As the cost of college continues to rise, and more and more students graduate in debt, and then try to enter a difficult job market, many have begun to question: is college actually worth the price? The basic formulation is pretty straightforward: by going to college, you spend 4(+?) years not in the labor force, and spend money outright on the cost of college itself; in return, you have a higher employment income for all the years that follow college until you retire, which in theory can make up the college tuition outflows plus the years of foregone earnings. However, as college gets more expensive, and the "bonus" to future salary for having a college education doesn't seem to be what it once was (especially for many liberal arts degrees), it's getting harder to make the case that college is still worth it. There's just one problem: while you earn one future income without a college education, and a higher future income with a college education, neither projection accounts for the crucial income risk of unemployment.

The inspiration for today's blog post comes from a series of recent articles, from the Huffington Post to the popular Freakonomics blog, questioning whether the cost of a college education is still worth it, even as the cumulative amount of student loan debt in the country accumulates up to a mind-boggling level.

Yet at the same time, I was fascinated by a recent chart I found on the NY Times Economix blog, showing how unemployment in today's environment varies by level of educational attainment.

As the chart above highlights, there are dramatic differences in how varying educational attainment levels are weathering the economic storm. Those who have no high school diploma are facing unemployment rates in excess of 14%. Those with a high school diploma are faring slightly better, with an unemployment rate just under 10%. Yet those with a college degree have an unemployment rate that has "spiked" to a mere 4% (and notably, it's difficult to keep unemployment for any category below the 2% to 4% range, as that level of structural unemployment is simply inherent in the time it takes any average member of the labor force to change jobs, move for family or personal circumstances, etc.).

This adds an important factor to the debate about whether college education is "worth it" or not - the idea that a college education isn't just about getting a higher average salary, but also represents a material reduction in the risk of being unemployed for one or more stints throughout a 40+ year working career. As the classic comparison goes, the college graduate gives up 4 years in the workforce, and incurs the cost of college itself, in exchange for a higher salary through the remainder of his/her working career. But what if the reality is that the average number of working years for the non-college-graduate is not 4 years longer on average, but only a fraction of that, due to a significant difference in unemployment stints over the span of a multi-decade career?

Of course, this doesn't mean I'm a fan of just anyone accumulating tens or hundreds of thousands of dollars of college debt. And as a recent study by the Georgetown University Center on Education and the Workforce has shown, there is also a significant disparity between average earnings (and I'd venture to say, unemployment rates) amongst various majors and courses of study within college. And as another chart from the aforementioned NY Times Economix blog post shows, once unemployed the average duration of unemployment is roughly comparable at all levels of educational attainment. So the benefit is not that the college educated have shorter unemployment stints; it's just that they're less likely to enter into unemployment in the first place.

Nonetheless, to me this represents a major shift in how we look at the value of college. We can't just measure the results by a difference in the average income of the college graduate versus the high school diploma. It's also about what the student's major/course of study is, and it's also about the fact that after college, there is a material difference in unemployment rates by educational attainment level. So given one or two recessions every decade on average, a college degree represents a significant amount of unemployment risk management, and that's should be part of the results we look at in evaluating the value of college.

So what do you think? Do you view the cost and value and college in another light when looking from the perspective of not just earnings differences, but unemployment differences as well? Do you think the cost of college is too high for the value it provides? Is the cost of college on an unsustainable track? 

  • David Jacobs

    Repeat after me. Correlation does not mean causation.

    People often point out that Harvard grads make more than most others. But that begs the question of whether Harvard gives them something special (e.g., education, network, etc) or is just good at identifying those who will be successful. Researchers compared those who got accepted to Harvard but went elsewhere and Harvard grads and found that after a few years out of college the differences in incomes disappeared (Harvard did provide an initial bump, but the other grads quickly caught up as their skill was recognized).

    This implies that Harvard and other colleges are much better at identifying those who will be more successful in life than in creating that success.

    If that is true, I would think there would be much cheaper ways to signal employers that you have what it takes than the crazy tuitions that are being charged now.

    It also implies that if you managed to get everyone a college education it would not materially change people’s work life success.

  • Laura Scharr

    The inherent problem with the system is that too many kids are choosing the college route when a traditional 4 year college may not be the best for them. This creates a huge demand for educational services. In addition, the cost of college is so highly subsidized that it distorts the true cost and leads to price inflation.

    Those parents that qualify for need don’t worry about the payback and those that don’t qualify for need are scratching their heads and thinking why am I going to spend $60K a year on this; and if I do, will my kid land a job coming out?

    If my son was accepted, I would prefer he take a Thiel Fellowship over an ivy league education.

    More and more I am encouraging my clients to rethink in-state public schools as SC offers excellent merit scholarships that pay almost the entire bill–for those who qualify. The issue is… how many recruiters are coming to Clemson and USC(University of South Carolina) to recruit for high quality jobs?

  • Alex Murguia

    Random thought:
    Everything has a present value. Controlling for personal professional proclivities and need for cash infusion, college costs will subside when:
    1) A new high school grad can obtain a technical vocation 2) Reinvest the Present Value difference from a full professional track education (e.g., Dr.)

    There is a reasonable chance that the technical vocation track provides a higher net worth than the professional track.

    • Alan Moore

      This is in no way possible. The point of Michael’s post is that the person with a high school diploma has a much higher chance of being out of work for a time that a college graduate does not. This post doesn’t differentiate between a 4 year and M.S./PhD level earnings, but the statistics show the best “bang for your buck” is a Masters degree.

      The other piece here is college isn’t just about making money, for many with PhD’s it is about the pursuit of knowledge. It is about the utility they derive from research and teaching, not just the higher salary and job stability.

      In the end, it is up to the individual if they should go to college. Job prospects should be a variable, as should salary, life style desires (such as if you want summers off, consider a job in education), utility gained from employment, personal growth that happens at college (such as learning how to learn at a higher level) as well as cultural status. There are many other variables, but these just start to show that it is about more than salary.

  • Alex Murguia

    Alan,I understand the point of the blog- that is why I stated it was a random thought and offered “controlling for professional proclivities.”

    I agree with your points but an inflection point will be reached from a “hierarchy of needs standpoint” and very few will still want to be in debt for school in their 30’s because they will need to buy a house, prepare for other expenses, and save for retirement.

    With regards to having an affinity for education, school is one of many options for learning- reading, Kahn Academy, TED, MIT has online courses for free, etc etc

    I’m not downplaying school, it is very important but at a certain point the utility for all the variables you listed tend to come after satisfying more basic needs- getting out of debt, paying a mortgage,etc. and there is a Present Value to that. If you want, assign personal preferences to education (very valid point) but there is still a PV to it.

  • VG

    Catch 22. You’re damned if you do, and damned if you don’t. Technical training and technical degrees both pay more than working at FourBucks or getting a BasketWeaving degree. While I believe a general education is a great thing, it’s not of much value in getting a decent job. That said, a college degree nowadays is much like a high school diploma used to be. Finally, regarding liberal arts education, two thoughts for you:
    Those who can, do. Those who can’t, teach. And A-students teach B-students how to work for C-students. I know far too many people who teach because they have no other real skills, and that translates to those being taught in many cases.

    It’s time our system reward Merit over Tenure. Then perhaps education will create more value.

    Just my thoughts.

  • vg


    Wow – I’m finally someone’s hero! Thanks. The article you linked is excellent. As long as we persist in implementing a nanny state, instead of learning to “fail forward”, I fear our competitiveness will continue to erode. What’s the ol’ adage? You don’t deserve to “feel good” about yourself until you DO SOMETHING!

  • vg

    Every one of us, and our children, should consider Seth Godin’s blog and books require reading.

  • jim schwartz

    In the 90’s, I wrote a piece called ‘Personal Financial Ebola’.

    What is personal financial ebola? It is the cannibalization, displacement and or deferral of the work free retirement by higher education costs (price fixing, tenure) that the personal financial pornographic media has ignored as a major element in the perfect storm of demographics and long term care costs (for the parents’ parents).

    Just run the numbers on the difference in overall cost of living and higher ed costs – reinvest the difference at 8%-9% etc over 18 years and you shall find this runs several hundreds of thousands given 400% differential in inflation.

    Even those numbers are understated as for example in Colorado only 17% graduate in 4 years.

    Yes, the abject failure of the public schools and their tenure has handed off unprepared students.

    But the colleges have failed relative to productivity – the major factor tenure (The Honor Dole)

    If you view all the deductions for higher ed during the Clinton years on- you shall see within 3 years – the after tax savings were lost as the colleges used the tax savings essentially as an invitation to spike tuition.

    As far as the academic freedom straw man argument, there is now wrongful termination laws.

    As to the cost benefit of higher ed – certainly the rate of return is diminishing.

    Higher Education Costs – The Subprime Education Crisis

    jim schwartz, co founder Napfa, retired fee only personal financial life planner – author of two editions of Enough, NAPFA’s 1985 Personal Financial Planner of the Year

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Michael E. Kitces

I write about financial planning strategies and practice management ideas, and have created several businesses to help people implement them.

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