Getting the Biggest Bang for Your College Buck

Note: This article is part of Morningstar's October 2013 College-Savings Boot Camp special report.

A college degree is practically a prerequisite to getting a good job these days, but not all degrees are created equal. The quality of the school, the student's field of study, and the degree type all play important roles. Getting the best return on your college investment requires considering these and other factors, research by the Georgetown University Center on Education and the Workforce shows. Anthony Carnevale, the center's director, and Artem Gulish, a research analyst at the center, responded to our questions via email.

With so many recent college graduates struggling to find good jobs with decent pay, one might wonder whether a college degree is worth the money. But your research suggests that having a college degree is more important now than ever. Can you explain?
A college degree is still the primary pathway to good jobs and has actually become significantly more important in recent decades.

First, a college degree is the best assurance of middle-class earnings. Individuals with college degrees make more than $1 million, or 84%, more during their careers than those with only high school diplomas, up from 40% in 1983. Even recent college graduates can expect annual earnings nearly double those of recent high school graduates ($42,000 versus $24,000).

Second, a college degree offers better protection against unemployment. For instance, for recent college graduates, in the current, slowly recovering economy, the unemployment rate last year was 6%, 2 percentage points lower than the national unemployment rate, and 9 percentage points lower than their peers with just high school diplomas.

Third, skill-biased technological change--increasing skill requirements within jobs--has driven the increased demand for postsecondary education and training. Since the early 1980s, technology, led by computing technology, has been automating repetitive tasks and activities in jobs. As a result, more and more jobs, tasks, and activities left to people are nonrepetitive and demand deeper knowledge along with problem-solving and interpersonal skills. Acquisition of these qualifications requires education and training beyond high school.

The resultant increasing entry-level skill requirements for work have made postsecondary education and training the gatekeeper for access to on-the-job training and an arbiter of middle-class earnings. Consequently, postsecondary education and training has become more important than ever in today's economy.

Generally more education is better, but in some fields it's more advantageous than in others, correct?
More education generally leads to better earnings. However, field of study is also an important consideration. What you make depends more and more on what you take. Bachelor's degrees in engineering and information technology often lead to higher earnings ($70,000-$75,000) than humanities/liberal arts, arts, education, or psychology/social work majors ($42,000-$47,000).

The benefits of graduate education also depend on major or field of study. Health, medical, and life-science graduate programs have especially high earnings premiums (100%-190% more than workers without them make). Studio arts (such as painting and sculpting), media, and public relations graduate fields, by contrast, offer low earnings premiums (3%-12%). More detailed information on the relationship between earnings, additional education, and fields of study is available in our report, What's It Worth: The Economic Value of College Majors.

You've also studied what the job market will look like in 2020. Which types of occupations are likely to be most in demand, and what sort of education will be required to get those jobs?
In four out of the five fastest-growing occupational fields during the coming decade--health-care professional/technical, STEM (science, technology, engineering, and mathematics), education, and community-service occupations (which includes social work and counseling)--a high share of jobs (more than 80%) will require postsecondary education and training. Examples of specific occupations that will be in demand during the coming decade include: registered nurses, occupational health and safety specialists, postsecondary teachers, accountants and auditors, and computer programmers.

Of the 55 million jobs the U.S. economy will add through the end of the decade, 65% will require education and training beyond high school.

We've seen many young adults return to graduate school in part because of their inability to find a good job. When is this the right strategy, and when is it a mistake?
Young adults should carefully consider whether postsecondary programs meet their interests and whether benefits of the program outweigh the costs. Although most graduate programs offer a good return on investment, choice of major and college are important to consider. For instance, graduate programs in engineering and information technology fields offer high wage returns, whereas literature and communications master's degree programs offer relatively low wage returns. Young adults should also consider whether their chosen occupations will be good fits for their personalities and talents. Professional work environment and culture vary widely across occupations. Young adults should get exposure to the professional environment and culture of their chosen field prior to investing in graduate programs.

Students should also keep in mind that most employers today require at least a year of experience even for entry-level positions. Thus, students should try to combine graduate studies with an internship, fellowship, or part-time work, whether as part of the graduate program or pursued concurrently with graduate studies.

How important is the school itself? Obviously graduates of top colleges will have better career prospects than those at lower-tier schools, but just how much of a difference does the institution awarding the degree make?
The school one attends makes a substantial difference, and some research suggests that the choice of school is particularly important for minority and low-income students (for more information on the relationship between race, choice of school, and outcomes, see our recent report, Separate & Unequal). The 468 most selective colleges in the country, which include a wide variety of private colleges and state universities and not just Ivy League schools, spend more than twice as much on instruction per student as open-access two- and four-year colleges [those that accept more than 97% of applicants], which leads to significantly higher (by more than 30 percentage points) completion rates, regardless of entry qualifications (based on standardized test scores). Graduates of selective schools are more likely to earn graduate degrees, and their annual earnings 10 years following graduation are $18,000 higher than for graduates of open-access two- and four- year schools.

And this relationship holds even beyond the 468 most-selective schools. For example, instructional spending per student at the top 82 most selective schools is $27,900 per student--more than double the average spending at all 468 most selective schools ($13,400 per student), and the completion rate at top the 82 most selective schools is 90% versus the average completion rate of 82% at all 468 most selective schools.

When you look at the cost of college today, are there places where you think consumers are overspending--that is, spending more for an education than it's likely to be worth down the line? Are there places where they are finding bargains?
Currently, we do not have the data that would tell us which colleges are a good bargain for consumers and which are not. However, there are efforts under way at both the federal- and state-government levels to build information systems that make the connection between postsecondary costs, completion, and gainful employment at the institutional and program levels. Sens. Ron Wyden, D-Ore., and Marco Rubio, R-Fla., have introduced the Student Right to Know Before You Go Act, which would take the next step in developing information systems that connect programs of study with labor markets and make the information available in usable formats for students, parents, researchers, and administrators. Similar bipartisan legislation, H.R. 4282, has been introduced in the House.

In the meantime, students and parents can use the College Navigator tool on the U.S. Department of Education's website to get some idea of the net price and graduation rates for colleges they might be considering.

What are the most important questions that students and their families should ask themselves before deciding how much to spend on, or to save for, college?
There are a number of important questions students and families should ask themselves. 

First, is the program of study the student is interested in likely to provide sufficient earnings to justify the investment they intend to make, both in terms of the financial investment and time and effort dedicated to completing the program?

The second question that needs to be addressed is: What is the relationship between the investment students and parents have to make and the benefits of the program of study? Some people may be set on becoming brain surgeons and be completely comfortable with years of study and the hundreds of thousands of dollars necessary to reach that goal, knowing that their earnings will be more than sufficient to compensate for their investment. Other people may be more comfortable with getting a technical certificate in electronics or information technology to get access to a decent-paying job, with significantly smaller investment. They can later decide whether to pursue additional education based on their perceived career needs from experience on the job.

The third question to address is whether the student has the necessary prerequisites and will have adequate support to promote successful completion of the chosen program of study and post-graduation job placement. Practical considerations, such as supportive faculty, competent academic and career counseling, access to professional-development opportunities (such as internships, mentorships, job-shadowing, participation in professional societies, and so on), should be taken into consideration. College is to some degree an individual experience. What works for one person may not necessarily work for another. Individuals should try to choose an environment where they are most likely to succeed.