What Is the Actual Value of Going to College?

Narrator: Most high school students in the United States face the question, “Should I go to college? Is it worth it?” Earnings statistics suggest very large returns to attending college. But is that a causal effect of college itself, or is it simply a reflection of preexisting differences between people who go and people who don’t? Chicago Booth’s Jack Mountjoy sought to answer that question using large datasets on education and earnings spanning the state of Texas.

Jack Mountjoy: So Texas is a great place to study this because in addition to just having great data, I’m able to link up students from their K through 12—elementary school, middle school, and high school experience—into where they go to college, if they go, how long they spend there, whether they drop out, whether they get degrees, and then I’m able to link that data up to earnings records that span the whole state. So I can basically follow most Texans from high school into college and into the workforce. So it’s a great dataset for thinking about questions of whether college affects people’s life trajectories.

Narrator: Most of the 35 public universities in Texas use SAT or ACT score thresholds to quickly narrow the applicant pool.

Jack Mountjoy: So what I found in the data is that almost all these schools have some test scores—say an SAT of 900—at which, if you score that 900, you have about a 70 percent chance of getting in. But if you score just below that, at literally an 890, the next possible score down, that probability of admission drops precipitously by about 30 percentage points. So just crossing this threshold of getting a 900 on the SAT instead of an 890, leads to this big discontinuous jump in the likelihood that a student gets admitted and ultimately enrolls at one of these public universities.

Narrator: The researcher collected data on students who had nearly identical test scores but either just made or just missed the cutoff.

Jack Mountjoy: And I can show that empirically that the students who are just above versus just below these admission cutoffs are very, very similar to each other in terms of their high school backgrounds, their family backgrounds. Everything that I can measure about them is very similar. So that sets us up for this very nice natural experiment of comparing students who got the chance to go to a four-year college versus those students who just barely missed out on that opportunity, but otherwise they’re identical, which helps control for that big problem in the ubiquitous statistics of comparing students who go to college versus those who don’t. They’re different in a lot of ways. When we zoom in on these admission cutoffs, we get rid of almost all those preexisting differences.

Narrator: Among students who were barely rejected, about half ended up going to a less-selective four-year school. The other half didn’t attend a four-year university at all. The researcher then tracked these barely admitted and barely rejected students through the next 15 years of their lives, collecting data on their years of education, degrees, tuition costs, and earnings.

Jack Mountjoy: And what I find is that just barely crossing this threshold does lead to a really meaningful increase in the amount of four-year college investment that these students make. So they end up spending about a full year extra at a four-year college. They complete about 30 more credits, which is about one full year. And amazingly, they are about 12 percentage points more likely to get a bachelor’s degree, which is a huge effect when we think about, relative to other interventions that we do, to try to encourage people to go to college and to get degrees, we celebrate effect sizes in the low single digits of percentage points. If we can increase college going and BA completion by 2 or 3, or 4 or 5 percentage points, we often declare victory. And here’s a setting where just by virtue of letting these students in, we’re able to boost their bachelor’s degree completion rates by 12 percentage points. That’s a really large effect.

Narrator: The researcher followed those differences into the labor market. He finds that 10 to 15 years later, the students who were just barely admitted earned 5 percent to 10 percent more than the nearly identical students who were just barely rejected.

Jack Mountjoy: There are some interesting dynamics, in that the students who are initially admitted earn actually a little bit less for the first five or six years of the experience because they are more intensely enrolled, and the students who are barely rejected are more likely to be working. And so it does take a while for these earnings to actually surpass, but after about six or seven years, the people who initially got admitted catch up to the people who initially got rejected, and after eight or nine, 10 years, we then see this positive gap open up that looks like it’s steadily positive, and if anything, slightly increasing, such that the students who are initially barely admitted eventually do significantly outearn the people who are initially rejected, but it does take a long time to get there.

Narrator: So Is college worth it? The researcher answers the question from several perspectives. For a marginal student who just barely got into a public university, they find the long-run internal rate of return is about 20 percent. That calculation reflects the fact that these students also benefit from financial aid, which helps offset their additional tuition costs.

Jack Mountjoy: So from the taxpayers’ perspective, they actually have to pay for all of this initial education because they are basically the ones subsidizing these marginal students to go to college. And taxpayers might wonder, “Are we actually getting a return on that investment?” And because we do see these eventual earnings returns, that does boost tax revenues eventually. So as long as taxpayers are not incredibly impatient, there is a return on investment to the taxpayer as well of about 3–4 percent. And then finally, I take the broader social perspective. As a society, we invest resources in these students to teach them, to have them go to college, that we could have used those resources for other purposes like building bridges or roads or other infrastructure, but we also get the return that these students become more productive and more successful in the labor market later on. So from society’s perspective, I find a return of about 10–12 percent. So students get about 20 percent, society gets about 10–12 percent, and taxpayers even get a return on this of about 3–4 percentage points. So what my results suggest is that, if anything, we’re setting these cutoffs a little bit too high. We could be able to lower the cutoffs just a little bit, and those marginal students who would then be admitted would actually go on to earn positive returns for themselves, for taxpayers, and for society overall. So in that sense, I think we can answer the question that college is worth it for these students who are really on the margin of enrolling in a four-year school versus not, according to their academic credentials.