Does a College Education Pay Off?

Assessing the Payback from a College Degree

Robert HavemanLa Follette School of Public Affairs

Department of EconomicsUniversity of Wisconsin-Madison

Affordability and College Attainment in Wisconsin Public Higher Education

Sponsored by Wisconsin Scholars Longitudinal Study

July 7-8 2011July 7-8 2011

Why worry about ‘pay off’?

Basic facts: Low rates of college enrollment and persistence

among lower/middle income studentsA falling share of middle/low income students

America’s colleges and universities. WHY?

Demand: College/university striving for selectivity rank—

students from lower income families less prepared.

Supply: Lower income students:

Discouraged from applying because of high and rising tuitions

Reluctant to borrow to finance costs Lack information regarding the costs of

attending and the availability of financial aid Lack knowledge regarding the ‘pay off’ from a

college degree

Hence, the need for an instrument to demonstrate the financial implications of college-going

The UW-Madison Payback Calculator

Rationale for a Payback Website?A financial literacy instrument—to alert

prospective students and their parents of the magnitude of costs and gains of attending college.

A guide to assessing the value of investing in education—to illuminate the debate regarding whether college is worthwhile.

A guide for how to cover up front costs.

The Basic Payoff Question

To what extent does the investment by a student in obtaining a college degree ‘pay off’ for the student and his/her family?

The Components of ‘Payoff”Gaining a college degree:

Creates Private Gains: Increased earnings over the entire

post-college working life Financial aid while in college

Imposes Private Costs: ‘Foregone earnings’ while in college Tuition and fees

If the private gains exceed the private costs, gaining a college pays off.

In addition, there are private nonfinancial gains; they are also relevant.

Mean Annual Earnings by Educational Attainment for Persons 18 Years Old and Older, 1975–2003 (Inflation-Adjusted to 2003 Dollars)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,0001

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77

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79

19

81

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83

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87

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91

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93

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Not a high school graduate

High school graduate

Some college/associate's degree

Bachelor's degree

Advanced degree

The UW-Madison Calculator

What are the private returns—the payback—from getting a degree from the UW-Madison, rather than stopping schooling at high school?To answer this question, it is necessary to have information regarding the characteristics of the individual student, such as GenderRaceFamily incomeDid parents attend collegeHigh school gradesACT score

The UW-Madison Payback Calculator

http://payback.wisc.edu/

We are now in the process of updating this site, and making it “generalizable” for use by any four year school.

A Two College Payback SiteMadison College is used as the example.This site has been generalized and is available

for use by two year colleges

http://paybackcalculator.wceruw.org/