Graduation cap turning into a dollar sign, representing the return on investment of education.

Is College Still Worth It? Unpacking the ROI of Higher Education

Beau Callahan in Business & Economy August 2025 • 4 min read.

"Dive into the debate: Do college characteristics truly impact your long-term earnings potential, or is it all about what's under the hood?"

The pursuit of higher education is often seen as a gateway to a more prosperous future. The prevailing belief is that attending a prestigious college unlocks doors to better job opportunities and higher salaries. However, the true impact of college characteristics on an individual's long-term earnings potential remains a subject of intense debate.

Is it the name on the diploma that matters most, or is it the individual's inherent abilities, work ethic, and the skills they acquire along the way? This question has fueled numerous studies, each attempting to disentangle the complex web of factors that contribute to career success. The challenge lies in isolating the 'college effect' from the myriad of other variables that influence a person's trajectory.

This article delves into a groundbreaking study that sought to estimate the effects of college characteristics on career earnings using a unique dataset linking college records with Social Security Administration data. By examining the experiences of students over several decades, the researchers aimed to shed light on whether attending a more selective college truly translates into a significant financial advantage over the long haul.

The Selectivity Myth: Does a Top College Guarantee Top Earnings?

Graduation cap turning into a dollar sign, representing the return on investment of education.

The original research, using data from the College and Beyond Survey linked with Social Security Administration records, followed students who entered college in 1976 and 1989. Standard regression models initially suggested a clear advantage for those attending more selective colleges, with these institutions' characteristics seemingly correlated to higher earnings.

However, when the researchers adjusted for unobserved student characteristics – aspects like ambition and intrinsic motivation not easily captured by traditional metrics – the picture became much murkier. This adjustment, using a 'self-revelation' model, accounted for the average SAT scores of all the colleges a student applied to, acting as a proxy for drive and potential.

The 'Self-Revelation' Model: Accounts for inherent ambition by using average SAT scores of applied-to colleges.
Initial Findings: Regression models hinted at earnings advantage from prestigious colleges.
The Adjustment Effect: Accounting for inherent drive diminished the perceived 'college effect.'

The researchers discovered that once these unobserved qualities were factored in, the direct impact of college characteristics on earnings diminished significantly. This suggested that a significant portion of the perceived benefit from attending a top-tier college might actually stem from the kind of driven, high-achieving individuals who get into those schools in the first place.

Rethinking College: It's Not Just About the Name

Ultimately, this research serves as a reminder that while college choice is important, it is only one piece of the puzzle. Factors like personal drive, the ability to network effectively, and access to opportunities play equally significant roles in shaping career success. As students and families weigh the costs and benefits of higher education, it's crucial to look beyond the prestige factor and consider the individual's unique strengths, aspirations, and the real-world skills they hope to gain. Choosing a school that is the right fit can be more advantageous than simply chasing the most selective option.

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Everything You Need To Know

Does attending a prestigious college guarantee higher earnings later in life?

Not necessarily. Initial regression models suggested that attending more selective colleges correlated with higher earnings. However, when researchers adjusted for unobserved student characteristics using a 'self-revelation' model, which accounts for inherent ambition by using average SAT scores of applied-to colleges, the direct impact of college characteristics on earnings diminished significantly. This indicates that personal drive and other factors play a crucial role.

What is the 'self-revelation' model and how does it change our understanding of college selectivity?

The 'self-revelation' model is a method used by researchers to account for unobserved student characteristics, such as ambition and intrinsic motivation, which are not easily captured by traditional metrics. It uses the average SAT scores of all the colleges a student applied to as a proxy for their drive and potential. By incorporating this model, the perceived 'college effect' on earnings decreased, suggesting that a significant portion of the benefit from attending a top-tier college may come from the driven individuals who get into those schools.

Besides college selectivity, what other factors significantly impact career success and earnings potential?

Beyond the characteristics of the college itself, factors such as personal drive, the ability to network effectively, and access to opportunities play equally significant roles in shaping career success. The study suggests that inherent abilities, work ethic, and the skills acquired along the way are crucial determinants of long-term earnings potential, sometimes overshadowing the college's influence.

How can students and families make informed decisions about higher education considering these findings?

Students and families should look beyond the prestige factor and consider the individual's unique strengths, aspirations, and the real-world skills they hope to gain. Choosing a school that is the right fit can be more advantageous than simply chasing the most selective option. It's important to consider if the environment supports their personal drive and provides ample opportunities for networking and skill development. The total cost versus potential benefits must be considered and understood relative to individual capabilities.

What limitations exist when trying to isolate the 'college effect' on future earnings?

Isolating the 'college effect' is challenging due to the myriad of other variables that influence a person's career trajectory. Unobserved student characteristics, like ambition and intrinsic motivation, are difficult to quantify and account for. The 'self-revelation' model attempts to address this, but it's still an approximation. Furthermore, factors such as networking opportunities, access to resources, and individual choices made after college also play significant roles, making it difficult to determine the precise impact of college characteristics alone. Future studies might benefit from incorporating longitudinal data tracking students' career paths and specific skill development.