Is College Worth It? A Closer Look at the Risks Behind the “College Pays” Promise
The decision to attend college is often framed as a no-brainer—a golden ticket to higher salaries, better job prospects, and a secure future. But what if the story isn’t as simple as it seems? While statistics show college graduates generally earn more, they rarely highlight the hidden risks, costs, and the reality that the path to success isn’t guaranteed. For high school students and their families, this decision can feel like navigating a maze of uncertainty.
In this article, we’ll dig deeper into the “college pays” narrative, exposing the overlooked risks and offering practical advice for maximizing your investment in education. Whether you’re the first in your family to attend college or following in your parents’ footsteps, understanding the true value of a degree—and the potential pitfalls—is essential. The goal? To help you choose the college where you’re most likely to graduate, secure a strong GPA, and minimize the financial burden while positioning yourself for long-term success.
Table of Contents
College "could" pay but there are risks
Employers do not really care from which college you graduate
For first-gen students, which college matters. For legacy-gen… not so much
Bottom line
About the author: Jeff Hulett leads Personal Finance Reimagined, a decision-making and financial education platform. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions.
Jeff is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM.
College "could" pay but there are risks
The U.S. Government through the Bureau of Labor Statistics ("BLS") illustrates the financial benefits of higher education by presenting data on college returns. Their analysis indicates that college graduates earn higher salaries and experience lower rates of unemployment. While this is narrowly accurate, it could also be deceptive.
The deception occurs because the BLS "College Pays" conclusion uses a cherry-picked analytical approach. The approach is only descriptive of the population achieving college success after-the-fact. The challenge is - we must make the college decision before we go to college! It is like the BLS is telling this “Regrettable Door” story to high school students and their families:
“Here is a door that opens to $ millions of long-term wealth. But what we do NOT tell you is that this is only one of 10 doors. The other 9 doors could lead to a defaulted loan, poor jobs, and stress. When making the college decision, the BLS will only tell you about the million-dollar door and not even admit the other 9 doors exist. Unless you figure it out on your own, you could easily walk through one of the other 9 regrettable doors. Good luck!”
Please note: follow this link to the “life impairments” analysis showing the different doors.
Let’s consider an investment analogy to better understand the limitations of the BLS analysis. Imagine you’re selecting a mutual fund for your investment portfolio. Like choosing a college, this decision involves an upfront cost with the expectation of returns in the distant future.
You have two options:
• Fund A has shown a 15% annual return over the past three years.
• Fund B has shown a 4% annual return over the same period.
At first glance, you might assume Fund A is the superior choice because its returns are higher. However, a savvy investor would dig deeper and ask, “What risks are involved in earning that 15%?” Upon investigation, you discover that Fund A is a high-risk, small-cap, international fund, while Fund B is a low-risk fund backed by U.S. Treasury bonds. Suddenly, the comparison changes—it’s not just about returns, but about how much risk you’re willing to tolerate for those returns.
Now, imagine if a fund manager promoted the high returns of Fund A without revealing its associated risks. That’s similar to what the BLS does in its “College Pays” analysis: showcasing the financial rewards of a degree without fully disclosing the risks involved in pursuing one.
Adding to this, the way student loans are issued can increase the financial risk. The Department of Education (DoE) distributes loans based on a family’s Expected Family Contribution (EFC), filling any gap between what the family can afford and the college’s cost. But here’s the problem: there are no checks on how much debt a college education should incur. If a private college charges significantly more than a public institution, the DoE will authorize larger loans to cover the difference—just as if a bank issued mortgages without considering the borrower’s ability to repay, leading to potentially disastrous consequences.
Student loans come in two varieties: subsidized, where the government covers interest until after graduation, and unsubsidized, where the student is responsible for interest while still in school. With repayment deferred for several years, students and their families often underestimate the burden they’re taking on, falling victim to what psychologists call ‘Availability Bias’—underestimating future risks because they’re not immediately apparent.
In essence, the BLS paints an optimistic picture of the financial benefits of college, while the DoE provides financial aid without sufficient consideration of the long-term risks. This practice stands in stark contrast to the mortgage industry, where regulations like the Dodd-Frank Act prevent loans that can’t be repaid. The student loan system, however, operates as if there are no such concerns, leading to high default rates and escalating tuition costs. Easy student loans may seem like a lifeline but can ultimately consume your financial future.
To make smarter decisions, it’s crucial to look at college outcomes through the lens of “static pool analysis,” which accounts for the time gap between the decision to attend college and when the results of that decision materialize. This type of analysis paints a far less rosy picture than the one offered by the BLS, showing how many students accumulate “life impairments” that reduce their chances of achieving long-term financial success. Alarmingly, 9 out of 10 students who begin college experience some form of life impairment along the way.
In the end, the better conclusion is that college can pay off—but only if you graduate, land a good job, and avoid crushing debt in the process.
For the static pool college risk analysis, please see: Higher Education Reimagined
Employers do not really care from which college you graduate
Large firms - especially technology and professional services firms - dominate college hiring. It does not mean that smaller firms do not hire, because they do. But the large firms set the environmental tone for how firms compete for those college new hires. Understanding the incentives and constraints of these firms will help you understand how they consider college graduates. This understanding will help college attendees optimize their ROI.
First - it is necessary to dispel the selective college myth. It is widely believed that attending prestigious colleges is the key to accessing top jobs. Nevertheless, employer practices and employment law challenge this belief for several reasons.
1. The "big brand" selective colleges, like the Ivy League, Stanford, MIT, University of Chicago, and a few others only educate about 1% of new college graduates. There simply are not enough selective colleges to move the needle on college new-hire recruitment at American companies. For these employers, selective colleges are a recruiting novelty, not a recruiting strategy.
2. Compliance with the U.S. Equal Employment Opportunity Act requires employers to hire employees by not violating disparate impact requirements of legally protected classes. Legally protected classes are all people except white, Christian, heterosexual men under 40. Because of this requirement, large employers must recruit across many colleges and utilize legally permissible selection criteria - including GPA and major. As a result, someone getting a 2.8 GPA from Harvard would not even be considered if the legally defensible standard was a higher GPA from all colleges, selective or non-selective.
3. Employers consider a college degree and good grades as a great indication of employment readiness. The college degree and good grades signal whether a prospective employee has cultivated the behaviors of consistently attending, putting in sustained effort, and focusing on quality in their work. Sylvester Stalone provides a confirming message about college:
4. Employers, based on legal requirements and years of experience, have concluded that the quality of new college hires has little to do with the specific college they graduated from. As such, the large employers' approach is to recruit broadly across many schools and recruit narrowly within schools to attract the best majors and GPA students. The company recruiting attitude is: "All colleges have a subset of great new-hire candidates, the challenge is finding them and recruiting them!"
As a result, large company college recruiting is a numbers game. Across many colleges, companies will compete for the same higher GPA students in the majors needed to support their business. These companies create pools of targeted new hires through internships. They understand that some recruits will withdraw from their recruitment process and accept positions at rival companies.
Attending a college where you can achieve a higher GPA will greatly enhance your prospects of securing a job with a reputable company after graduation.
For first-gen students, which college matters. For legacy-gen… not so much
There is a common belief among many families that life success is strongly linked to attending a prestigious college, such as the ones mentioned previously. Certainly, this belief was on full display during the 2019 "Varsity Blues" scandal exposing how college admissions were corrupted by parents and college consultants paying for access to top colleges. However, research shows this "prestigious college = success" belief is largely false. Research suggests that long-term success, as measured by income, is more of an internal product of the college-goers environment leading up to their college experience. Selective and non-selective colleges broadly address environmental gaps when possible. Ironically, the parents implicated in the Varsity Blues scandal demonstrated a lack of faith in their children, suggesting a potential hindrance to their development stemming from their family environment.
Dale and Krueger provide in-depth research on the impact of different colleges on long-term income. Alan Krueger was a Princeton University economist. Stacy Dale is a policy researcher. Their studies used out-of-time validation samples and long-term longitudinal data sets. To summarize:
After controlling for childhood factors - like family, wealth, access to educational resources, parent involvement, etc - Dale and Krueger determine there is not a significant difference in long-term income between those students attending selective colleges - like the Ivy League and those attending all other non-selective colleges.
However, for the subset of Black, Hispanic, and students who come from less-educated families (in terms of their parents' education), the effect of selective colleges is significant. This means the selective colleges' financial resources - such as large endowments - are used to provide programs compensating for college readiness not otherwise offered by first-generation college families.
Dale and Krueger's findings lead to the following interpretation:
If you are from a legacy generation college family - meaning at least one of your parents went to college - there is likely no difference to your long-term income based on which college is attended. However, paying more than necessary for that college education will certainly reduce long-term wealth. Plus, not achieving a good GPA at that college will reduce employment options, at least with your first job.
If you are from a first-generation college family, seek a college with first-generation support. First-generation college families are often remarkable, having faced and overcome challenges to make college a reality for their children. However, college is enhanced by understandings potentially unknown to first-generation parents.
In the decades since the Dale and Krueger study, awareness of first-generation student challenges has led to more college programming. Today, many colleges - both selective and non-selective - offer programming for first-generation students. The degree to which that support is provided is a function of the college's financial wherewithal. For example, community colleges are less likely to offer first-gen support than residential colleges.
Chat GPT prompt: To learn more about first-generation college resources, next is a prompt to ask your favorite GPT:
Describe the first-generation support offered by [Fill in the blank].
Fill in the blank = a residential college, like "James Madison University"
Bottom line
The college risks, employer practices, and long-term earning potential beg even more significant questions about the value of higher education:
1. To what degree does higher education contribute to the fundamental education of the student?
-AND-
2. To what extent does higher education function as an employer signal that the student will excel as an employee?
These two college value effects are part of a self-reinforcing, feedback-enabled system. They amplify the effects of changes to the higher education system. The key point is this: The evidence indicates long term, successful outcomes generated from these two effects can be achieved by having a successful experience at almost any college. Return on investment (ROI) evaluates the benefits gained from attending college in relation to the expenses incurred. So, if we are just as likely to achieve long-term college benefits if we have a successful experience at any college, then it follows we should pay as little as possible for the college benefits.
There are about 4,000 colleges in the United States. It is clear the vast majority of them successfully deliver the fundamental education component. There are plenty of CEOs from "lowly" state colleges and plenty of dropouts from the Ivy League. This implies that student achievement is largely influenced by internal factors, which are determined by the environment before entering college. The largest risk to college success is student readiness, NOT the college's ability to deliver the fundamental educational service. College accreditation ensures the college is fit for college service delivery.
As a rule of thumb, high school students and families spend time and money to follow a rigorous college selection process. This is a good idea, but not why you may think. The selection process’ rigor confirms readiness. The willingness to invest their time signals skin in the game for the student. If the student is ready, regardless of the college selected, they will be able to adapt to make the most of almost any college environment.
It is a great paradox - the harder one works to build confidence in the college selected, the less important that choice is regarding their college success.
However, given higher education provides an employability signal, one certainly does not want to pay more than necessary for that signal. A high school student is best served by going to a college where they are most likely to graduate, get a good GPA, and pay as little as possible for the GPA signal helping them to get a job. Additionally - if you are a first-generation college student - it helps to confirm the support available to first-gen college students.
Are you ready to learn more about getting a great college education at a steep discount? Check out the article:
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