Making College Worth It: A Review of the Returns to Higher Education

Abstract

Despite a general rise in the return to college, likely due to technological change, the cost-benefit calculus facing prospective students can make the decision to invest in and attend college dauntingly complex. Philip Oreopoulos and Uros Petronijevic review research on the varying costs and benefits of higher education and explore in full the complexity of the decision to invest in and attend college. Optimal college attainment decisions are different for all prospective students, who diverge in terms of what they are likely to get out of higher education and what specific options might be best for them. Earnings of college graduates depend in important measure on the program of study and eventual occupation they choose. Students uninterested in or unable to complete a four-year college degree appear to benefit from completing a two-year degree. Prospective students may also face both financial constraints, which prohibit them from taking advantage of more education, and information problems and behavioral idiosyncrasies, such as reluctance to take on debt, which keep them from making optimal decisions about attending college. In their discussion of how student debt figures in the college investment, the authors note that some students borrow too little and, as a result, underinvest in their education. Carefully calculating the return on the college investment can help determine the “appropriate” amount of debt. Students are more likely to benefit from postsecondary education the more informed they are about the expenses associated with college and the potential options for financial aid, which can be extremely complex. To make the best college investment, Oreopoulos and Petronijevic stress, prospective students must give careful consideration to selecting the institution itself, the major to follow, and the eventual occupation to pursue. For any particular program at a particular school, anticipated future labor market earnings, the likelihood of completion, the costs, and the value of any student debt must all be factored into the assessment.

College major, internship experience, and employment opportunities: Estimates from a résumé audit

“…However, research on the effect of specific academic training on labor-market outcomes is relatively sparse. The existing literature focuses on the effects of college attendance, university quality, and degree choice on labor-market outcomes (e.g., Oreopoulos and Petronijevic, 2013;Altonji et al, 2012). These studies also share a common limitation: the choice of academic major could be driven by unobservables that make individuals more or less likely to have success in the labor market.…”

Learning Better: Public Policy for Skills Development

“…By providing advanced and specialized skills, higher education can foster productivity and economic growth (Freeman, 2010;Giuri et al, 2007;Toivanen and Väänänen, 2016) and be an important determinant of social mobility (Daude and Robano, 2015). But higher education can generate more than monetary benefits; it can also improve the health and creativity of the workforce (Oreopoulos and Petronijevic, 2013). And it has important spillover effects; the technological advances and knowledge generated by a workforce with higher education may be shared among workers with varied skill levels (Moretti, 2004b).…”

Accounting for institutional variation in expected returns to higher education

“…Research also indicates that wages vary by choice of college, choice of major, and by the characteristics of students themselves (Carnevale & Cheah, 2015;Hout, 2012;Oreopoulos & Petronijevic, 2013;Tamborini, Kim, & Sakamoto, 2015). Choice of major is among the most important for explaining between-college variation in the salaries of college graduates (e.g., Schneider, 2010).…”