The college wage premium ignores costs, and a broader number often gets cited in its place: the college wealth premium. Instead of comparing income, it compares net worth, everything a household owns minus everything it owes. Degree holders have more. Case closed?
Not quite. A common reading of the wealth premium sees that degree holders are wealthier and concludes the degree caused it. That reads a correlation as a cause.
Many wealthy people drive expensive cars. Subsidizing luxury cars for everyone else would not make them wealthy. The same logic applies, at least in part, to degrees. I think that historically, many of the wealthy earned degrees because they could afford to, and many of the exceptional earned degrees because they were exceptional. Much of that wealth may have come either way. The premium cannot separate what the degree added from what those graduates brought with them.
In investing there is a standing warning: past performance is no guarantee of future returns. The wealth premium is past performance, measured on people whose advantages may have come before the degree, not because of it.
In the Federal Reserve’s Survey of Consumer Finances for 2022, some college, which in this survey includes associate degrees, showed $30,000 more in median wealth than high school alone. A bachelor’s degree or higher showed $327,000 more than some college.
That year the big gap sat at a bachelor’s or higher. Short of it, the gap over high school was small by comparison. “Some college” sat about ten times closer to a high school diploma than to a bachelor’s degree or higher.
Source · Federal Reserve, Survey of Consumer Finances, interactive bulletin charts (edcl_median), 1989-2022, 2022 dollars
The chart shows where the gap sits, not what caused it.
This piece is adapted from Chapter 7 of the book. Read the full argument in the book, or run your own numbers in the model.
Read next: Is College Worth It? The argument in full, or the Federal Reserve’s college ROI math, examined in this breakdown.