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College Is an Economic Loser

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In light of the giant role college education plays in the United States, it’s amazing how hard it is defend.

Judith Scott-Clayton, an assistant professor at Teachers College, Columbia University, should be well-equipped to mount the best defense of college education possible. But in her column on the New York Times Economix blog, she fails quite dramatically.

Scott-Clayton argues that it makes “little economic sense to forgo college in order to be unemployed or working part-time at a minimum wage job, which are the more likely scenarios for a young high school graduate with no further education.”

That’s true as far as it goes, but it doesn’t really go very far at all. It’s just as true that it doesn’t make sense to go to college in order to be unemployed or working part-time at a minimum wage job—which is exactly what is happening to many young people today.

Scott-Clayton produces a table showing that among 18-25 year olds with no plans of going to college, just 40.5 percent have full time employment. Another 19.3 percent are employed part-time, while 18.1 percent are unemployed. Twenty-two percent are not in the labor force.

Those stats come from an American Community Survey from 2010. I couldn’t find the raw data. But I was able to find a Pew Research Center study that measured employment among 18-29 year olds. (It’s not exactly apples-to-apples, but it will do.)

The Pew study looked at employment status in 2010 for all people in the age bracket, regardless of level of education. What it found was the following: 41 percent full time employment. Twenty-four percent part-time employment, and twenty-two percent unemployed. Thirteen percent are out of the labor force.

In other words, there’s hardly any difference at all between the slice of young people not going to college and the rest of their age cohort when it comes to full-time employment. The non-collegiate are actually less likely to be unemployed.

Her next claim is that the rewards of college education are contingent on effort by students.

While college may be a great investment, it’s not like investing in the stock market: a prospective student can’t just fork over some money and let someone else worry about how to make it grow. For college to have any payoff, students must participate in the process by going to class and engaging with course materials, peers and instructors.

This is a bald assertion with no links or data to back it up. It sounds like it might be true. But it also may just be wishful thinking. What’s the evidence that students can increase the “payoff” from going to college by increasing their participation in the process? Much of any economic value of a college degree may arise because employers use it to screen for intelligence—and much of that is established in the admissions process rather than anything that happens during the time spent at college.

Scott-Clayton points to economic evidence that she claims “consistently and compellingly documents the value of postsecondary education in general.” In reality, however, it does nothing of the sort. Here's why.

The study she links to shows that the median lifetime income over 40-year career of those who have a college degree is $2,268,000. The average annual cost at a private, nonprofit four-year college, however, is $35,0000 per year, or $140,000. Most students will borrow money to pay these costs. The median cumulative debt for students graduating from a private, four-year college is $27,349. If paid out over 20 years, this debt will really be closer to $50,000. So the debt-adjusted lifetime income is really $2,218,000.

Let’s see what happens if we take away college. Median lifetime income drops to $1,304,000 of 40 years. But you’ve got to add back the four years not spent in college. The average annual earnings of people with a high school diploma are $32,600. Let’s knock that down a bit — since income will be lower than average during those first four years of working — and call it $25,000. So the median lifetime income over 44 years is really $1,404,000.

But this person doesn’t have to invest the initial $112,651 of cash into college. Let’s say instead, that money is invested in a government bond yielding 6 percent, he’ll earn wind up with $ 1,462,828 after 44 years. (I know, I know: you can’t get a government bond yielding 6 percent right now. But that’s actually below the historical average since 1960 and ZIRP won’t be around forever.)

When you put all this together, you discover that the benefit of a four-year college is not just erased. It’s actually a costly mistake to go to college. Earnings plus interest income for the non-college graduate amounts to $2,866,828 over 44 years. Earnings less interest for the college graduate amounts to $2,218,000.

Scott-Clayton asks: “So who shouldn’t go to college, despite the breadth of available postsecondary options and the bleak labor-market outlook for high school graduates? The simplest answer is: those who don’t want to go.”

But a better question should be: who should go to college, despite the economic drain over one’s lifetime? The simplest answer is: those who still want to go.

Just don’t be fooled into thinking you should go—or should send your kids—because college is a “great investment.”

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