Deficits, Dollar, Game Theory, Individual v. Collective, Live and Learn

Is College Still Worth It?

Ever since I can remember, the world was grooming me to go to college. My parents, my teachers, my coaches, my mentors…everyone who cared to positively influence me made one message very clear: if I wanted to make anything of myself in life, I had better go to college. I now wonder, though, if I would I have been better off had they all kept their college-promoting cheers to themselves. My generation may be the first to make a strong case that college is not worth the time, cost, or debt any longer.

It is odd that so few people ever encouraged me to become an entrepreneur; to create; to produce in the country whose proud identity is supposedly entrepreneurship. That message was almost entirely unseen to me.

It’s not surprising. Most of the country was made up of folks with employee and consumer mindsets. People began to spend almost every dollar they earned, with much of the spending beyond subsistence going to worthless, depreciating consumer goods. The culture became enamored with employee benefits and job security. Risk-taking on the whole went out of vogue, perhaps because standards of living became so comfortable. Financial masterminds made it seem like they could eliminate risk from our portfolios, and after all, the value of people’s homes would go up forever, right?

The one thing I hope individuals gain from the current economic hardship is the entrepreneurial spirit. With an 18.1% underemployment rate, more people have and will be forced to get out of their comfort zones and start businesses. That is the best silver lining I can possibly come up with because self-employment has dwindled in this country from slightly over 20% of total employment in 1950 to 7% in 2009.

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Is college still worth it? People will always be able to argue that the average lifetime earnings of a college grad will be greater than someone with a high school diploma or GED, so therefore going to college is a no-brainer. However, the gap between the earnings of those with greater formal education and their counterparts with lesser education is closing. As the Director of The College Payoff, Anthony Carnevale, summed up in a recent report published by the Georgetown University Center for Education and the Workforce: “It’s still true that, on average, it’s better to get the higher degree; it’s better to keep climbing—but it’s less and less true.”

The report goes on to say that those holding bachelor’s degrees earn about $2.27 million over their lifetime, while those with some college earn $1.55 million, and those with a high school diploma $1.30 million. On the higher ed front, those with master’s, doctoral, and professional degrees (such as a medical doctorate or Juris Doctor) earn $2.67 million, $3.25 million, and $3.65 million, respectively. But if something is getting “less true” all the time, when does the old paradigm become obsolete? The study indicates that no matter the level of attainment or the field of study, simply earning a four-year degree is often integral to financial success later in life. This could have just as much to do with business hiring practices as it does actual value attained from the degree. I will get to human resource practices later.

If parents are going to encourage their children to go to college from an early age, it would be smart to let them know that their wage will be largely driven by what they major in. College can be a time to find yourself as a person (and a whole lot of fun), but an art degree isn’t going to get very far in terms of earnings. Return on investment by degree is one of the many reasons the male-female wage gap outrage is total rubbish. Computer science and engineering majors make the most money once out in the workforce, with technology and mathematics majors next; all industries that are male dominated. For more information on the male-female wage gap, go here. Yes, it matters what you major in.

Reports like the Georgetown study referenced above have been around forever. The evidence has always overwhelmingly shown that people, on average, should go to college if they want to earn more money. Despite the evidence that it will yield great payoffs, why do many young people still choose not to get a degree? Perhaps because average wage statistics doesn’t make it a wise choice for every individual.

New York Times Economix bloggers Catherine Rampell and David Leonhardt made the college case recently, including this nice little diagram:

Said Rampell:

The median weekly earnings for college graduates are $1,043. Not bad, especially when you consider that the median weekly earnings for a high school graduate are $643.
What’s more impressive, though, is that even the economic underachievers among college graduates earn more than the typical high school grad: A college graduate at the 25th percentile makes $730 per week, which is still 13.5 percent more than the median high school grad.

Their analysis is rather incomplete. The world doesn’t work in averages, or aggregates. There is a distribution of outcomes. According to the diagram, close to half of college graduates make less than the top 25 percent of high school graduates. Conversely, somewhere approaching half of high school graduates make more than the bottom 25 percent of college graduates. College doesn’t pay off for everyone, which is precisely why free individuals need to decide what’s best for them based on their skills, abilities, resources, and goals. A blind, across the board championing of college does the society no good. In fact it swells the cost of everyone’s college tuition as more kids are encouraged or pressured to go.

To put another way, after shelling out four years of over-inflated tuition, devoting the time and energy, and struggling to live with little or no earnings while in college, as much as 40 percent of college-educated workers make less than the top 25 percent of high school graduates. Hmm. If you’re a wunderkind in high school, or have a valuable skill, maybe college isn’t the best route.

The college tuition inflation rate averaged 7.77% from 1979 to 2009, according to Bureau of Labor Statistics figures. Meanwhile, the general inflation rate averaged 3.85% during that same time period. A college tuition inflation rate of 8% means that a baby born today will face college costs that are 3.7 times current costs. The government has provided so much financial aid to students that demand for college has increased rapidly. With that demand, and a comparatively stagnant supply of colleges and universities providing education to earn reputable degrees, college tuition has gotten quite expensive. Long gone are the days of paying for college as you work your way through. I’ve heard baby boomers share their tales of going to college with no money, getting no money from their parents, and not borrowing a dime…all while working jobs like being a waiter. Now, 18-year-olds take government or private money and pile up a mountain of debt to get through school; debt which usually can’t be liquidated in bankruptcy, a likelihood which goes up when leveraged college grads are pushed out into a terrible economy from decades of older generations’ mistakes.

It isn’t unreasonable to assume that if 18-year-olds use their own money to pay for college as they go, as baby boomers were able to, that they might be more focused while in school. This means the value of their education, largely determined by what the student puts into it, is far greater. Alas, all students with no money can do now is work their way through school and accumulate a bunch of debt.

Students are paying more for college, but are they getting more out of the degree? Based solely on the average wage information above, the answer is clearly no. The additional lifetime earnings for greater formal education is getting smaller. We also know that the amount of degrees out in circulation has skyrocketed. Based on simple economics, the increase of degrees in the labor market chips away at each of their value, all things being equal. 41,289,000 Americans age 18 and over earned a bachelor’s degree based on 2010 U.S. Census Bureau data. Compare that to a total of 30,281,908 having earned a bachelor’s as of the 2000 decennial census data, 22,709,391 in 1990, and 7,801,407 in 1970. Your bachelor’s is now literally one of tens of millions out there, and that includes only people living in the US. How special.

Degrees in circulation have gone off the charts while job creation to utilize that human capital has stagnated. The decade of the 2000s saw zero net jobs created. You see how the supply of educated labor versus the demand for it just doesn’t stack up. With this trend in mind, one could turn my conclusion on its head and say that it is more important than ever to get a degree in order to find a job. A college degree does slash your odds of being left in the unemployment line, but that isn’t much solace to those currently in the unemployed line with the degree in hand. If you’re unemployed and have loads of college debt, that isn’t too pleasant. No matter how you look at it, the value of the degree itself is much less today than it was 10, 20, 30 years ago.

My fear is that instead of changing our formal education paradigm, we’re simply digging in and moving the target. The master’s is becoming the new bachelor’s, which will only exacerbate all of the discussed trends. The answer is not more formal education, financed by the government. Children should be encouraged to go to trade schools, learn marketable skills as children (computer programming whiz perhaps), be entrepreneurial, and take alternate routes then just going into debt to get formally educated. If you are lucky enough to have money in a college savings account, how about taking some of it and backpacking Europe or South America for a year? Get some experiences, gain some perspective, see the world, and figure something out about yourself before you walk a college campus. Maybe when you get back from your world travels you could take some of that college fund and, gasp, start a business. The experience and contacts gained doing that, even if it failed, would be infinitely valuable. Then, when you’re 21 or 22, and decide that you want to go to college, go. Kids would be more focused, worldly, and get much more out of their education doing it this way.

As for human resource departments, maybe we could stop tossing resume’s in the garbage because people don’t have a bachelor’s degree. Companies are a part of the problem because their hiring practices have done nothing but reinforce and escalate the education paradigm. People feel as though they have to go get a piece of paper just for a company to consider them. A bachelor’s degree often says little to nothing about whether an individual can do a given job. Most jobs people have to be completely trained for anyway by the organization. As long as you have some basic skills which we’re supposed to get in K-12 education (a whole other story), the entire ability to do most jobs is learned after being hired. If companies would actually talk to people without degrees and take their skills, experience, and abilities into account, they might find they’re better for the job than the person who has a political science degree. Employers have used the degree as a signal for discipline, intellect, and the ability to follow through and complete work. That’s fine, but it’s a lazy assumption and practice. All degrees aren’t created equal and the paths to obtain them aren’t either. It is possible to get the piece of paper without a lot of over-exerting yourself or excelling.

College may be financially worth it on average, but it isn’t worth it for everyone. For those kids who know they want to become doctors, lawyers, etc. and they have to go to college for specific, high ROI training, this point of view obviously doesn’t apply. Few kids have decided the breadth of their professional future when entering college or shortly after. And in today’s quickly evolving economy with little bankable job security, many people will change industries multiple times throughout their career. The society should reconsider the education paradigm we’ve created. There is a lot of opportunity cost when accumulating piles of debt for four plus years to get through college. Other routes exist and people should start encouraging children to look at all of them.

Photo Credit: Sean MacEntee


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5 thoughts on “Is College Still Worth It?

  1. Stevi says:

    I think that you make some really great points in this article, it makes me wish I had read this article before going out and spending money on my fancy art degree! From day one I always heard that a college degree was necessary, it didn’t matter what sort of degree, I just needed one. It’s quite obvious that had I gotten a degree in computer sciences I would have probably gotten a well paying job faster. I think this would be a great article to send around to those going into their freshman year in college and even seniors in highschool!


  2. Pingback: Lies, Damned Lies and Statistics: A College Degree is Worth a Million Dollars - Tuition - Student Loans | Swift Economics

  3. Pingback: Half of College Graduates Unemployed or Underemployed - 50% | Swift Economics

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