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Evaluating the Payoff of a College Degree

Is college worth it?

News articles raising that question, and reports meant to answer it, are piling up at a steady clip.

And the answer has real consequences for anyone advising a student about whether and where to go to college, and for policy makers wondering if the country has too many degree holders, or too few.

A paper released on Monday by the Urban Institute seeks to add context to the debate over whether college pays off. The paper, “Higher Education Earnings Premium: Value, Variation, and Trends,” was written by Sandy Baum, a senior fellow at the research organization.

The paper’s main takeaway: “The payoff is high, and rising,” Ms. Baum says. “But it’s not as simple as that.”

Calculating the payoff of a degree requires a series of choices that lead to different results.

The earnings premium of a college degree looks different depending on how the data are cut. For instance, the earnings gap between workers with and without four-year college degrees will be larger in a study that examines everyone in the labor force than in one that considers only full-time workers. That’s because college graduates are more likely to be employed and to work full time than people with less education.

Another choice is whether to look at the earnings of recent graduates or to consider graduates’ whole working lives. The earnings gap between workers with and without college degrees is higher for older workers, so focusing on recent graduates paints an incomplete picture.

But looking at lifetime earnings also introduces a problem: There’s no guarantee that the labor market will treat today’s young workers in the same way it treated their predecessors.

If researchers are comparing workers with and without bachelor’s degrees, they must also decide how to treat graduate degrees. Including workers with advanced degrees will overstate the payoff of a bachelor’s degree, the paper says. But excluding them will understate it because bachelor’s degrees open the door to graduate school.

In the end, there’s “no one answer” for how to look at this set of dilemmas, Ms. Baum says. But it is important to understand the pros and cons of any approach.

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