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Education, From The Capitol To The Classroom

Why College Might Be A Smarter Investment Than Stocks

College may cost more today than just a few years ago, but a new study finds it’s still a smarter investment than stocks or real estate.

Why? People who earn college degrees get their money back over time — much more than any other financial investment.

In the big picture, the left-leaning Brookings Institution also found 90 percent of college grads are employed after graduation, whereas 64 percent high school grads who attempt to enter the job market right out of school have jobs. But critics point out the study doesn’t prove that college is right for every individual student.

Study authors Michael Greenstone and Adam Looney write:

By any financial measure, the investment in a college degree is the winning choice, with a rate of return of a whopping 15.2% a year on the $102,000 investment for those who earn the average salary for college graduates. This is more than double the average rate of return in the stock market during the last 60 years (6.8%), and more than five times the return to investments in corporate bonds (2.9%), gold (2.3%) long-term government bonds (2.2%) or housing (0.4%).

This high rate of return translates into large differences in earnings. Over a lifetime, the average college graduate earns roughly $570,000 more than the average person with only a high school diploma.

But as Richard Vedder pointed out in Inside Higher Ed, it’s hard to generalize the benefits of college down to each individual student:

At the individual student level, it is possible to reasonably estimate the risk. A student who was at the top of her class at a top-flight suburban high school, had a composite SAT score of 1500, and plans to attend a private college with relatively low dropout rates is probably going to get a reasonable return on her investment, although even that is no certainty. By contrast, a student who is below average in his graduating class from a mediocre high school, has a combined SAT score of 850, and is considering a college with high dropout rates is very likely not to graduate even in six years, and probably will get a very low return on his college investment. That student might well do much better by going to a certificate program at a career college, learning to be a truck driver, or becoming a barber, for example.

In short, a good maxim is “different strokes for different folks.” A one-size-fits-all solution does not work as long as human beings have vastly different aptitudes, skills, motivations, etc. On balance, we are probably over-invested in higher education, not under-invested.

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