A college education may not be worth as much as you think

Earnings Gap Between College and High School Grads Small - WSJ.com

For years, higher education was touted as a safe path to professional and financial success. Easy money, in the form of student loans, flowed to help parents and students finance degrees, with the implication that in the long run, a bachelor's degree was a good bet. Graduates, it has long been argued, would be able to build solid careers that would earn them far more than their high-school educated counterparts.
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The gap between pay for college graduates and high school graduates isn't as wide as has been reported.

The numbers appeared to back it up. In recent years, the nonprofit College Board touted the difference in lifetime earnings of college grads over high-school graduates at $800,000, a widely circulated figure. Other estimates topped $1 million.

But now, as tuition continues to skyrocket and many seeking to change careers are heading back to school, some researchers are questioning the methodology behind the high projections.

Most researchers agree that college graduates, even in rough economies, generally fare better than individuals with only high-school diplomas. But just how much better is where the math gets fuzzy.

The problem stems from the common source of the estimates, a 2002 Census Bureau report titled "The Big Payoff." The report said the average high-school graduate earns $25,900 a year, and the average college graduate earns $45,400, based on 1999 data. The difference between the two figures is $19,500; multiply it by 40 years, as the Census Bureau did, and the result is $780,000.

"The idea was not to produce a definitive 'This is what you'll earn' number, but to try and give some measure of the relative value of education attainments," says Eric Newburger, a lead researcher at the Census and the paper's co-author. "It's not a statement about the future, it's a statement about today."
Mark Schneider, a vice president of the American Institutes for Research, a nonprofit research organization based in Washington, calls it "a million-dollar misunderstanding."

One problem he sees with the estimates: They don't take into account deductions from income taxes or breaks in employment. Nor do they factor in debt, particularly student debt loads, which have ballooned for both public and private colleges in recent years. In addition, the income data used for the Census estimates is from 1999, when total expenses for tuition and fees at the average four-year private college were $15,518 per year. For the 2009-10 school year, that number has risen to $26,273, and it continues to increase at a rate higher than inflation.

Dr. Schneider estimated the actual lifetime-earnings advantage for college graduates is a mere $279,893 in a report he wrote last year. He included tuition payments and discounted earning streams, putting them into present value. He also used actual salary data for graduates 10 years after they completed their degrees to measure incomes. Even among graduates of top-tier institutions, the earnings came in well below the million-dollar mark, he says.

And just like any investment, there are risks—such as graduating into a deep economic downturn. That's what happened to Kelly Dunleavy, who graduated in 2007 from the University of California, Berkeley, with $60,000 in loans. She now works as a reporter for a small newspaper in the Bay Area and earns $34,000 a year. Her father is currently paying her $700 monthly loan payments. "It's harder than what I think I expected it to be," she says.

"Averages don't tell the whole story," says Lauren Asher, president of the Institute for College Access & Success, a nonprofit group based in Berkeley, Calif. She points out that incomes vary widely, especially based on majors. "The truth is that no one can predict for you exactly what you're gong to earn," she says.

And that includes the College Board, which recently said on its Web site: "Over a lifetime, the gap in earning potential between a high-school diploma and a bachelor of arts is more than $800,000. In other words, whatever sacrifices you and your child make for [a] college education in the short term are more than repaid in the long term."

The $800,000 number, it turns out, was pulled from a footnote of the College Board's 2007 "Education Pays" report that explained lifetime earnings. The report's author, Sandy Baum—an emeritus Skidmore College economics professor who didn't write the promotional text on the Web site—says that $450,000 is actually a more reasonable estimate of the difference in lifetime earnings, something she's said in interviews for more than a year.

Steve Talbott, a journalism professor at Cleveland State University who is researching the cost of education and student-loan debt, says he urged the College Board to take down the "misleading use" of the $800,000 number a year ago. Others have voiced their objections to the College Board figure via letters and blogs.

A College Board spokeswoman says it doesn't have a record of when the content was written and that "it's possible that during an update of the content the writer misinterpreted the data within the report." She also says the text represented old data and reflected "a different methodology." The $800,000 figure was removed from its Web site in December, once the group learned of the error, she says.

Write to Mary Pilon at mary.pilon@wsj.com