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Fact and Fiction About Getting a College Education

This article originally appeared in the Chicago Tribune on March 3, 2013.

Higher education is vital to the nation's future, yet every day brings headlines about crisis: Everyone needs a college education, but few people can afford it. Students are drowning in debt. It doesn't pay to go to college anymore.

The public discussion of the value of higher education is plagued by such misconceptions. The evidence shows that it's more important than ever to get a college degree, and the investment of time and money pays off well for the vast majority of students.

Let's look at misconception and reality.

Misconception 1

A college degree no longer pays off.

It is correct that unemployment is up and pay is down for college graduates since the last financial crash. However, unemployment is up much more and pay is down much more for people who didn't go to college. A college degree is not a guarantee of economic success (it never really was). But degree holders have much better odds of getting and keeping a job and having a viable path to long-term career success.

The earnings advantage college graduates enjoy compared to high school graduates has been flat for the last decade. But it is still at the highest level in history. Former NBA star Yao Ming stopped growing a long time ago. But he's still pretty tall.

It's a mistake to judge the payoff from a degree or a college major by looking at earnings in one's first job after college. Like other investments, education pays off over time. No venture capitalist would judge a Silicon Valley startup by its profits in the first year. As college graduates get older, their earnings rise much faster on average and peak at a later age than do those of high school graduates with similar backgrounds and test scores. This payoff occurs not just for people who study the sciences and engineering, but also for people who major in the humanities and the social sciences. PayPal founder Peter Thiel, who has advocated skipping college altogether, has managed to do quite well with his Stanford University philosophy degree. North Carolina Gov. Pat McCrory, who wants to give state support only to the sciences and engineering, has somehow gotten by with a degree in political science and education.

Some naysayers contend college is now so expensive that the earnings premium no longer justifies the cost of the education. But the reality is that at today's prices, college graduates make up for the price of college and for time out of the labor force fairly quickly. By the time they reach their early to mid-30s, typical college graduates are enjoying the extra earnings free and clear.

Misconception 2

Most people borrow huge amounts of money to pay for college.

Hardworking reporters have gone to great trouble to find people who borrowed more than $100,000 to fund their undergraduate education. But less than 1 percent of undergraduates borrow that much. Data from the National Center for Education Statistics show that about 30 percent of students who get bachelor's degrees at private nonprofit colleges and universities and 40 percent of those who graduate from public institutions do so with no education debt.

The average debt accumulation among those who do borrow is about $27,000, almost the same as the average new car loan, according to the Federal Reserve. Average debt for those who earn two-year degrees — and for those who take on debt but never manage to earn a degree — is considerably lower.

We should be concerned about the few students who accumulate more than $50,000 in debt, many of whom are likely to have real trouble. Look where you're likely to find them. In 2009, 30 percent of four-year college graduates who attended for-profit institutions had borrowed this much, but only 3 percent of graduates from public colleges and 8 percent from private nonprofit colleges had this much debt. One source of help is a government program that allows students to limit their payments on federal (but not private) loans to a manageable fraction of their income — exactly the kind of policy needed for the minority of students who get in over their heads.

Misconception 3

Many people pay more than $50,000 per year for college.

Some 460,000 students — about 4 percent of the 12 million full-time undergraduate students in the U.S. — attend schools that charge $50,000 or more for tuition, fees and living expenses. More than half of those students get grants and scholarships from their schools that cover a portion — often a substantial portion — of the price. Unlike loans, this is money that doesn't have to be paid back.

In other words, only about 2 percent of full-time students actually pay $50,000 or more per year for undergraduate studies — even when you include their food and rent expenses.

Misconception 4

Only the rich can afford to attend a top-ranked private college.

Not surprisingly, the fewer than 250,000 students who pay $50,000 per year for college are mainly drawn from the top 5 percent of the American household income distribution. Those families have done exceptionally well over the last 20 years, with their after-tax incomes going up at about the same rate as the price of a year in college.

What about the other students who attend these expensive and highly selective colleges? A student whose family income is outside the top 5 percent ($200,000 in 2010) will generally qualify for a need-based grant at one of these expensive places — a fact that is too little appreciated by families who are shopping for colleges.

Students who qualify for admission at a top private college or university often wind up paying less than they would at a public institution closer to home. As Matt Krupnick reported in the San Jose Mercury News last March:

"The impossible has happened: Harvard is now thousands of dollars cheaper than Cal (California) State (at) East Bay for middle-income California students. So is Princeton. And Williams College. And Yale." Krupnick used published information from the colleges to figure out what a family of four earning $130,000 a year would be asked to pay, taking into account financial aid grants, for a year at California State University at East Bay ($24,000), University of California at Santa Cruz ($33,000) and Harvard ($17,000).

We don't want to replace one misconception with another. The elite private colleges and universities are expensive and hard to get into. Most private colleges have lower sticker prices and it's easier to get in them, but typically they have fewer financial resources and provide less generous aid. Determining your options and making a good choice among colleges requires a lot of hard work, but it's a huge mistake to say at the start, "Oh, that place is so expensive I could never afford it."

Misconception 5

It doesn't matter where you go to college.

For a student who decides to pursue a bachelor's degree, probably the single most important question is whether she will get one. The most distressing stories are about students who wasted time and accumulated debt in a failed quest. Your likelihood of crossing that finish line depends critically on where you start. Many middle-class and affluent parents, especially those who have been to college themselves, know that the odds of success are greatest at the more selective colleges, public and private. Unfortunately, students whose families lack that experience, and lack the resources or the know-how to get good advice, may think that settling for the closest or most comfortable alternative is fine — that the big prize is getting into college.

The real prize is getting out of college with a valuable degree. Melissa Roderick of the University of Chicago has shown through careful study of graduates of the Chicago public schools that two-thirds of the most talented students don't apply to the most selective college they could get into. By opting for a less ambitious alternative, their chances of getting a college degree may drop by 20 or more percentage points — and because of financial aid policies, they may not even be saving on tuition.

Another lesson from high college dropout rates is that there are other choices. Certificates, two-year degrees and four-year degrees have very different requirements and knowing which is the right path is not always easy. That college pays off well on average, and that bachelor's degrees pay off particularly well, doesn't make that course right for everyone.

Misconception 6

College is all about the Benjamins.

We seem to take for granted that the only reason to go to college is to make more money. But there is a lot of evidence that college leads to more satisfying and healthier lives. People with higher levels of education are more likely to have rewarding jobs, more likely to exercise regularly, less likely to smoke, more likely to be active voters and volunteers, and more likely to engage in activities with their children.

The graduate benefits, but society does, too. College graduates become more productive workers, pay higher taxes and depend less on social support networks. Helping people make sound decisions about college raises our chances of living in a society with open-minded, productive citizens who help to create a well-functioning democracy. That's why it makes sense for governments to cover some of the expense that students incur in getting a college education. We need to debunk the misconceptions that keep people away from college. It's important for all of us.

- Morton Schapiro is president and professor of economics at Northwestern University, Sandy Baum is senior fellow at the George Washington University Graduate School of Education and Human Development and Michael McPherson is president of the Spencer Foundation.