When critics pointed out that the college wage premium ignores costs, the Federal Reserve offered a broader number: the college wealth premium. Instead of comparing income, it compares net worth, everything a household accumulates over a lifetime. Degree holders have more. Case closed?
Not quite. Every college wealth study sees that degree holders are wealthier and concludes the degree caused it. That is correlation, not causation.
Most wealthy people drive expensive cars. Subsidizing luxury cars for everyone else would not make them wealthy. The same logic applies to degrees. Historically the wealthy earned degrees because they could afford to, and the exceptional earned degrees because they were exceptional. Both groups would have built wealth either way. The degree is not the cause. It is a marker of the circumstances that drive wealth on their own.
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 came before the degree, not because of it.
Some college pays $30,000 more than high school alone. A completed degree pays $327,000 more.
The credential matters once it is completed. Spending years without earning it adds almost nothing. “Some college” sits closer to a high school diploma than to a four-year degree by an order of magnitude.
Source · Federal Reserve, Survey of Consumer Finances, interactive bulletin charts (edcl_median), 1989-2022, 2022 dollars
This is 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.