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Eyeballing College Earnings

By Stig Leschly
April 20, 2022

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The federal government recently released a new batch of data on the earnings outcomes of students in 4-year colleges in the US.  

The new data, in their most eye-popping dimension, pin down every 4-year college in the US by the salary results of students ten years after they start college.  The data reveal alarming patterns in the earnings prospects of American college-goers who pay hefty, ever-rising sums to go to 4-year college with the simple, reasonable — and now uncertain – expectation that their investment in college will pay back.

In this blog, I will take you through the dust-up.  I organize the blog around six main points and related charts – all of of which shed light on the nature of earnings outcomes in US colleges and how they vary by student groups, by college types and by majors.

1 – Earnings Basics: A Cautionary Tale

For starters and to orient yourself, stare for a minute at the chart below.  

On the X-axis, the graphic slots US 4-year colleges into buckets defined by the median earnings of students ten years after they enter college. The Y-axis and the table below the graph tell you how many colleges and students (of various types) are in each earnings bucket.

Of the many lessons in the chart above, I will start with the basic one:  the observation that a typical student in most US 4-year colleges will go on to make $40K to $70K a decade after starting college.  To go to 4-year college in the US is, usually, to sign up for a $40-70K paycheck ten years down the road.

Sure, on the far right of the chart are exceptionally high-payoff colleges where students can expect to make north of $100K ten years after their first day on campus, but those colleges and their students are few.  

And yes, at the left of the chart are economically perilous colleges where students face bleak earnings outlooks (more on those colleges and the students they endanger in a minute).  

But these outliers aside, the large majority of US 4-year college students (73% of them, to be precise) fall in the “fat middle” of the distribution above and attend institutions where a median student earns $40-70K a decade after enrolling.

This observation should tip you off immediately to the rising skepticism and anger in most US households today about the increasingly shaky economics of US 4-year colleges.  

Consider the following basic math about the economics of college, which is being done in distress at kitchen tables across the US as I type.  

The net price of a Bachelor’s degree —  i.e. the out-of-pocket expense that students and their families need to source from some mix of personal savings, household income and college loans – now averages $130K in private colleges (4 years x $32.5K) and $80K in public colleges (4 years x $20K).   

Meanwhile, the long-term, baseline salary for high school graduates who forego college is ~$40K (the exact amount varies by individual, region, and circumstance).  

That means that the eventual wage premium that most 4-year college students experience (i.e. the added pay they earn from going to college) is $0K to $30K per year. Weigh that range of annual wage premiums against the up-front $80K-130K cost of a BA degree, and you get the issue.  

Four-year colleges are now a dicey call, financially speaking.  Most students, for example, would say a loud no thanks to paying $80K-130K for a BA degree in return for a wage premium ten years later which is at the low end of the range I just described (i.e. $0 – $10K).

2 – Earnings by Income Level: An Outrageous Tale

The second observation that pops loudly from the chart above is, as mentioned, the travesty that unfolds on the left side of the chart.  

On the left side of the graph above are 4-year colleges with dismal earnings outcomes.  Students entering these colleges can expect, a decade after they enroll, to make salaries below $40K and, as a result, to earn less than a worker with only a high school degree.

These colleges, to be clear, threaten students with financial distress and career setbacks. They charge students big sums, as do most 4-year colleges, but produce wages smaller than those of an average high school student.

And — to my point here — these colleges are almost exclusively populated by students of color and students from low-income households.  

For example, in colleges where typical students have salaries of $0-30K ten years after starting college, 91% of students are Black or Brown, and 84% of students qualify for Pell grants (the federal tuition vouchers that support students from low-income households).   

The many reasons for this offensive reality are for another blog, and I’ll simply call it out here.   It’s outrageous.

The chart below repeats and extends this point.  

It plots all US 4-year colleges by their median student earnings and by the percent of their students who qualify for Pell grants.  Here again, you will see that colleges with strong earnings outcomes enroll few low-income students, and vice versa.

Further,  in the graph below, you will spot a counter-intuitive point which I will stress a few times in this blog:  selective colleges (below, the colleges plotted as blue dots) do not produce unusually high earnings outcomes.  

Selectivity is a good predictor of the income level of entering students (i.e. picky colleges screen for wealthy, full-paying students), but selectivity does not predict clearly the long-term earnings outcomes of students.  To see this, notice how the blue dots below are scattered widely up and down the Y-axis, which measures earnings outcomes.

3 – Income-Gap Closing Colleges:  Earnings for High-Income vs. Low-Income Entrants

Just as they vary in the absolute earnings they generate for students, so do 4-year colleges differ in the degree to which they equalize the long-term earnings of low-income and high-income entrants.

My favorite colleges (which, unfortunately, are rare) generate solid long-term salaries for students and, importantly, do so equally for their rich and poor students. 

On this point, notice in the chart below how infrequently colleges manufacture long-term salaries for low-income freshmen that match or exceed those of high-income freshmen.   In particular,  in the graph below, look for the few colleges on or above the dotted yellow line. They are colleges where the eventual salaries of low-income students typically equal or out-pace those of their wealthier peers.

You will also see again in the chart below that college selectivity – while so much talked about – is a poor predictor of earnings.  Selective colleges – which again are the blue dots in the graph below — are scattered across both axes.

The chart above is, on the whole, worrisome.  In most 4-year colleges, wealthy freshmen will go on to out-earn poor freshmen.  In a better world, more colleges would equalize outcomes across students of differing income levels.

The good news is that some work-horse colleges like SUNY Purchase, Babson, and Carnegie Mellon do what they do without regard to the income backgrounds of their students.  They are the heroes in the mix, I think.  They prove that colleges, when run properly, can close long-term income gaps and function in our society as the economic ladders and equalizers that we need them to be.

And, to stretch my optimism a bit, many of the (few) colleges that equalize earnings outcomes across students from different economic backgrounds are non-selective or modestly selective ones and open to all or almost all students.

A final comment on the chart above.  You can start to see, via the colleges that I have named, that institutions which focus on STEM, business and applied health degrees often produce the best and most equitable long-term earnings outcomes for students.  I’ll finish the blog on this topic and with the good news that it implies (hint: students – regardless of where they go to college – can almost always control their major, and majors matter a lot to livelihoods).

4 – Price and Selectivity vs. Earnings

In a sane world, the price of a 4-year college would clearly predict student earnings.  That, however, is not so.  

As you can see below, the price of a 4-year college has a weak relationship with the earnings of graduates.  To see just how weak, pick a spot on the X-axis and read upward. You will notice large variation in earnings outcomes across similarly priced colleges.

And one final time: the selectivity of a college says little about the earning prospects of its students.  The blue dots in the graph above are colleges that admit fewer than 40% of their applicants. They are scattered without pattern up and down the Y-axis and produce a seemingly random assortment of earnings outcomes.  

I stress that college prices and admission rates do not predict clearly the eventual earnings outcomes of students because I want to illustrate the murky world that students and families need to navigate at enormous risk.  Families and students almost always want college to pay back, but they cannot rely on the price of college, nor its selectivity, as clear signals about future earnings outcomes.  They are often left to pick among colleges with little reliable information about the vital economic road ahead.

5 – An Aside: The Selectivity Myth and Colleges as Customer-hungry Marketeers 

Allow me a quick, pertinent digression.  

In many conversations about college, a myth circulates that it is hard to get into college.  With very few exceptions, that is not true.   Most 4-year colleges are open to all or almost all comers so long as they can muster a large enough bag of cash (from their personal savings, household income, and college loans) to foot the beefy bill.  

Far from picky, most colleges are in a rush to sell out and fearful of even small drops in the precious tuition money on which they depend, semester to semester, to feed their high and fixed cost structures.  Colleges have evolved into supremely motivated marketing machines hawking high-price, high-stake wares.

On this point, gander at the bar chart below.  It might surprise you.  

A mere 1% of US 4-year college students attend institutions that admit less than 10% of applicants, and only 10% of them attend colleges that admit less than 40% of applicants.  

Again, in most cases, four-year colleges are not selective operations. They are marketing machines, open to most students if (at their peril) they can write a big check.

6 – The (only?) Good News: Majors Matter

Parents and students are panicking at kitchen tables across the US.  Our young people (and many mid-career professionals) need a way forward to a good, stable job and to the personal freedom that comes with economic safety and mobility.  A solid job, reliable benefits, and the choice-filled life they enable are the overwhelming concerns of a vast majority of college-going families and students.

With these crucial economic matters on their minds, would-be college students have been told over and over that college is the way ahead, but they now rightly sense peril and deception.  They intuit correctly that what they pay for a 4-year college predicts little about downstream earnings.  They know they need to sift crucially among colleges to avoid drop-out factories, debt traps, and middling career outcomes.   They sense danger, as they should.

Given the fraught state of things, my only substantial and practical advice to students and families across the US is to search for and pursue a highly marketable major. That task is almost always within the control of students as they arrive on campus, and majors (unlike the price, type, or selectivity of colleges) matter greatly to later salaries.

To see the strong correlation that runs between majors and eventual earnings, ponder the (final) chart below.  

It plots the “payback period” of BA degrees in Massachusetts.  In this chart, the payback period is the time a typical BA graduate needs to work in order to recoup the net cost of their BA degree, via the wage premium generated by holding the degree.  The wage premium, as I explained earlier, is the earnings of a degree holder in excess of the earnings of a similar person with only a high school degree.  In this analysis, for certain data limitations reasons, the wage premium is calculated two years after graduation.

Chart, bar chart

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The take-away in the graph above is simple and vital.  Majoring in fields of study that map to high-employment and high-wage sectors of our economy – notably STEM, business and applied health fields – is the most reliable way to a good return of the price of college, and it is essential for students who need a sound economic path forward.

In all the noise of college,  we need to advertise this good news loudly.  Students can usually control their major, and a marketable major is a rare bit of stable ground on which college-goers can stand in the otherwise swampy economic terrain of college.


Thanks for reading, all.  This was a long one, I know.  
And hey, if you have kids in college, go ask them about their choice of major☺

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