Ah, that college sheepskin: Turn-of-the-century philosopher William James called a college education "the yeast-cake for democracy's dough." In the decades following World War II, higher education became the much-envied engine of the U.S. economy by advancing knowledge, creating human capital, and stoking upward mobility.
Lately, though, the price tag for a college degree has gone through the roof. Since 1980, average tuition at all four-year colleges has soared by more than 86%, after adjusting for inflation. The yearly cost of college now absorbs about 25% of median family income, vs. 17% in 1980. During the next few weeks, as parents and their children await missives from university admissions offices, more and more will be asking: Is a college degree still a worthwhile investment?
BIG GAP. By several measures, the answer is yes. Today, some of the most sought-after employees are those comfortable working with computers and telecommunications equipment--and, too, those able to work in teams and to communicate effectively. To many employers, that means college-educated folks. In 1979, male full-time workers 25 and older with at least a bachelor's degree earned, on average, 49% more a year than comparable high school grads; by 1993, the gap had widened to 89%. Says Thomas G. Mortenson, publisher of the Postsecondary Education Opportunity newsletter: "About the only thing more expensive than going to college is not going to college."
Little wonder college enrollment has jumped by a third since 1980. Americans recognize that, in an increasingly tight labor market, a college diploma represents a ticket to relative economic security. "We're producing more college graduates than before, and the payoff still remains strong," says Thomas J. Kane, an economist at Harvard's Kennedy School of Government who is on leave at the Administration's Council of Economic Advisers.
Look at it another way. The latest Economic Report of the President pegs average educational costs and forgone earnings at $22,200 a year at four-year institutions. Economic research assigns about 75% of the wage gap between college- and high school-educated male workers to schooling. Assuming that the current wage gap persists between those workers, that puts the rate of return on four years of college at about 11%--beating most financial instruments over the long haul. And this return is before taking into account the intangible benefits of a higher education, such as making better citizens and smarter consumers.
Economists are less certain whether investment returns hold up for the nation's more expensive schools, where annual costs run at least 50% higher. What matters more than a top school, some research suggests, are good grades and the right major. In 1993, for example, median earnings for male midcareer workers who majored in engineering exceeded median earnings of those who majored in philosophy, religion, and theology by two-thirds, according to Bureau of Labor Statistics economist Daniel E. Hecker. A software engineer from a state school stands to make more than an Ivy League philosopher.
VALUABLE ASSET. Still, rivalry for entrance at top-tier institutions remains fierce. "A lot of people think it's well worth the extra cost," says Michael S. McPherson, economist at Williams College. "The market is telling us that the education is valued." Top-notch educational credentials bring valuable social networks, job-market status, and an entree into lucrative professions such as investment banking. At least, that's what many Americans perceive.
Thankfully, the cost of going to college isn't rising as fast as it did for many years. And students are negotiating bigger discounts than ever. In our emerging knowledge economy, even at a high price, higher education clearly pays. Those without it are the ones losing ground.