HIGHER LEARNING

New grads may not make as much money as they used to, but a college degree can’t be beat in one crucial way

This article has been corrected.

The news is pretty grim for millennials.

Consider this: In 2000, the average college grad between age 25 and 30 earned $48,000 a year (in today’s dollars). Now, they only earn $41,600.

Trends like that have led some to challenge the value of a college education. Goldman Sachs analysts recently put out a research note called “The Cost of Growing Up Is Going Up,” examining the combination of falling wages and higher tuition. It concluded that if you don’t pick the right major and/or go to a good school, “college may not now be worth it.”

But young grads shouldn’t regret their decision based on these early returns. Critics generally look at expected earnings, rather than education’s other important value: it provides the best hedge available against poverty.

It’s not surprising college grads earn less than they used to, simply due to the fact there are more of them. According to the US Census Bureau, in 2000, 23% of 25 to 30 year olds had a four-year degree; in 2014, 25.6% did. Graduating during a recession also means lower earnings for more than a decade. But judging the value of education based on the current experiences of millennials is like prognosticating on the future of the stock market using only data when it’s down. Just like the stock market, the labor market offers no certainty, but odds are millennial graduates will be glad they have their degrees.

Some speculate flat pay for college graduates proves that education doesn’t make you more valuable; it only signals to employers that you had the wherewithal to get a degree. But education’s value manifests in a number of ways that don’t always show up right out of college. A big part of what you learn in college isn’t specific job skills, but the ability to think. This increases your capacity to learn on the job, be flexible, communicate your ideas in speech and writing, and retrain when needed.

These skills, in part, explain why the earnings of people with more education increase faster until reaching middle age. (After middle age, earnings tend to flatten as people face smaller promotions and start working less.) The figure below is the median wage among men, by age, from the March 2014 Current Population Survey. It gives some indication of what future wages look like (spikes reflect small sample size for some ages).

Yes, the figures above assume millennials’ wages will grow as fast as their parents’ did, which may not pan out. But odds are, in an economy that prizes people who can embrace new technology, communicate, and learn new things quickly, people with more education will also experience faster wage growth.

There are no guarantees, of course. Like everyone else, the earnings of college graduates move up and down year to year. But compared to their peers with less education, they face a lower risk of persistent, negative shocks to their earnings because they’re less likely to be unemployed for a long period of time. Even during the height of the recession, just 4.8% of college graduates were unemployed, compared to 10% of Americans with only high school diplomas. Today, only 2% of college graduates are unemployed.

People with similar levels of education can have very different incomes. A computer scientist at a bank often earns more than an anthropologist working at a non-profit. Some people with a high school diploma earn more than college graduates. But even a below average college graduate often earns more than the average high school diploma holder. Estimates from the Current Population Survey suggest there’s a 90% chance college graduates will earn between $600,000 and $3 million during their lifetimes. The range of outcomes among high school graduates is much narrower: they’ll probably earn between $400,ooo and $1.7 million.

Starting your career with little education leaves you more exposed poverty. True, 6% of millennial college graduates face poverty, a higher rate than previous generations. But their peers with less educations are much worse off, with about 22% of millennials with only a high school degree living in poverty.

Finishing a degree at an accredited, 4-year college lowers the chance you’ll end up poor, while offering the potential of success. With the exception of a few very expensive annuities, no other asset offers such a combination of limited risk and potential reward. Even with mounting tuition, college is still a good bet.

Correction (Dec. 23): An earlier version of this post incorrectly said that, in 2000, 15% of 25 to 30 year olds had a four-year degree, and 18% held one in 2014. The percentages have been corrected.

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