The kids are off to college. The exhortation, “If you earn a BA degree, you will earn a million dollars more than a high school graduate,” is still ringing in their ears. Before you write any more tuition checks for your teenager perhaps you should take a closer look at that popular advice.

The Source

The College Board is a nonprofit organization. Among other programs they bring us Advanced Placements credits, the SAT test, and the CSS/Profile. Every three years they publish a report: “College Pays.” (It’s important to note that the title is not “Does College Pay.”) Their stated mission is to help every kid go to college. Asking The College Board whether or not going to college is a good idea is like asking your dentist whether or not you should floss more often.

The 2007 version of “College Pays” had some data from the US Census Bureau in the footnotes that suggested that there was a significant financial advantage to earning a bachelor’s degree. From this tiny tidbit, buried at the bottom of the page, came the “Million Dollar Myth.” The College Board has been excoriated for playing the roll of cheerleader for higher education in their presentation of this data. Subsequently they have removed the declaration from their website. (The statement can still be found on some college marketing materials.)

Sandy Baum, the primary author of “College Pays”, is an academic who teaches economics. While she defends the report, she admits that the $1,000,000 number is an exaggeration. She has been quoted that $400,000 might be a more viable figure.

Every year your local newspaper will predictably churn out a story on the financial advantages of a college education. Recently the Cincinnati Enquirer published the story, “Despite the Cost, College Pays Off—Eventually,” without regard to the facts or the source. Even a cursory examination of the piece reveals that the data used for the study was for the years 1989 to 2010. Your future college graduate will not be looking for a job in the booming economy of the 1990’s.

The Statistics

Your college student is probably trying to avoid Statistics 101. This is unfortunate. Had he taken the introductory course, he would have learned about selection bias.

A correlation between a bachelor’s degree and income is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people, and smart people are likely to go to college.

Marty Nemko, noted career consultant, explains it this way, “the pool of college graduates is very different in ability, motivation and connections than the pool of non-graduates. You could have locked the graduates in a closet for four years, and they would have earned more money.”

The Arithmetic

The methodology and assumptions used in calculating the value of a college education should be carefully examined.

• Typically “present value dollars” are used, ignoring inflation. (Graduates of a public college don’t break even in accumulated earnings with high school graduates until age thirty-three.)
• It is common to not factor in the effect of our progressive Federal tax system.
• Sometimes the earnings of graduates with advanced degrees get aggregated into the numbers.
• Routinely a four year term for graduation is employed. (Seventy-five percent of students require more time and additional monies.)

Depending on the methodology and the assumptions the calculations for the value of a college education can vary widely.

It gets worse. In 2008 The College Board was being challenged on the “Million Dollar Myth.” At that point the economy was just beginning to feel the effects of the subprime mortgage crisis. The jobs picture for college graduates has deteriorated rapidly since then. Here are some of the numbers:

• Only one college enrollee in three will graduate with a “good” job.
• Almost half of college graduates will be underemployed or unemployed.
• The average student loan debt is now $39,400.
• Three out of ten college grads are not making any payments on their loans.
• One in four US families have some form of education debt.

With this kind of headwind it is going to be difficult to generate a $1,000,000 advantage.

The Mockery

If you don’t find any of the preceding arguments compelling, check out theonion.com. Joanne Jacobs’ December 13, 2013 parody, “30-Year-Old Has Earned $11 More Than He Would Have Without College Education,” hits too close to home for many recent college graduates who are underemployed or unemployed in today’s job market.

Whether “college pays” or not will depend on your student graduating with the right major at the right cost without too much debt. A run-of-the-mill bachelor’s degree isn’t going to result in his earning $1,000,000 more than a high school graduate in the current economy.