The diminishing returns of a college education

by Pop on September 17, 2010

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And yet, you should still get one.

“In a society of Einsteins, Einsteins take out the garbage, scrub floors, and wash dishes.” That was a recent sentence written by George Mason economist Bryan Caplan.

He was talking about eugenics, but the quote got me to thinking about the college education and its recent role as a punching bag in the blogosphere and press. If everyone in America got a Bachelor’s degree, college grads would have to take out the garbage, scrub floors, and wash dishes. You can’t outsource your janitorial staff to India.

How close are we to that? “Is a college degree worth the cost?” is a question that returns every time the fall semester starts. But this time around, the skepticism has gotten especially strong. A survey found that only 64% of Americans think a college education is a good investment, down from 80% in 2009. That’s laughably low.

Meanwhile, the stats on how college grads are doing vs. high school grads and drop outs seem crystal clear.

In August, the unemployment rate for people with a B.A. and higher was 4.6%—almost 6 points lower than that of high school grads and 10 points lower than that of dropouts. The median income of people with bachelor’s degrees is 75% higher than that of high school graduates, according to the U.S. Census Bureau. Professor Richard Florida recently found a strong correlation between educational attainment and happiness. (Not necessarily causation, but still something to think about.)

So how do you walk away from that thinking maybe a college degree isn’t worth it?

But the cost is so high.

Many commenters have pointed to the ever-steepening cost of college. In the last decade, it has risen at about 5% per year, much faster than in the previous two decades.

Then your typical commenter writes something about opportunity cost (“He could be a plumber making $60k!”), compound interest (“Invest that $100k for college in a low-cost mutual fund and you’ll be a millionaire by 40!”), and anecdotes about M.A. grads working in Starbucks, and voila! Suddenly, college looks like a poor deal.

But is it really as bad as it seems? The College Board reports that, on average, students only pay 67% of that sticker price. In some Ivy League schools (+ Stanford), parents who make under a reasonably high salary don’t have to pay anything.

So is the cost increasing? Yes. But the best schools are increasingly competing for the best students (in part, because they become the most generous alumni). That will hopefully continue to have a dampening effect on actual costs and might trickle down to lower-tier schools.

But the jobs of the future need technical skills, not a broad-based curriculum.

Periodically, the Bureau of Labor Statistics tries to estimate what will be the most in-demand jobs in the future. Of the ten jobs it thinks will grow the fastest through 2018, only two require a bachelor’s degree or above (accountants and college professors). Most (like customer service reps and food preparers) only need on-the-job training.

A great example of this is nursing. You don’t need a B.S. to be a nurse. In some cases, you can get by with an associate’s degree or three-year vocational program, which will include the areas of biology specifically relevant to your future job.

Let’s put aside the issue of whether you want any of those fastest growing jobs. How accurate do those jobs of the future estimates actually end up being? It depends on your definition of “accurate.” In a look back at their 1988 to 2000 employment projections, BLS economists found that they were way too optimistic with some professions and not optimistic enough with others.

The number of human service assistants grew at a rate triple of what they predicted. Meanwhile, computer technicians didn’t add nearly as many jobs as thought. They were right that we’d have more computers, but improving technology meant they broke down less frequently.

But even more than that, you can’t predict job growth for a job that doesn’t exist yet. How many PR social network specialists would the BLS have predicted in 1995, before mainstream social networks existed?

What a broad-based college degree gets you is flexibility. Go to a plumbing school, and you’ll come out a plumber. You’ll be great fit for plumbing positions. But if that field ever suffers or you find you don’t enjoy the work, it will be much harder to change professions than if you graduated with a B.A. in History.

Right now, only about 30% of Americans have a Bachelor’s degree. So let’s not get ahead of ourselves. But in a world where everyone has a B.A., a college diploma becomes even more essential, not something you can just skip altogether.


{ 7 comments… read them below or add one }

Rob Bennett September 17, 2010 at 2:47 pm

I think the flexibility thing is huge. If a B.A. gives you flexibility (and I agree that it does), the B.A. is the most valuable degree of all. In a world changing as fast as ours now is, flexibility is essential.

The trouble is that the standards have dropped so low that you can get a B.A. today without learning much of anything. Getting that sort of B.A. just gives you a big debt to pay off. To actually tap into the wonderful flexibility thing, you have to be challenged and work your butt off.

The school won’t force you to do that today. They are happy to take your money and hand you a worthless degree. Those trying to get value from a B.A. need to be highly self-motivated. You need to seek out the hardest courses and the toughest teachers. Otherwise it’s really a B.S. degree you are paying all that money for.


Kevin S September 17, 2010 at 5:15 pm

This analysis ignores the elephant in the living room – student loan debt. Even at the creme de la creme of the private schools, upward of 90% of students graduate with some level of federal student loan debt. People moan and groan about how hard it is to get out from under credit card debt, and even debt to the IRS, but federal student loan debt is far, far worse.

The federal student loan program is the modern equivalent of indentured serviture. Debt under this program is not dischargeable in bankruptcy. If you hit a rough spot, the interest and penalties just keep on accruing and never go away.

Students today graduate with an average of $25,000 in student loan debt. The average undergraduate salary, for those who can get jobs, is $14,000. The numbers just don’t add up. And in my experience, a BA doesn’t confer flexibility. It is a predictor of the propensity to jump thru hoops. The classic liberal arts education, one that uses the Socratic method to teach critical thinking, can be worth the price of admission if you pay for it out of pocket and graduate debt free. For those who can’t pay out of pocket, apprenticing for free in a line of business you wish to learn makes more sense than spending money on a degree. And if you really, really want a BA in history, its equivalent can be obtained online for free.

Unless our children wish to pursue one of the professions, like engineer, physician, attorney, etc, we are advising them to use money that has been set aside for their education to start a business. We believe that the experience of operating a business, even if it fails, is far more valuable than a college education.

jim September 21, 2010 at 12:09 pm

College is certainly well worth it for many if not most people. Eventually college may become the new defacto standard and that wouldn’t really be too unusual. 75 years ago people would question whether or not you really need a high school diploma. However there are many people who do not and will never need college. You don’t need to go to college to be a janitor.

Kevin said: “The average undergraduate salary, for those who can get jobs, is $14,000.” I don’t know where you get $14k from. Thats not even full time minimum wage. Average salary offer for new college grads in 2010 was over $47,000.

Pop September 21, 2010 at 8:14 pm

I’m not totally sure, but Kevin might have meant that $14k is the average salary of a current undergraduate student who picks up a part-time campus job or something like that. He might have been making the point that financial aid packages aren’t enough to keep students from going into debt.

Thomas Russ October 21, 2010 at 8:06 pm

Have you averaged in that 85% of college grads returning home with no job.
That is “zero” to the 15% of the grads that have found jobs. Statistics can be twisted many ways. Is the BLS giving a true picture of salaries or are they
feeding you propaganda? Take a good look at how their information is
collected and the constraints on the numbers. A college education is worth
a great deal for the sake of having it. However, it is no longer a guarantee
to a good job with a good salary. Approximately only one in six will land a job
out of college, in their appropriate field. Further, after 10 years it is likely that
these people will no longer be in this field due to the instability of the labor market itself. Musical jobs (chairs) if you will, shrinking job market.

Jim Bob March 30, 2011 at 4:54 pm
Pop March 30, 2011 at 8:23 pm

@Jim Bob: It seems much more important to look at how college graduates fare long-term, rather than whether or not they graduate with a job offer. If in 10 years the economy is booming again and only 10% of college grads graduate without an offer, will we then conclude that the value of a college education as rocketed? Of course not.

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