The Diminishing Returns on a College Degree

Fall headcounts have plateaued among Virginia public higher-ed institutions. Data source: State Council for Higher Education in Virginia.

After peaking in 2011 at 20.6 million, college enrollments in the United States have declined every year since, falling to 19 million in 2016. While the fall-off has been most pronounced in community colleges and for-profit institutions, many traditional four-year institutions have been affected as well.

Why, ask Richard Vedder and Justin Strehle, is this happening? Because the cost of college attendance is rising while the financial benefits of a degree are falling, they argue in a Wall Street Journal op-ed.

Between 2000 and 2016, the tuition-and-fees component of the Consumer Price Index rose 74.5%, adjusted for overall inflation. But the earnings advantage of a college degree is no longer growing like it once did. Writer Vedder and Strehle:

The average annual earnings differential between high school and four-year college graduates rose sharply, to $32,900 in 2000 (expressed in 2015 dollars) from $19,776 in 1975 — only to fall to $29,867 by 2015. In the late 20th century rising higher-education costs were offset by the increasing financial benefits associated with a bachelor’s degree. Since 2000 those benefits have declined, while costs have continued to rise.

An indicator of this shifting return on investment is the high rate of underemployment — 40%, according to Vedder and Strehle — of recent college graduates. When college grads are taking jobs as Uber drivers and baristas, you know something is wrong.

Another factor undermining the advantage of a college degree: A degree no long provides the reliable signaling to the labor market that it once did. Traditionally, a sheepskin used to tell employers that a candidate possessed a certain level of intelligence, ambition and diligence. But when one third or more of adult Americans graduate from college, “being a college graduate no longer necessarily denotes exceptional vocational promise,” the authors write.

Bacon’s bottom line: There is a deeply rooted idea in American culture that everyone should have a chance to go to college. Embedded in that idea is the assumption that everyone can benefit from a college education. In an ideal world that might be true. But we live in the world we live in, and the K-12 educational pipeline is badly broken. High schools are spewing out graduates who are totally unprepared for college-level work. But many colleges, desperate to maintain their enrollments and support the vast infrastructure of buildings, departments, faculty, graduate students and administrators, are taking on these students anyway, even if they benefit little from the college experience. Here in Virginia, thousands of students drop out every year after loading up with college debt. Even for those who do graduate, thanks to relaxed academic standards, a college degree in many cases ain’t worth what it used to be.

Since the Top Jobs Act of 2011, in which it was the declared policy of Virginia to increase the number of degrees and certificates awarded by Virginia’s public colleges and universities by 100,000, enrollments have plateaued after years of increases. Virginia students are encountering the same hard choices as students nationally: Given what Virginia institutions are charging, is the cost of a degree really worth it?

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4 responses to “The Diminishing Returns on a College Degree”

  1. LarrytheG Avatar

    re: ” Why, ask Richard Vedder and Justin Strehle, is this happening? Because the cost of college attendance is rising while the financial benefits of a degree are falling, they argue in a Wall Street Journal op-ed”

    ” … is the cost of a degree really worth it?”

    as opposed to what rational alternative?

    Virginia Performs has an interesting chart that breaks it down by region:

    but the idea that MORE people are choosing to not get a degree at all.. because of “cost” when at the same time we are drowning in student loan debt… kind of defies logic…

    there must be more to this story. Are people getting education from other sources like for-profit institutions?

    what does this chart mean when compared to the charts showing declines in enrollment?

  2. LarrytheG Avatar

    here’s a better chart showing total student loan debt as opposed to per capita debt :

  3. Hamilton Lombard Avatar
    Hamilton Lombard

    I definitely agree with the premise that colleges offer a diminishing return on the time and money invested in earning a degree. But I’m not sure that is driving the decline in college enrollment. BLS data doesn’t show a smaller share of high school students enrolling in college. A key reason for the decline in college enrollment is likely the fact that the college age population has been declining in recent years:

  4. LarrytheG Avatar

    well if enrollment is declining at the same time debt is continuing to go up… hoe boy…

    But in a price-escalating environment people would typically seek less expension options… rather than forgo higher education all together and that actually is shown in the regional chart which shows kids from the less affluent areas of Va Southwest, and southside – with much higher percentage of 2yr overall – and it has increased and the down-blip doesn’t appear to be all that bad… they’re still up over the prior years.

    The higher prices do not dissuade people from getting a higher ed education -but it does incentivize them to prioritize..t0 -peel away what is not mandatory and is unaffordable . and perhaps the standard 4yr on-campus option may well becoming less and less affordable .. and appealing… and perhaps even counterproductive in an economy that is changing rapidly – and perhaps more rapidly than traditional degree paths are able to keep up with.

    Virtually every occupation now days requires almost a dual-degree… part of it the content and the other part – how that content fits into a technological knowledge-based economy.

    Used to be -you spent 4 years learning a “field” and the changes in that field over 4yrs was not huge. In today’s world 4 yrs completely transforms occupations even obsolescing some.

    More and more , occupations deal with “information” and the job requires one to be able to read, analyze.. and understand the meaning of that information – in order for work-product decisions and actions to be taken…

    In some respects – a static 4yr course of higher ed in the 21st century may well be the “wrong” kind. “College” might be turning into something that goes on for the career .. you’ve always taking courses …

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