Introduction

Education Pays 2010 contains data on the financial and nonfinancial benefits of postsecondary education. The indicators in this report provide up-to-date information about earnings, employment and unemployment patterns, and nonwage attributes associated with the jobs held by people with different levels of education. Because many of the changes that education engenders in people’s lives are outside of their work lives, we report on health and lifestyle influences as well. Much of the information in this report pertains to the benefits that accrue to society as a whole when more people are college educated. Data on the increases in tax revenues and the reductions in public expenditures associated with increased levels of education help to make the return to public investment in higher education more concrete. The frequencies of smoking, obesity, voting, volunteering, and participating in educational activities with children are also among the wide range of differences in the opportunities, choices, and behaviors influenced by participation in and completion of higher education documented here.

Like the College Board’s Trends in College Pricing and Trends in Student Aid reports, Education Pays collects and reports data. Some of the benefits of higher education documented in this report are widely cited; others are less well known. We bring publicly available government statistics together with less familiar academic research in order to paint a detailed and integrated picture of the benefits of higher education and how they are distributed. Where possible, we have summarized complex analyses in a manner consistent with the straightforward presentation style of this report. We provide references to more in-depth and sophisticated analyses so that readers can pursue issues of particular interest.

Education Pays is intended as a resource and a reference for anyone interested in understanding the value of investments in higher education and how different groups in society benefit from those investments. Readers will draw their own inferences about the public policies most consistent with the evidence provided.

The Payoff of Higher Education

In this introduction, we take the opportunity to provide our interpretation of the evidence we have gathered. In the three years since we published Education Pays 2007, median earnings for four-year college graduates have increased more rapidly than those of high school graduates. The 2.3 percentage point difference between the unemployment rates for high school graduates and bachelor’s degree recipients we reported for 2006 increased to 5.1 percentage points in 2009. Yet, questions have intensified about whether going to college is worthwhile and whether it is appropriate to encourage young people who are on the fence about continuing their education after high school to attend college. We believe it is critical that more people be in a position to examine for themselves the evidence of the benefits of a college degree, rather than relying on the opinions of others — opinions that are too frequently grounded in ideology and anecdotes rather than evidence.

It is both reasonable and constructive to ask whether and for whom the expense of postsecondary education is a good investment. Published tuition prices have been rising rapidly. As documented in Trends in College Pricing, public four-year college prices in particular have risen at very high rates in the past few years. But, while all expenses associated with going to college continue to rise, the average net price students pay for tuition and fees at both public and private colleges — after accounting for grant aid and tax benefits — has actually declined in recent years.

Our calculation in Figure 1.3 compares the median cumulative earnings of high school graduates to those of college graduates and finds that by about age 33 — after 11 years of work — higher earnings compensate not only for four years out of the labor force, but also for average tuition and fee payments at a public four-year university funded fully by student loans at 6.8% interest. The earnings of associate degree recipients lead to a crossover at about the same age — after more years of work despite the lower tuition payments — because of the smaller earnings premium. Modifying the assumptions underlying these calculations might slightly lengthen or shorten the time required to make up the investment. The key point is that for the typical student, the investment pays off very well over the course of a lifetime — even considering the expense.

Perhaps even more important, increased earnings are by no means the only positive outcome of higher education. The knowledge, fulfillment, self-awareness, and broadening of horizons associated with education transform the lives of students and of those with whom they live and work. The difficulty in quantifying these outcomes or translating them into dollars and cents should not lead us to neglect these contributions from higher education. Our society would become immeasurably poorer if financial pressures were to lead us to think of higher education as synonymous with job training. The indicators in Education Pays, both financial and nonfinancial, are limited to those that can be easily quantified only because of the format of the publication. Our intent is not to minimize the importance of the less tangible or quantifiable outcomes of education. A thorough and coherent view of the benefits on which we focus highlights the significance of our society’s investment in higher education and provides a broader grounding for public policy deliberations.

The Evidence

Too often, colorful anecdotes about individuals who have had unfortunate experiences capture the spotlight and lead to inaccurate generalizations about the dangers of making this major life investment. Journalists tell compelling stories of students who borrow large sums of money only to find that they are ill-equipped to complete their studies, or who graduate from college and are unable to find appropriate employment. It is no surprise that these stories exist; they are real and they are painful. But frequently, these stories are used to convey the notion that the costs of a postsecondary degree outweigh the benefits, and for most people this simply is not true. Figure 1.5 in Education Pays 2010 shows not only median earnings for men and women with different levels of education, but the range of earnings of the middle 50% at each level. Our analysis notes that although 14% of male high school graduates earned as much as or more than the median earnings of male four-year college graduates in 2008 ($65,800), 86% earned less. About 20% of male four-year college graduates earned less than the median earnings of high school graduates ($39,000), while 80% earned more. Figure 1.10a shows that the unemployment rate for college graduates rose sharply, from 2.6% to 4.6%, between 2008 and 2009. But the unemployment rate for high school graduates rose from 5.7% to 9.7% at the same time. The data may not be as colorful as the anecdotes, but they tell a more realistic story. They also allow for a better understanding of which students and which circumstances are most likely to create the stories of the outliers who attract so much attention.

College Completion

Another reason for doubts about the benefits of higher education is that increasing college enrollment rates over time for all demographic groups have been accompanied by persistently low degree-completion rates. In Education Pays 2010, we provide a variety of indicators of college completion and educational attainment. No one measure is perfect, but it is clear both that many people enroll in college and never earn a degree, and that the gaps in completion rates by family income level, parental education level, and race/ethnicity are large. High school graduates from low- and moderate-income families are much less likely than those from higher-income families to enroll in college, and the gaps in completion rates are even larger. Unfortunately, this very real problem has led some observers to the unwarranted conclusion that people who do not have strong academic preparation, who do not have the required financial resources, or who are unfamiliar with the expectations and requirements of colleges and universities should not pursue postsecondary education.

Research tells us otherwise. Numerous economic analyses indicate that students who, because of their demographic characteristics and academic experiences, hesitate to go to college stand to benefit the most from a postsecondary degree. This finding does not imply that individuals on the margin of college attendance will end up earning more than those who knew from an early age that they would attend college. It means that the incremental gain in their earnings resulting from a college education is larger. It is relatively rare for young people whose parents are affluent — or even middle-class — college graduates to skip college altogether. Those who choose not to enroll have usually actively considered and rejected the option. But for too many low-income and first-generation students, financial and logistical barriers loom so large that the possibility never seems realistic. Many of these students would likely benefit from appropriate postsecondary educational opportunities.

First-generation students and those from low-income backgrounds frequently lack the information needed to make the best choices when they do enroll in college. As the indicators in Part 2 of Education Pays reveal, many students enroll in colleges that are less selective and less challenging than those to which they would likely be admitted based on their academic qualifications, reducing the probability that they will earn bachelor’s degrees. Figures 2.6a and 2.6b provide information on the differences in completion rates at different types of institutions.

It is also important not to discount the value of college experience even for those students who do not earn a degree. As Figure 1.7b suggests, although the payoff for earning a college credential is highest, the median return to each additional year of postsecondary schooling is significant. In other words, the solution is not to advise students to forgo college because they might not graduate. It is to provide better information and advice — and more generous financial support — to increase their chances of success. And of primary importance, all students need and deserve higher-quality academic preparation before they reach the college decision stage.

Solid evidence indicates that our main focus should be providing opportunities for postsecondary preparation and access, and supporting more students in making choices that will allow them to maximize their postsecondary education success.

Understanding the Evidence

Many of the graphs in this report compare the experiences of people with different education levels. In general, while simple descriptions of correlations provide useful clues, they do not reliably determine causation or measure the exact size of the effects. They are best interpreted as providing broadly gauged evidence of the powerful role that higher education plays in the lives of individuals and in society. That said, a growing body of evidence points to the direct impact of higher education not only on specific job-related skills, but also on the attitudes and behavior patterns of students. Education enables people to better adapt to change. It also makes them more likely to take responsibility for their health, to take responsibility for the society in which they live, and to parent in ways that improve the prospects for their own children.

The evidence is overwhelming that higher education improves people’s lives, makes our economy more efficient, and contributes to a more equitable society. The existing gaps in participation and success are detrimental not only to individual lives, but also to society as a whole. Different paths are appropriate for different individuals, and our challenge is to make the most promising paths readily available to students from all backgrounds. We will all be better off if we continue to make progress in this direction.