Colleges and universities started class a couple weeks ago. I am hopeful the nation will see a slight bump in enrollment following the deep COVID declines. Many students stayed home during COVID, while others took advantage of rising wages for high school graduates. These facts make it a good time to outline the benefits and costs of a college education.  These benefits are both private and public. 

The public benefits to education are straightforward. States and cities with a higher share of adults who’ve graduated college are more prosperous, grow faster and have less volatile recessions. These benefits extend to residents who’ve not been to college.  Indeed, the best economic opportunities for people without a college degree are in cities with lots of college graduates. This is one reason the most or prosperous states spend the most on education, and vice versa.

There’s a private benefit to education as well, which is why everyone should pay some part of their college degree. There is also a cost to attending college.  These costs can be divided into two broad categories that will be surprising to many readers.

The first and most obvious cost of college is the tuition, books, fees and technology expense of college. This varies by student and school. For a student without any scholarship support, a good state university will cost perhaps $8,000 to $10,000 per year.  Private schools will be more costly. Generally, low-income students and those with good academic performance receive scholarships of some type, which reduces this cost substantially. The more the state spends on tuition support, the higher the levels of scholarships, and the more students receive them.

Room and board shouldn’t really be viewed as a college expense, unless you were going to be homeless and skip all your meals if you didn’t go to college. 

The second and largest cost of college is the income you defer while in school. This is the opportunity cost of college.  A young person going to college instead of working full time at $15 an hour gives up $30,000 per year in earnings.  So, a year of education would cost a typical student maybe $10,000 in tuition, books, fees and technology such as a computer. Lost earnings from attending college are more like $30,000 per year.  

Of course, many students work full-time or part-time jobs while enrolled. I employ several of these students. Families subsidize room, board and transportation. These expenses aren’t really a cost of college, but may be paid for through borrowing if a student cannot work. Here in Indiana, the state contributes another $6,000 per student, which mostly covers some of the direct costs for poorer students. 

For students, the hourly direct cost of sitting in a classroom is under $13 per hour.  This is less expensive than watching Top Gun at a theater. While I cannot speak for everyone, my class is a lot more entertaining. Putting these expenses all together and adjusting for the time value of money yields a cost of a four-year degree of perhaps $150,000.  Individual experiences may vary.

For the average college graduate, the benefits of college are in the $1.4 million range over a lifetime of earnings. Adjusting these for the time value of money makes this benefit today worth roughly $350,000. So, for the vast majority of students, college is among the best financial investments they will ever make. That has been the case for a couple centuries, and likely will be for a few more.

However, the choice of major also matters. Those in higher demand, such as engineering, computer science, economics and finance, pay at the top of the earnings scale. There are other majors for which an undergraduate degree offers little wage premium over a high school degree. However, for a substantial number of students, these majors are merely intermediate steps to graduate school. Calculating the benefits of a philosophy or English degree without considering graduate education is nonsense.

A better way of thinking about the returns to college comes from evaluating not only the average incomes of majors, but the variance of earnings. For example, in acting, there may be a few extraordinarily well-compensated graduates. There will be many poorly paid graduates. In accounting or civil engineering, every graduate has a decent job, but there are few superstar earners.  Thinking about college as an investment would mean thinking about the average salary of a major and the variance of earnings.

The newest data on college graduates through the pandemic shows a sharp increase in computer science and other STEM degrees.  The same data also shows an even a sharper decline in humanities. English, history and religious studies are down 50 percent from their peak around 2010.  The biggest declines came in the past two years.

Some of these data miss the ‘blending’ more students and colleges are now crafting with degrees. The best example I recall is a student of mine who double-majored in acting and economics, wishing to ensure a career in theater on and off the stage.  It is easy to see how double majors such as computer science and philosophy could open a wide range of careers for a student. 

My hunch is that ‘pure’ graduates in one major will be replaced by students studying intensively in one or more areas of concentration. Some Ivy League schools are experimenting with this approach, suggesting it will soon be more mainstream.  It is worth noting that this isn’t really new.  Unique college majors were a creation of the late 19th century.

Choosing a major is dependent upon some interest and aptitude, but most people can perform more academic work than they feel is possible. However, students who lack preparation in high school will often fail at the majors they prefer.  The rigor of high schools is well understood by college admissions officers, which is why you want high schools to be challenging.  Too few actually are.

These are difficult things to consider when attending college, and I think it is folly to suppose most teenagers know what line of work they wish to do for the next half century. That is another strong argument for a broad or what used to be called a “liberal” education. It makes sense today for most young people to pursue a marketable career out of college.  But, it is even more important to have flexible, lifelong skills rather than just preparation for that first job.