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A College Degree Does Not Make You a Million Dollars

Mises Daily: Friday, April 11, 2014 by

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It is becoming substantially less difficult these days to convince people that college is not a sure fire way to the good life. Even Paul Krugman has conceded that “it’s no longer true that having a college degree guarantees that you’ll get a good job.” You can say that again: 53 percent of recent graduates are either jobless or underemployed. Unfortunately, myths die hard. Many people still believe as Hillary Clinton once said, “Graduates from four-year colleges earn nearly an estimated one million dollars more [than high school graduates].” This may sound convincing, but this figure — based on a Census Bureau report — is about as true as it is relevant.

After all, isn’t it true that the most hard-working and intelligent people tend more to go to college? This is not a nature vs. nurture argument, the factors behind these qualities are unrelated to the discussion at hand. If one grants, however, that the more ambitious and talented go to college in greater proportion than their peers, Mrs. Clinton could have just said “the most hard-working and intelligent earn nearly an estimated one million dollars more than their peers.” I think the presses need not be stopped.

For one thing, the Census Bureau estimate includes super-earners such as CEO’s which skew the average upward. Although some, such as Mark Zuckerberg and Bill Gates, didn’t graduate college, most did. This is why it’s better to use the median (the middle number in the data set) than the mean or average. It’s also why Hillary Clinton and other repeaters of this factoid don’t.

Furthermore, just because most smart people go to college doesn’t mean they should. They may earn more money, but what they keep is more important than what they make. Financial columnist Jack Hough created a very illuminating hypothetical scenario with two people, one who chooses college and one who enters the labor force after high school. Hough then uses the average cost of college as well as U.S. Census Bureau data for the average income of college graduates and non-graduates, adjusted for age. He assumes both save and invest 5 percent of their income each year. By the age of 65, how does the net worth of each look?

  • College Graduate: $400,000
  • High School Graduate: $1,300,000
  • When one thinks about the common narrative of college vs. no college, it truly becomes absurd. Indeed, who exactly are we comparing? We’re not only comparing Jane-Lawyer to Joe-Carpenter, but we’re also comparing financial analysts with the mentally disabled, medical doctors with welfare dependents, building engineers with drug addicts, architects with pan handlers, marketing directors with immigrants who can barely speak English, and university professors with career criminals (whose earnings, by the way, are rarely reported). Many of these troubled people didn’t graduate high school, but it is shocking how they shuffle kids through the system these days. Some 50 percent of Detroit high school graduates are functionally illiterate and it isn’t that much better for the country on the whole. And something tells me that these particular non-graduates need something other than four years of drinking and studying Lockean (well, more likely Marxian) philosophy.

    It certainly could be a good thing to earn a college degree. If one wants to be an accountant, engineer, or doctor, a degree is required. And those jobs have very high incomes. But can one really expect to make a killing with a degree in sociology or Medieval-African-Women’s-Military-Ethnic Studies? Pretty much the only jobs those degrees help one get, in any way other than the “hey, they got a college degree” sort of way, are jobs teaching sociology or Medieval-African-Women’s-Military-Ethnic Studies. And that requires an advanced degree as well (i.e., more money down the tube).

    Furthermore, a college degree does not even guarantee a particularly high income. CBS News ran an article on the 20 worst-paying college degrees. The worst was Child and Family Studies with a starting average salary of $29,500 and a mid-career average of $38,400. Art History came in 20th with a starting average of $39,400 and a mid-career average of $57,100. Other degrees in between included elementary education, culinary arts, religious studies, nutrition, and music.

    These are decent salaries, but are they worth the monetary and opportunity costs? With the wealth of information on the Internet, many skills can be attained on one’s own. Alternatives to college such as entrepreneurship and apprenticeship programs are often ignored. Indeed, apprentices typically get paid for their work while they are learning. The average yearly wage of a plumber and electrician are $52,950 and $53,030 respectively. That’s better than many college degrees and comes without the debt.

    And that debt is getting bigger and bigger as college tuition continues to rise. In the last five years, tuition has gone up 24 percent more than inflation. Including books, supplies, transportation and other costs, in-state college students paid an average of $17,860 for one year in 2013 (out-of-state students paid substantially more). And despite all of that, many students don’t even finish. According to US News & World Report,

    Studies have shown that nonselective colleges graduate, on average, 35 percent of their students, while the most competitive schools graduate 88 percent. Harvard’s 97 percent four-year graduation rate might not be that surprising ... [but then] Texas Southern University’s rate was 12 percent.

    12 percent is simply ridiculous, but the 35 percent for nonselective schools is extremely bad as well. Even the 88 percent for competitive schools leaves 12 percent of their students with no degree, but plenty of debt.

    Given all of that, it can’t be surprising that the default rates on student loans (which cannot be wiped away in bankruptcy) appear to be much higher than is typically reported. According to The Chronicle,

    [O]ne in every five government loans that entered repayment in 1995 has gone into default. The default rate is higher for loans made to students from two-year colleges, and higher still, reaching 40 percent, for those who attended for-profit institutions ...

    [T]he government’s official “cohort-default rate,” which measures the percentage of borrowers who default in the first two years of repayment and is used to penalize colleges with high rates, downplays the long-term cost of defaults, capturing only a sliver of the loans that eventually lapse ...

    College is good for some people. If you want to go into a field that has high earning potential (engineering, medicine, accounting, etc.) or you really like a certain subject and want to dedicate your career to it even if it may not be the best financial decision, go for it. But don’t go to college just because as Colin Hanks says in Orange County, “that’s what you do after high school!”