You start with the assumption that higher education does not make a person more productive. I strongly disagree. My own experience is that people with bachelor’s degrees are generally more capable than those lacking such degrees. At the very least, citizens with higher educations are less prone to ruining the country; witness the fact that, according to the Pew organization, “College graduates backed Clinton by a 9-point margin (52%-43%), while those without a college degree backed Trump 52%-44%.”
Lots of other facts demonstrate the value of a college degree to society. College graduates, over their lifetimes, pay $381,000 more in taxes than they get in benefits, while those without college degrees pay only about $26,000 more in taxes than they get in benefits. Source.
You could argue that this is all just selection effects: smarter people go to college, and smarter people contribute more to society than dumber people. But that does not serve to contradict the hypothesis that college education benefits society; it only serves to call into question the relevance of the voluminous data that those with college educations are of greater benefit to society.
“If everyone has a bachelor’s degree, it no longer sets you apart from the pack; you need a master’s.”
You are arguing about individual benefits. I am arguing about benefits to society. If we have more educated workers, overall productivity goes up. You could just as easily argue that roads are a waste of money because they don’t help any individual get there any faster than anybody else. From society’s viewpoint, a process that helps EVERYBODY do better is worth spending money on.