Adam Looney and Michael Greenstone at The Hamilton Project recently released a new study in what is now a genre of studies purporting to prove just how great a deal a college degree is. Their conclusion is predictable: a college degree is the best investment you can make. But this conclusion isn’t exactly true; the value of a degree depends on a variety of factors and for most, it isn’t much of an investment.
The authors of the study base their argument on the assumption that the college diploma is like any other investment, “From any investment perspective, college is a great deal.”
At best, however, the idea that a degree is like any investment is debatable. Unlike Apple stock or a US treasury bond, for example, a degree has no inherent value that is recognized by any trading market, because whatever value a college education has depends entirely on you, the degree holder, on your intelligence, your creativity and other factors unique to you. In fact, the entire earnings effect of a college degree can be explained by the personal quality of the graduate alone, if we assume that intelligent, creative and astute individuals are more likely to earn more simply because they are smarter. If so, then the education is only important to the extent that in our society you can’t get ahead without a degree from the right school and the right program and smart, intelligent and astute young people know it. In this sense, a degree has no value whatsoever.
It is this variability directly related to the degree holder’s personal qualities that makes the “investment” in a college education significantly more risky than buying $100,000 worth of bonds or a Starbucks franchise, and therefore unlike any other investment. If you decide to sell those standard assets, such as bonds, you can get cash. The sale is not predicated on your personal qualities, on whether you are talented or smart or creative. You may be dead to the creative spark and lack talent, but you will still get the cash if you sell some bonds you got from aunt Edna. Not so with a college degree.