Most people agree that a college education is a worthwhile investment for a young person. For example, across the U.S., bachelor’s degree holders earn on average 55 percent higher salaries than those with no education beyond high school. However, it is less well understood that there are stark geographical differences in how much return one gets on their educational investment. From an earnings perspective, this reality means that where a person chooses to locate after college is almost as important of a decision as whether to attend college at all.
In a new report released by The Thomas B. Fordham Institute, author John Winters looks at how the monetary return to a bachelor’s degree, compared to a high school diploma, varies across locations in the U.S. This number—what he refers to as the “college earnings premium”—represents the return on educational investment. And it turns out that there are stark differences in premiums based on where a person lives.
At the state level, Washington, D.C., and Virginia, along with Georgia, California, and the tri-state area of New Jersey, New York, and Connecticut all have premiums of over 90 percent. At the other end of the spectrum, North Dakota, Wyoming and Alaska have the smallest premiums, at less than 30 percent each. Thus, the range in premiums of over 60 percentage points across states is larger than the average overall premium of 55 percent!
There are also important differences at the city level. For example, there are seven cities where bachelor’s degree holders earn more than twice as much as high school diploma holders. In order of premium magnitude, these are Stamford, CT; San Jose, CA; San Francisco, CA; Atlanta, GA; Los Angeles, CA; Houston, TX; and New York, NY. In contrast, there are six cities where the education premium is 50 percent or less—meaning, for example, that if the typical high school graduate makes $50,000, then the typical bachelor’s degree holder makes $75,000 or less. These cities include Augusta, GA; Baton Rouge, LA; Colorado Springs, CO; Spokane, WA; Springfield, MA; and Modesto, CA.
A twist to this story is that there are vast differences in the cost of living across all of these cities. The high-premium cities tend to have the highest cost of living, and the low-premium cities tend to have a lower cost of living. The correlation, though, is far from perfect. One location that is highly ranked in terms of college earnings premium but relatively inexpensive to live in is Atlanta. On the other hand, Colorado Springs has a low premium but a comparatively high cost of living.
It is difficult to adjust earnings for cost of living because different people place a different value on a location’s various amenities. My own recent work with colleagues from the Federal Reserve Bank of New York has illustrated that people have vastly different preference for amenities when making decisions about where to live. For example, if you are the type of person who likes a large house with a bit of land, you are going to find it much more costly to live in San Francisco than someone else who doesn’t mind apartment living. Similarly, if you are the type of person who places a high value on walkability and nice weather, you are unlikely to enjoy a place like Houston, Texas, or Stamford, Connecticut. The key insight from our research is that deciding where to live is an individual process, which makes it more difficult to correct for cost of living.
Beyond housing culture and weather, many people prefer to live close to family or in the place where they grew up, and of course there are many non-monetary factors that determine where one should live. Yet it is also the case that geographical differences in the college earnings premium can be an important factor in the decision process about how much and what type of education to pursue.
In the higher education debate, this new information on geographical differences in the college earnings premium means that post-college location is another important factor that prospective students should take into account. Students are already trying to decide what type of degree to pursue (skilled certification, associate, bachelor’s, graduate), where to attend college, and what field to study in. And while college quality and college major are also important variables determining one’s lifetime earnings, location is another crucial factor.
Editor’s note: This post was first published by Real Clear Education.