Higher education leads to greater lifetime income and equips graduates with the human capital they’ll need to succeed in a knowledge economy, according to a host of studies conducted over the past two decades. This insight has shaped policy, with US state and local governments increasing access to community colleges to help students, especially those from disadvantaged communities, increase their earnings and enter the middle class.

Such policies work better for some students than others, finds Chicago Booth’s Jack Mountjoy. This is in part because community colleges divert a substantial minority of high-school graduates from gaining a four-year college degree, which would likely result in even higher lifetime earnings.

Mountjoy accessed a database covering the state of Texas that included 761,000 students in four-year colleges and universities (both public and private) and 732,000 in community colleges. He tracked students from high school on, and then linked their educational outcomes with data from the Texas Workforce Commission, which measures quarterly earnings at every job for Texas employees covered by the state’s unemployment insurance system. Mountjoy developed and applied a new econometric methodology on this rich data to disentangle the impacts of community-college enrollment on the outcomes of students who wouldn’t have otherwise matriculated versus those who would have started at four-year institutions.

Two-year community-college enrollment paid off on average for two-thirds of the sample students, according to Mountjoy, whereas one-third would have done better had they gone directly to a four-year college. “Those who would not have otherwise attended college experience large gains,” he writes. Women experienced larger effects compared with men.

His findings are in line with other research and government data. In the 2016–17 academic year, there were 9 million students attending public two-year colleges in the United States, according to the US Department of Education. Among those entering community college, 81 percent intend to complete a four-year college degree. But previous research has established that only one-third will transfer to a four-year institution within six years, and just 14 percent will complete a bachelor’s degree. This contrasts with a 60 percent bachelor’s degree completion rate among students who enroll directly in a four-year college. Mountjoy’s research finds that part of this gap is due to so-called selection bias—students who start at four-year colleges tend to be better prepared academically and come from more advantaged backgrounds than their counterparts at two-year colleges, so they would have better outcomes regardless of where they enrolled. But his research suggests that the gap is also driven by the causal impact of sending an otherwise identical student to start at a two-year college instead of a four-year one.

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Mountjoy estimates that by age 30, those who wouldn’t have attended any college would earn 22 percent more by enrolling in community college—an especially healthy return given that the average community-college entrant can qualify for enough grant aid to pay no tuition, according to the College Board. “Diverted students, on the other hand . . . end up with lower average outcomes as a result of starting college at a two-year instead of a four-year institution,” and over time these losses add up to outweigh any up-front tuition savings.

Overall, Mountjoy finds, community college can boost outcomes, particularly for disadvantaged students and those who would otherwise not attend college. But it doesn’t work for everyone, and it’s certainly no panacea.

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