“In their lifetime, on average, college graduates will make a gazillion dollars more than a high school graduate. It stands to reason everyone should be going to college.”

How many times have you heard some version of this statement egging kids on to attend college? While I admit the statement sounds like it could be true, it is utter nonsense when you examine it carefully.

Warren Buffett, in an interview with The Long-Term Investor, pronounced, “I think that’s one of the silliest statistics ever published, to say that a college education is worth X because people that go to college earn this much more than the ones that don’t. You’re talking about two different universes. To attribute the entire difference to the one variable that they went to college, as opposed to the difference between the people who want to go to college and have the ability to get into college. It’s a fraud.”

The source is a footnote to a report called College Pays published periodically by the College Board, who can’t be considered entirely objective. Their income is directly related to the number of students matriculating.

A College Board employee saw the infamous raw BLS earnings data in a footnote and thought it would have tremendous promotional value for his company. Here’s what he put, front and center, on the College Board’s website.

“On average, in their lifetime, college graduates will make a million dollars more than a high school graduate.”

In the subsequent furor, the inappositeness of the statement was exposed, and the message was scrubbed from the website. However, the damage had been done.

Here are some of the ways the statement is misleading:

• That fanciful “million dollar” declaration refers to the Earnings Premium of a college degree. With a majority of students needing student loans, perhaps we should be looking at net worth, i.e. the Wealth Premium, which has collapsed.
• Correlation is not causation. In another lifetime, I taught Statistics 101 at a well-known Midwestern university. This principle and selection bias was always explained on Day 1.
• Comparing the potential incomes of college grads to high school grads is a false dichotomy in two ways. Just 37% of high school graduates reach or exceed the academic preparedness benchmarks for both math and reading that would qualify them for entry-level college courses. In today’s economy, the comparison should be the between the incomes of high school grads based on their post-secondary education choices. For example, a student has the option of earning a marketable associate of applied science degree. In two years, for a modest cost, she can be making $60–$70K. What happens to that million dollar premium and net worth in that scenario?
• The data that drives that $1,000,000 misconception is retrospective. The earnings premium was sky high in my day, but now my generation of college graduates have long been retired. The recent data is what is meaningful, and that data isn’t all that “hot.”
• The Social Security Administration calculates the difference after controlling for variables that influence earnings. This narrows the difference to $655,000 for men and $450,000 for women. That still sounds like a lot, but to get those extra earnings, you need to adjust for the cost of college now. Using the discounted present dollar value, the difference works out to $260,000 for men and $180,000 for women.
• Using average numbers is highly deceptive. That’s another way this data is being spun. Some college grads make a bloody fortune. For example, twenty percent of Ivy League grads make in excess of $600,000 within fifteen years of graduation. However, a college graduate made my latte this morning, and she is only making $15 per hour. The income of college graduates is highly skewed.

Economists do agree on two things with regard to the Earning Premium. First, there still is an earnings premium for a bachelor’s degree. However, that earnings premium is shrinking rapidly. (The economist who wrote that controversial College Board report put the earnings premium at $300,000.)