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Calculating the True Costs & Benefits of College

Adjusted for inflation, young college grads today earn less than their counterparts did a decade ago.

A Good Financial Investment?

So, is college still a good investment—measured not in naches and intellectual growth, but in dollars and cents?

Yes. Even in hard times, the chances of getting a job are greater for college grads. In March 2013, the unemployment rate for those over age 25 who only had a high school diploma was 7.6%. For those with a bachelor's degree or higher, it was 3.8%. You don't need to master calculus to understand that math.

And for people with jobs, those with B.A. degrees make more money—a lot more, on average. The typical worker—the one in the statistical middle, with only a high school diploma—earned about $28,000 last year. In contrast, the typical worker with a B.A. earned about $51,500 a year—80% more. Comparing workers of similar age, gender, race, and experience, college grads average 45% more than high school grads.

Elite CollegesA Better Buy?

Does it really matter which college you go to? Not as much as you think.

Graduates of the most elite colleges, the ones that parents brag about at cocktail parties and on the back windows of their cars, do make more money than graduates of less elite schools. But is that because these students went to those colleges or because they were smarter or more driven in the first place?

Researchers Alan Krueger (now chairman of President Obama's Council of Economic Advisers) and Stacy Dale sorted colleges by their students' average SAT scores and concluded: "Students who attended more selective colleges do not earn more than other students who were accepted and rejected by comparable schools, but attended less selective colleges." Students' motivation, ambition, and desire to learn, they discovered, have a much stronger effect on subsequent success than the average academic ability of their classmates. Krueger's advice: "Don't believe that the only school worth attending is the one that would not admit you. That you go to college is more important than where you go."

As columnist David Leonhardt put it in a New York Times piece, a student with a 1400 SAT score who applied to the University of Pennsylvania but went to Penn State earned as much, on average, as a student with a 1400 who went to Penn State.

Majors Matter

From the perspective of future earnings, a student's choice of major is more important than where s/he gets the degree.

Georgetown's Center on Education and the Workforce tapped U.S. Census Bureau data to estimate the typical earnings of 171 college majors. "The bottom line," says center director Anthony Carnevale, "is that getting a degree matters, but what you take matters more." Petroleum engineers ($120,000/year) make considerably more than early-childhood education majors ($36,000/year). Sociology majors average $45,000/year, economics majors $70,000.

Comparing College Costs

To compare the cost of different colleges, a good starting place is the U.S. government's still-rudimentary College Scorecard website. Typing in the name of a college will give you what it typically costs (note: the estimate does not apply to those whose family income makes them ineligible for financial aid), the percentage of students who graduate within six years, the loan size for the typical student borrower, and the percentage of students who default on loans. You can also search for colleges by size, programs, location, and more. It's not a bad starting point if you're choosing between a very pricey, prestigious college and one that's a notch down on the prestigious rankings but costs a lot less. And the data can provide valuable warnings—for example, a four-year school from which fewer than half the full-time students graduate within six years deserves some scrutiny. The Education Department says some day it will add data on graduates' average earnings, although the information will be limited to those who took federal student loans to help pay tuition.

For assistance in demystifying the college financial aid process, visit finaid.org, a site started by financial-aid maven Mark Kantrowitz. Also the College Board site bigfuture.collegeboard.org is helpful.

The Consumer Financial Protection Bureau site has a calculator that facilitates apples-to-apples comparisons of student aid offers, and offers tips on comparing loans and grants.

Payscale compares tuition cost to lifetime earnings for 850 colleges and publishes a rate of return on the investment. It says an engineering degree at Harvey Mudd offers the biggest long-run payoff. But its estimates rely on salary information furnished by people who fill out a survey on the company's website, limiting its reliability.

With Lumina Foundation funding, College Measures is working with state governments to share data about the earnings of recent public university grads. Some information has already been posted.

Such efforts to tie school choice to future earnings are controversial, in part because they penalize colleges that send graduates to low-paying jobs such as Teach for America or low-paying careers such as social work, and they reward schools that turn out bond traders and corporate lawyers. Moreover, these return-on-investment sites also distort the value of education by boiling it down to the size of a future paycheck, rather than, as Harvard President Drew Faust explains, "a passport to a lifetime of citizenship, opportunity, growth and change."

That's a good reminder. A college education is partly about price: You should get what you pay for. But the true value of a college education is not measured solely in dollars and cents.

David Wessel is an economics editor for The Wall Street Journal, and a member of Temple Sinai in Washington, DC.

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