College & Workforce Readiness

Study Chronicles Financial Benefits of Bachelor’s Degree

By Caralee J. Adams — May 11, 2011 3 min read
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For all the money, time, and effort it takes to earn a bachelor’s degree, people often wonder: Is the investment worth it?

The answer for the student is a clear “yes” when it comes to the advantage in lifetime earnings, according to a new study released today by the American Institutes for Research, a not-for-profit behavioral and social-science research organization in Washington, and Nexus Research and Policy Center, a non-profit institution based in San Francisco that promotes access to higher education and policies to improve proprietary schools.

And, the more competitive the school, the higher income the student can expect. But the advantage applies most at the top-tier colleges—the Ivies and flagship state institutions. At other, less-selective, not-for-profit private colleges, students shell out so much more in tuition that the net gain in income is not as great as for graduates of the public counterparts, the study shows.

The study, Who Wins? Who Pays? The Economic Returns and Costs of a Bachelor’s Degree, is co-authored by Mark Schneider, vice president of AIR, and Jorge Klor de Alva, president of the Nexus Research and Policy Center and former president of the University of Phoenix.

“If you look at the payoff for schools by selectivity, it turns out not to matter much unless you are at the most selective schools,” says Schneider. “There may be other reasons to go to a local private institution—it may be small and offer other advantages.” But looking strictly from an income perspective, it’s a better investment to go to an equally good big public state university than to a less-competitive private nonprofit, says Schneider.

The message to rising seniors: “A bachelor’s degree really matters in terms of financial payoff,” says Schneider. But to realize that, students have to graduate and get a job, he adds.

Second, suggests Schneider: “Go to the best school you can get into.” There is an income bump at the top-tier schools, and students are more likely to graduate on time. But that advantage disappears when you get past the top 100 or so schools, based on Barron’s Profiles of American Colleges

So, here is the net present value of additional earnings of students with bachelor’s degrees compared with those with a high school diploma over a lifetime by type of institution:

Non/Less Competitive For-Profits: $283,707; Public $306,404; and Non-for-Profit: $234,557

Competitive Public $338,961; Not-for-Profit $248,025

Very Competitive Public $405,261; Not-for-Profit $350,222

Highly Competitive Public $522,565; Not-for Profit $418,046

Most Competitive Public $524,473; Not-for Profit $552,060

The study also examines the economic benefits in the first decade after graduation. It reveals similar overall patterns, but found the graduates of less-competitive, competitive, and highly competitive not-for-profit schools didn’t realize any income advantage in the first 10 years —and were actually in the red from the high cost of college. Still, at the most competitive schools, the not-for-profit graduates experienced a $42,685 gain with their bachelor’s degree, and graduates of the most competitive public universities had a $93,018 boost in income over high school graduates.

Looking at the other aspect of higher education investment, the study reviews the amount of money taxpayers contribute to determine if there was a financial reward in terms of taxes paid on higher salaries from college graduates. While the study found taxpayers do get a positive return on their investment in the nation’s colleges and universities, the findings were a bit more complex.

Taxpayers benefit from $60,000 to $150,000 in additional taxes paid over a lifetime from college graduates. However, they also subsidize higher education through state appropriations for public schools and tax exemptions for not-for-profits. The report notes that taxpayers subsidize bachelor’s degrees in nearly all not-for-profit institutions at around $8,000 per degree. In public institutions, the investment is more than $60,000.

Because of the large investment and substantial cost of dropouts, the authors suggest in the report that policymakers focus on increasing retention and degree completion, especially at the less-selective institutions and among the neediest students. Also, the report calls for increased support of high-quality, nontraditional providers, such as for-profit and not-for-profit institutions that cost the taxpayers less than public schools.

A version of this news article first appeared in the College Bound blog.