (you won’t get by the recruiter’s screening software regardless of what experience you might have), but the major is not very important – it’s the job experience on the resume.
I have one high school senior and two high school sophomores so this article is timely. I understand what you are saying and yet, it makes me mad! Art and music feed the soul and I believe they are a critical component of a life I’d want to live. And yet, from the charts you show, artists and musicians and psychologists appear to not be valued. When I think about it, art and music and my therapist that kept me sane during the pandemic. And I really wish society rewarded those areas in a more meaningful way.
I completely agree – it drives me bananas that society financially undervalues artists and musicians (among other fields). My son is a junior and a serious musician – we are supportive of his interest in getting a music degree but talking through what that might look like when he’s done with school.
I wonder if your degree shows in your incredible writing skills? I bet it does. You really have a gift when it comes to prose. There are a lot of good writers in the personal finance field but you are a great writer. I have to think some of that comes from your higher education. For someone like me, a chemical engineer, my degree was vocational, no different than a welding degree or auto mechanics. We were trained to design and troubleshoot chemical processes and equipment. We didn’t take western civilization, foreign language, philosophy or literature classes. We just took math, chemistry, physics and engineering courses. Not a well rounded education but one that got you a job and decent pay regardless of the economy. I had eight firm offers a semester before I graduated. I am a big proponent of vocational education, whether in the skilled trades like plumbing or welding or in the tech field like engineering. Mainly because it has a high return on investment. I am not qualified to weigh in on the value of softer areas of education, like yours. But my gut is that all education is useful and increases your earning potential.
Good report but it doesn’t really answer the question.
I suspect for most people, college is about the ‘experience’ and not about preparing for their work future (STEM and medicine are a small part of the college population).
For most, college is 4+ years and $80,000 to $200,000 in expense. Enough time and money to start a business. More than enough time and money to develop a ‘skill’ be it programming or welding or something outside of the college ‘experience’. Enough time and money to learn about the world and personal interests, making a later educational experience better.
I’ve come across a lot of people who did or could do just fine without a college degree. My personal experience was working as a programmer for IBM at 18 and only getting a degree later (on their dime and time) because they required that I eventually get one (strange concept but that was in the 1960s). Same happened at RCA where I worked as a finance guy, I had to get an MBA to keep my job (again their $ and time).
Later I ran a software company (we are in the 90s now, and we hired high school kids who happened to know a programming language we used. They got 5x what they would have gotten for any other high school job and we got really good employees.
My son (in the 2000’s now) and one of my son in laws both have businesses that make no use of the college degrees their families made them get. These guys have a lot of fast food stores (now in 2020s) and their store managers are all no College and make between $60k and over $100k.
Lots of federal jobs pay well but don’t require college, we have some of these folks in our extended family. Sometimes it turns out that a college degree helps later with promotion opportunities but even then often not required.
In my life I’ve met a lot of rich electricians, plumbers, and small business owners. I’ve met ‘professionals’ with great incomes and jobs with degrees that are real but suspect (night school, internet, for profit, etc.) relative to the usual college residential experience.
Kids today and their parents should spend the college money and time like it was a real expense … making sure that the effort creates something of value. Not just going to college for a ‘studies’ degree and $100,000 of debt. And the look at opportunity beyond the college experience is especially important for most people who don’t have an easy time with STEM. I did graduate with a business degree after a couple of years of engineering … 5 courses in calculus and real physics. I’ve seen that is is hard for even some of the smart ones and impossible for most. We need to recognize that people can acquire skill sets that are less technical and valuable with a path other than 15 hours a week for 40 weeks for 4 years at a cost of over $100,000.
A bit of a rant but one of the best things a parent can do is to help their kids succeed and to help them not be clueless, skill less and impoverished after 4 years in college.
The “My mother studied home economics. Not kidding.” comment kind of rankled. Perhaps you don’t realize that many women were directed into that field by their (male) guidance counselors.
Sure, I understand that. But I think that “home economics” as a subject — in high school or college — is a think of the past. It used to be HUGE. My impression is that kids today don’t understand just how big the subject was. It’s like a window into the past, which is why I highlighted it. Can you imagine a Home Ec major at a university today? Perhaps that degree exists in some places, but I doubt it. Yet, not so long ago it was a subject that girls and young women were shepherded toward (as you say).
Another true story: I took Home Ec during my senior year of high school. I was the only boy in my class. My male peers gave me a lot of shit for taking the class, but I didn’t care then (and I don’t care now). It was fun. Plus, I got to hang out with cute girls. And best of all? I now have cooking skills that I use all of the time. I just used them yesterday to bake cookies with my cousin Duane.
We had something very similar back when I was in middle and high school in Germany, it was compulsory for everyone in 7th grade and after that, depending on which branch you chose you’d continue having more or less of it. I called that “life skills” and it was hugely valuable in hindsight. Learning how to cook, how to shop for ingredients, how to budget, etc. are lessons I still use to this day.
They also taught you the value of delayed gratification by explaining compounding and other financial concepts. I think everyone could benefit from that kind of education to some extend.
College degrees are valuable — but not if you choose the wrong one.
My usual response for this discussion is pointing out that earning more doesn’t necessarily correlate with generating more net income. Earning $200K coding for Google while paying $5K in rent or trying to purchase a $2M home isn’t a great situation for anyone. Most high paying jobs exist in high cost of living areas.
Next is realizing that a college degree *can* be valuable. That assumes you have the aptitude and interest to pursue a “high paying career” along with actually getting the degree and spending 10-25 years in the matching career. That’s a lot of assumptions which are offset by the reality that many graduates are struggling to pay off student loans long after receiving a degree.
The last point should be the most obvious for anyone in the FIRE community. More money hardly equals more happiness. Most of us know that after a certain point – basic needs met and not freaking about paying the bills every month with some cash reserves in the bank – additional money is often meaningless or just a pain to manage.
It happens that I’m old enough – just like you J.D. 😉 – to have graduated in four years with a valuable computer science degree that I actually still use for generating online income. But that situation is pretty rare among my peers. Most degrees have faded to dust in light of their current jobs. Not to mention that any decent coding bootcamp or YouTube videos for the highly motivated provide the same opportunities today at a fraction of the college tuition cost. Unlike a college curriculum largely set by the university, personalized course curriculums aren’t padded with BS stuff.
And that should be the real takeaway. It’s not whether a college degree provides a decent ROI or degree holders can potentially earn more over a lifetime. It’s whether you can obtain similar skills and opportunities for a fraction of the cost and time required given today’s landscape of unlimited online learning for basically no cost.
If you like working trades and are good at it, or if you have the drive, people skills, and hustle to start a business, you can do very well without a degree.
If you crave the relative security of a white-collar job, lack of a college degree is often the cheap-and-dirty filter to reduce the candidate pool and “prequalify” the “right kinds of people”. Especially in a tight job market.