Friday, October 19, 2012

College is Still One of the Best Investments You'll Ever Make

A fantastic article from the Hamilton Project via Brookings that makes very clear that the investment you make in your own human capital through a college education is about as good as they get. [HT: Greg Mankiw]
While rising student debt and payments to colleges are a cause for concern, we have found that college is still one of the best investments an individual can make. Ensuring that all students have access to this investment requires both a commitment to making it financially feasible at all income levels and a productive K-12 system that prepares students for the next level of education.
If you had any doubt here are two graphs that should convince you:

Note that this not only says that benefits far outweigh costs, but that this difference is not shrinking durning the recession and in the long-term is growing despite the increasing cost of college.  As far as a long term investment an overage 16% lifetime return is pretty darn good:

Having said all of this, there is one big caveat: you don't just pay your tuition, receive your degree and get a better income - college is hard work.  What you are buying is the OPPORTUNITY to substantially increase your human capital.  It is still up to you to maximize the return on this investment through very hard work while in college.  I see so many students sleep-walking through college and I always think about what a shame they are not maximizing their investment (read: potential).

So, while these are average returns, individual returns will vary and are probably very highly correlated with the amount of effort expended in college.


Steve Buckstein said...

Such a good return on investment would seem to argue for even less "public" higher ed funding.

If the personal returns are really so great, it would seem that those who don't have a college degree shouldn't be asked to pay taxes to subsidize those seeking them.

Patrick Emerson said...

Private returns are high but so are social returns - the return society as a whole gets from educating its children. See, for example, the work of Enrico Moretti:

Thus there is a good case to me made for public investment in higher education.