College Guide

Blog

June 29, 2011 1:27 PM College: the Gold-Plated Investment

By Daniel Luzer

What’s the best investment for someone to make in the future? When considering between stocks, bonds, and a college education, the Brookings Institution says, college is a better decision. Well, I guess, but the idea of a choice here is a little bizarre.

According the recent paper by Brookings:

Many are questioning whether the time and expense of college was worth it. We try to answer this question by comparing the economic benefits of a college degree to its costs, as one would for any other investment. When compared to other types of investments, how does a college degree really stack up?
On average, the benefits of a four-year college degree are equivalent to an investment that returns 15.2 percent per year. This is more than double the average return to stock market investments since 1950, and more than five times the returns to corporate bonds, gold, long-term government bonds, or home ownership. From any investment perspective, college is a great deal.

This is a little questionable, since college isn’t actually an “investment opportunity.” The central statistic behind the Brookings conclusion is that “the average college graduate earns about 70 percent more than the average person with a high school degree only.”

Well duly noted, but the real world there are a decidedly limited number of people with the opportunity to decide between investing $102,000 (the average price of four years of higher education) in college or more traditional markets.

Because if you don’t have $102,000, you just don’t have $102,000, no matter how good an investment it would be theoretically.

Of course, it’s not really an alternative. For many middle-aged people they buy all of these things: stocks, bonds, and then also college for their offspring.

At least in part this is because one can buy $200 or $1000 worth of stock but in order to get any benefits from college a family has to sink something like $100,000 into the project. Sure it “pays off” but the barriers to entry are a little high.

All of this is not to say that college isn’t “worth it”; the Brookings paper is obviously meant as a metaphor about the benefits of college. But the problem with thinking of college as a personal investment opportunity is that it assumes the individual students are the ones who should be making the investment.

Trafficking in this rhetoric is troublesome at a time when the country is trying to get more people to attend and graduate from college. If that’s going to happen it’s unproductive to treat college as a personal investment; $102,000 investments are for rich people.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer

Comments

  • AP on June 30, 2011 11:10 AM:

    Not to mention that attending college, while it comes with certain economic benefits, was probably never intended to be solely about earning potential (while education has always been about economy to some extent -- to the extent that labor, earnings, &c. are always relevant -- it's a shame IMHO that earning potential seems to be the primary focus these days). To wit: http://www.spiked-online.com/index.php/site/reviewofbooks_article/10638/.

  • Equal Opportunity Cynic on July 01, 2011 9:42 AM:

    I'm too lazy to click through to read the study, but i certainly hope that they were competent enough to control for the higher pre-college ability of college graduates. If so, then i'd have to question the interpretation that, "The central statistic behind the Brookings conclusion is that 'the average college graduate earns about 70 percent more than the average person with a high school degree only.'" Since that stat doesn't appear to control for pre-college ability, it doesn't mean squat.