Aggregate statistics can sometimes mask important information.
Ben Bernanke
The Georgetown University Center on Education and the Workforce published a report in 2011 changing how a generation thought about college.1
Its central finding has shaped the decisions of students, families, and policymakers ever since: a bachelor’s degree delivers a lifetime earnings premium of $964,000 over a high school diploma.1
The number is real.
The method behind it is not wrong. It is incomplete.
Incomplete data, applied to personal decisions, causes serious harm.
What the CEW Measured
The Georgetown Center on Education and the Workforce is a legitimate research institution. Its data sources are credible. Its analysts are serious. The problem is not bad faith. It is four methodological choices that, taken together, systematically overstate the financial return on a college degree.
One piece of context matters before examining those choices. The CEW is a proprietary research center. Its reports are produced in-house and are not subject to independent peer review. That is not unusual in policy research. But it is relevant when weighing its conclusions. This book is also not peer-reviewed. What both have in common is simple. Their assumptions and data sources can be examined, tested, and replicated. That is the standard that applies here.
The CEW calculates lifetime earnings by summing annual median earnings for workers ages 25 to 64, comparing college graduates to high school graduates. The 2011 update shows college graduates earning $2,268,000 over that window, compared with $1,304,000 for high school graduates. A $964,000 gap.1 The Federal Reserve puts the annual College Wage Premium at 75% as of 2022.2
That gap is real for the population it describes. Whether it describes the decision a student faces at 18 is another matter.
It does not.
What the CEW Left Out
CEW has published updates in 2015 and 2021. None corrects the four structural omissions described here. The 2011 headline number remains in active policy use.
The first omission is the most consequential. The CEW starts its comparison at age 25. A high school graduate who goes directly to work at 18 has a seven-year head start.
During the four years a typical college student attends full-time, the high school graduate is earning and accumulating. That head start is worth approximately $148,000 in earnings before the comparison even begins.
None of it appears in the CEW’s model.
Figure 6-B in Chapter 6 illustrates the cumulative effect.
The second omission is college costs. The CEW acknowledges tuition exists but treats it as a footnote.
The College Scorecard reports a median net cost of $20,081 annually for public four-year institutions after aid. With only 44% of students completing degrees within four years and a median time to degree of 52 months, total costs can grow significantly.
Excluding four years of direct costs from a lifetime earnings comparison removes approximately $80,000 from the calculation before discounting. That is not a footnote. It is the single largest direct cash cost the investment requires.
The CEW is effectively ignoring approximately $228,000 of advantage the median high schooler has over the four-year college graduate (see Figure 6-C in Chapter 6).
Taxes are the third omission. The federal tax system is progressive. A high school graduate earning $35,872 a year pays roughly $2,300 in federal income taxes annually. A college graduate earning $56,943 pays roughly $4,800, rising into the 22% bracket as earnings grow. Over a 40-year career, that differential compounds to $180,000 in additional taxes paid by the college graduate. That $180,000 the CEW counts as earnings never reaches anyone’s bank account.
The fourth omission is the time value of money. A dollar earned 30 years from now is not worth a dollar today.
Table A-A · Time value of money: what $100 today is worth in the future at various discount rates
| Interest rate | In 10 years | 20 years | 30 years | 40 years | 50 years |
|---|---|---|---|---|---|
| 5% | $61.39 | $37.69 | $23.14 | $14.20 | $8.72 |
| 7.8% | $47.19 | $22.27 | $10.51 | $4.96 | $2.34 |
| 10% | $38.55 | $14.86 | $5.73 | $2.21 | $0.85 |
Source · Author calculation using the standard present-value formula at three discount rates.
The CEW acknowledges this criticism in its technical appendix and applies a 2.5% discount rate to address it. At that rate, the $964,000 premium falls to $593,000. But 2.5% is the real interest rate on long-term government bonds. That is a risk-free rate applied to one of the riskier investments a family can make. The current government funding rate was 5.4% at the time of writing. Parent PLUS loans ran at 8.05%. Financial analysis of long-duration risky investments typically uses discount rates between 8% and 20%. At any of those rates, the CEW’s premium shrinks further still.
What the Research Shows
Other research also finds a college premium. The CEW is, however, among the most aggressive in stating it as universal.
Brookings found in 2020 the premium depends heavily on field. Engineering graduates can earn 100% or more above high school graduates over their careers. Arts graduates sometimes earn less.3 The average is not a prediction. It is a disguise.
The HEA Group, analyzing College Scorecard data for 3,887 institutions in 2023, found graduates from 26% of those institutions earn below the median high school graduate at the same horizon.4 One in four institutions. Not a rounding error.
Both findings point to the same conclusion: the CEW’s aggregate number is accurate for the population it measures and dangerously misleading for the individual making a choice. It is the average of outcomes ranging from highly positive to materially negative, presented as if the average describes each person’s likely result.
The Complete Model
The model developed in this book corrects all four omissions. It starts at age 18, not 25. It includes full college costs. It taxes earnings at federal rates. It applies a 7.8% discount rate, a middle position between government bond rates and the upper end of standard investment hurdle rates.
The result: the Net Present Value (NPV) of lifetime after-tax earnings for the median high school graduate is $484,376. For the median college graduate, it is $402,005.
The CEW claims a $964,000 lifetime advantage for college. The complete model shows a $82,371 disadvantage.
That is a swing of over one million dollars, produced entirely by correcting the methodology rather than changing the underlying earnings data.
The inputs are the same. The conclusions are not.
What This Means
The earnings data is real. The College Wage Premium exists. What the report cannot do is tell any individual student whether a specific degree, at a specific school, in a specific field will beat the alternative. No aggregate study can do that.
The CEW’s headline number has been used to justify lending decisions that skip any individual calculation. The result is $1.7 trillion in outstanding educational debt. And millions of graduates whose earnings never reached the level needed to justify what they borrowed. The aggregate statistic did not cause this result on its own. The decision to treat an average as individual advice did.
About this analysis
This critique appears as Appendix A (Georgetown, The College Payoff) in We Need To Talk About Higher Education by Leon Shivamber.
Get the book → Read the argument in full → Run your own numbers →
Notes
- Carnevale, Anthony P., Cheah, Ban, and Rose, Stephen J. (2011). “The College Payoff.” Georgetown University Center on Education and the Workforce, 2011, p. 1. https://cew.georgetown.edu/cew-reports/the-college-payoff/
- Valletta, Robert G., Bengali, Leila, Sander, Marcus, and Zhao, Cindy. “Falling College Wage Premiums by Race and Ethnicity.” FRBSF Economic Letter 2023-22, August 28. https://www.frbsf.org/research-and-insights/publications/economic-letter/2023/08/falling-college-wage-premiums-by-race-and-ethnicity/
- Broady, Kristen, and Brad Hershbein. “Major Decisions: What Graduates Earn over Their Lifetimes.” Brookings.Edu. Brookings Institution, October 8, 2020. https://www.brookings.edu/articles/major-decisions-what-graduates-earn-over-their-lifetimes/.
- Itzkowitz, Michael. “Ensuring a Living Wage Through Higher Education.” The HEA Group, February 2024. https://www.theheagroup.com/blog/ensuring-a-living-wage-through-higher-education.
Related critiques
This is one of four close readings of the major college ROI studies. See the others, then read the audit that weighs all four together and the plain-language case beneath them.