With outstanding student loan debt recently surging past the $1 trillion-mark and continuing to rise, questions abound about the future of our nation’s youth as well as the potential for economic fallout from this would-be ticket to a better life turned debilitating financial burden. Chief among them are hypotheses as to both the root causes of this impending crisis – aside from what’s obviously attributable to the recent economic malaise – and potential solutions to it.
It would be easy to simply chalk the current landscape up to a down economy and a stagnant job market, but that explanation would be both short-sighted and incomplete. There are numerous other dynamics in play here, from the affordability of higher education and the motives of private lenders to the financial literacy of high school seniors and the viability of certain majors.
The latter two, when viewed in concert, serve as the foundation for a very interesting notion: Could it be that the way young people choose an institution at which to learn and an area of study on which to focus is flawed? That, in turn, begs the question of whether or not you can actually quantify the value of a college degree, let alone that of a particular degree from a particular school as compared to others. In other words, can students strategically approach what is so often referred to an investment in their futures in order to maximize the returns?
For help in answering these pressing questions, we turned to a few people who’ve devoted years to not only providing higher education, but also gauging it’s ultimate worth. You can jump directly to each expert’s insights by clicking on their respective names below or skip to the Takeaways section in which we summarize their responses and offer a few forward-looking conclusions of our own.
- Kent Hill: Research Professor of Economics with the Center for Competitiveness and Prosperity Research at Arizona State University’s W.P. Carey School of Business
- Mark Schneider: Visiting Scholar at the American Enterprise Institute for Policy Research, Vice President at the American Institutes for Research, Distinguished Professor Emeritus of Political Science at the State University of New York – Stony Brook, and former U.S. Commissioner of Education Statistics
- Deborah Thorne: Professor of Sociology & Finance at Ohio University
- Edward St. John: Algo D. Henderson Collegiate Professor for the University of Michigan’s School of Education; Director of the National Center for Institutional Diversity’s Promoting Equity in Urban and Higher Education initiative; Co-Editor of Core Issues in Higher Education; Fellow of the American Educational Research Association
- William Zumeta: Professor of Educational Leadership & Policy Studies with the University of Washington’s College of Education; Senior Fellow of the National Center for Public Policy and Higher Education
- Rick Wartzman: Executive Director of The Drucker Institute at Claremost Graduate University
- Jeff Strohl: Director of Research at the Georgetown University Center on Education and the Workforce
- Based on your research, is college a worthwhile investment?
“The return to skills and education is high and has been rising over the past several decades. With regard to education, economists calculate the gross benefits of education by using an estimate of how much higher an individual’s earnings will be if he gets more schooling. … This college earnings premium rose sharply in the 1980s and 1990s. Since then, it has grown less rapidly, if it all. But it remains at a high level.
I occasionally read that tuition has risen so fast as to undermine the economic value of a college education. Every now and then I update numbers on earnings, tuition, etc. and calculate an internal rate of return on a college education. When I did it back in 2006 for the reply to “Five Reasons to Skip College” I got an inflation-adjusted annualized return of 12 percent. I re-calculated a year ago and got a return of 11 percent. These are both really high and not much different from one another.”
- Is higher education uniformly valuable, or does it really depend on what you major in?
“My sense of all of this is that, especially in today’s world of knowledge-based technology and global competition, it is very much worthwhile financially for those who have the background and capabilities to make large investments in college and lengthy academic training. Of course some majors and fields are better than others. And it’s not always obvious which way to go. Also, college is not a panacea for the country’s income inequality problems. College is not for everyone, and I see many students who don’t belong and end up dropping out.”
- Can prospective students truly quantify the dollar value of a college degree?
“Yes, of course. … On one hand, we think of a college education as the ultimate human capital investment. And students are spending a lot of money developing their human capital. The vast majority, like 90% of students, say that what they want the most out of college is a good job and a good profession. So, the answer is yes; we have to be able to answer the question that you pose because this is what student’s think about in terms of college. Now, it’s also true that there are other benefits to attending college: love of learning, college graduates live longer, they’re much less likely to be unemployed, and all that kind of stuff. So, there are many benefits to college. But especially in tough economic times like we live in, the importance of the financial aspects of higher education dominates. Now, that didn’t answer your question at all!
OK, so what do you need to know? The answer to your question is that there are a few pieces of information that are absolutely fundamental.”
According to Schneider, those data points are as follows:
- Likelihood of graduation
- Timetable to graduation
- Net cost of earning a degree
- Expected earnings
These factors, when viewed in concert, can be used to determine the Return on Investment (ROI) for something as general getting a degree vs. not getting a degree or as detailed as majoring in history at Harvard University vs. majoring in engineering at Harvard. While you might assume that this type of information is hard to find, researchers like Schneider have actually made it quite easy to find and are continually working to more easily digestible for the average college applicant as well as his or her parents.
- How does the inability to predict what certain industries will be doing in, say, four or five years factor into things?
“That is a problem. We are trying to build in labor demand numbers into our calculations. So, consider attorneys: If they get a job, they’ll make a fair amount of money. But there are a lot of attorneys, and in some of the states that we’ve been looking at, there are like twice as many attorneys as there will be jobs. That’s probably a pretty robust estimate, even though I’m sure you’ve been seeing law schools are now starting their own law firms to employ their graduates. In some of these things, the projections are pretty good. The Bureau of Labor Statistics and state Departments of Employment are doing these projections all the time, and companies like Burning Glass are doing real-time labor projections. But it’s really hard, no matter which mechanism is used to project demand, and I think your point is absolutely correct. Who could have predicted the growth in some of the industries that are expanding like crazy now? That part is hard, no question about it.”
- Could you make the argument that the current high-debt, high-unemployment landscape is effectively killing intellectual diversity by pushing more and more students into fields like engineering and business given that’s where it seems the jobs are?
“Yes. I think that there is a question about the liberal arts that we all have to face. Is this only a domain for upper-middle-class kids who can major in Philosophy and when they get out and can’t get a job their mom will bail them out? This is perfectly honest, right? And the lowest-paid graduates in fine arts, music, philosophy, history, are all consistently the lowest paid graduates a year after graduation. There’s no question about it. And the highest-paid ones are in the health fields, engineering, and business. Those are facts. Actually, the most valuable degrees in the short-term turn out to be two-year technical degrees from community colleges.
These technical degrees are aimed at mid-skill levels, as they call them now. The whole argument is that there’s three million jobs in the US that are unfilled even while we have an 8% unemployment rate because of this this skills mismatch. You know, you talk to United Technologies or Boeing, and they complain all the time that they can’t find those mid-skill level jobs. A good community college is filling that hole, filling that niche.
So, going back to unemployment and student debt, the unemployment rate for college graduates is way, way lower than the unemployment rate for anybody else. It’s just taking longer to find jobs. A reasonable college debt is the same as taking a loan to buy a car or to get a mortgage. There’s nothing unreasonable about taking a reasonable college student loan debt because you’re going to earn enough money to pay it off. Students who take $100,000 in loans and then become social workers, they just made a fundamental mistake and they’re going to be in trouble. But, if I have borrowed $25,000 to become an engineer, that’s a great investment. This is why we need all the numbers that we started talking about, so that you can estimate what your carrying capacity is for student loans. $25,000, which is the median loan in the US, is not an unreasonable loan if we really believe that college education really pays. And it does.”
- Could you make the argument that the current landscape, in which you’ll only be able to get a job and therefore be able pay off your student loan debt, is essentially killing intellectual diversity?
“It could be, if students are choosing their majors based on how much debt they’re going to be taking out. I haven’t seen a lot of them doing it yet. There are students I’m talking to who are getting degrees in sociology, anthropology, psychology, etc. Hell, I don’t know what pays well anymore to tell you the truth. I don’t think much – unless engineering or business, and even business I think is questionable – pays well anymore. But I haven’t seen them making a lot of those decisions. That said, I told students who are paying out of state for a degree in the social sciences and they’re going to end up 100 grand in student loan debt that they need to rethink their life course. That’s just nuts. I mean, in some places you could buy a pretty decent house for 100 grand. And I get that it’s supposedly a ticket to the middle class, but my God, that’s just so much money. So, is the current debt load that we’re putting on people pushing them into disciplines that are much narrower and may be something that they would rather not be doing? I don’t know that it’s doing that, but I do know that it’s preventing people from continuing on into graduate schools and professional schools because they can’t take on any more debt. Here you’ve got these really bright people who want to be highly educated, wouldn’t we want this? And they can’t do it because they have too much student loan debt. So in some ways it’s affecting what they go on to do with their education.”
- To what level of accuracy can prospective students predict the value of a particular degree at a particular school?
“Students can be sure that each level of degree within a field changes on aligned employment and improves salary. There are however, ups and down of the economy and, with the ups and downs of the economy, it is difficult to predict exact salaries, which complicates judgments about return on investment. At each level of degree–certificate, associate, bachelors, masters, and doctoral–prospective students should assess their own interest in the field of study and related work opportunities in addition to salary consideration. In fact, interest and personal development may be more important factors in choosing a degree program than potential earning per se.”
- Is higher education uniformly valuable, or does it really depend on what you major in?
“The degree field is extremely important. The variation across degree fields is every bit as substantial as differences across degree levels. For many decades engineering graduates have been among the highest earners. Computer science can also have higher returns than other fields. But while biology undergraduates don’t earn much more than teachers.
Graduate degrees in business, law, and medicine have historically had high earnings potential. However there is currently an oversupply of lawyers and even MBAs and MDs generally face high debt. So it is important to consider what type of work you might enjoy as well as cost and returns.”
- Do many students actually take the time to evaluate the potential return on the investment they’re going to make in higher education?
“The process of deciding on and changing majors and colleges is integral to the first two or three years of college. I call this a process of “finding fit.” Students often start in one field, based largely on social expectation, but then most will change majors at least once as they find the fit, an alignment of a content area [and] personal interests.
It is evident that students do spend time trying to find their fit, the ways their knowledge, interests, and skills (personal strengths and interests) actually align to academic process. It it not necessarily a rational analytic process, but qualitative evident shows students spend time thinking about the problems and quantitative evidence illustrates that students change their minds. When we interview students, we find that they are thinking through the issues in their own terms of meaning.”
- Why don’t more prospective students strategically shop for college in order to maximize their return on investment?
“People don’t do it because it’s cognitively difficult. It’s difficult to amass the information. It’s hard to even get good information on the cost side, although the federal government is doing a better job – making an effort anyway – to get institutions to provide a net price estimate based on the characteristics of the student. To figure out what your earnings are going to be long-term, that’s a big research project and nobody really knows what the future holds. The best you can do is go back 30 years and track somebody’s career who’s been in the labor force for a long time. …
People tend to be over-reliant on the latest experience of somebody in the job market. Just because graduates aren’t doing so well today, it doesn’t mean that they won’t do well over a career. So, what you have to separate – and people don’t understand this, even politicians don’t understand – the big difference between a cyclical phenomenon like high unemployment rates and the long-term structure of the economy, which is shifting strongly toward employing people with more education. That’s where people get confused.”
- To what extent is the current landscape for employment pushing people into marketable fields, such as business and engineering, that they wouldn’t ordinarily be interested in?
“Only to a modest extent; there’s always been some tendency in that direction. Over time, the humanities fields have lost ground as a share of the total. The number of degrees hasn’t actually declined- at least the last time I looked at it- but it was a declining share of the total. In liberal arts degrees broadly, not just humanities, but social science and stuff, it’s a declining share of the total. So people are looking for some kind of vocational, if you want to use that word, job market oomph from their degree to a greater extent than they did before. All the economic data does show that it matters what you major in.”
- Is it possible that the current emphasis on majors directly applicable to the job market will create a higher demand for more abstract concentrations a few years down the road?
“Probably not. I think what you see, at least from the more affluent folks, is that they are less driven in this direction. So, they may still major in philosophy; they just know that they have to go to graduate school to really make a living in that field. They very likely have to add additional education on if they major in something like that. And here’s another thing: The liberal arts aren’t dead. I mean, if you look at the majority of professional majors – nursing, business – you see more courses in ethics and human behavior and sort of softer stuff that you didn’t see there before. There’s an awareness that if students are only going to get this degree and go into the labor market we ought to give them some breadth [of knowledge] because in business you may need languages, you need a sense of other cultures. It’s a global business environment in many instances, so business ethics and those courses have become a big deal in recent years. … That’s one way in which the liberal arts re-interpret themselves.”
- Is it possible to predict the value of a given college degree with any real accuracy?
“I would say probably no, in a very specific sense. Everybody’s individual story is so different that it’s pretty hard to get right. If you were to look at somebody like A.G. Lafley – who you can double check, but I’m pretty sure was a Lit major at Hamilton College – and say that’s going to correlate to him being chairman and CEO of Procter & Gamble one day, most people wouldn’t have said, ‘Yeah, that’s what happens to Lit majors from Hamilton College’. Every story is different, obviously. That said, there clearly is a growing push to try and understand better which majors offer the best financial return and which schools offer the best financial return, even within a given field. So, there is data being collected and generated, so whatever the field you can look within and amongst schools and figure out how that seems to correlate to graduates getting jobs and the amount those jobs pay.”
- Nevertheless, even a general sense of the expected return on investment is helpful for a prospective student, right?
“Sure. Look, I think in general having more information, assuming it’s reasonably accurate, about something is better than having less information. So it’s better to operate from that principle, unless the information is just bewildering or overwhelming in its scope and you just drown in it. Even for my own daughter, say, who’s now a junior in college, that wouldn’t be the determining factor for me, but it might be something that I might want to throw into the mix and understand. Particularly if I were already settled in the area and the discipline I was interested in, it certainly wouldn’t be bad information, if you can get it, to know which colleges and universities have programs from which people seem to graduate and among those, which seem to get the best jobs. That wouldn’t be bad information to know.”
- Is the current high-debt, high-unemployment landscape effectively killing intellectual diversity by pushing more and more students into fields like engineering and business given that’s where it seems the jobs are?
“No, we don’t see any real trends yet in impact on particular fields because of the recession. Clearly there’s a lot of news hitting the streets now about differential unemployment effects and we’ve got a couple of reports that go through this, which I would expect would change some enrollment behavior. If you were to find out, for instance, that new architects have 15.5% unemployment and new engineers have 5% unemployment, you might when entering reconsider becoming an architect. But the thing is, there’s sort of a counter-cyclical information flow on that level, and my expectation is that that information will now start affecting current enrollment behavior but not already existing enrollment and major choices. People are just going to take it and hope that the recession ends by the time they hit the labor market.”
- How has the value of a college degree changed over time?
“Everything that I’ve seen has only demonstrated that post-secondary education as a whole has been on an increasing value path, especially compared to the value of no college. What we call the college premium has been increasing steadily since 1983, with a little fluctuation here and there, there’s been a flat period through the 2000s but that’s happened everywhere, there’s been sort of a widening income disparity at the top half of the income distribution, which is maybe keeping down earnings for BAs, maybe switching over to graduates but nothing—it all so far tends to suggest that it’s on an upwards trend, so we’ll see.”
- So, the fact that more people are going to college now than in the past, hasn’t diluted the value of a degree at all?
“We’ve had a steady increase in the demand for post-secondary that hasn’t been met by the supply that’s leading to a continued shortfall and a continued dynamic increase in the wage premium since ’83. So, while it is true we’ve had decade to decade increases in enrollment, with some declines following the baby boom surge in the ‘70s, it’s been steadily increasing since the mid-‘80s going forward. There’s no big indication that the market demand has been met. Sure, there’s differences by major, unemployment differences, etc. But as a whole on the aggregate, it doesn’t seem that the increases in post-secondary enrollments or attainment have fully satisfied labor demand. It still looks good. I mean, there are certainly differences by major, but there’s neither enough data nor enough work that’s been done on differential supply and demand stuff.”
In the spirit of students pursuing higher education, here are the Cliff’s Notes for “Ask The Experts: Can Students Predict The Return on Their Investment in Higher Education?”
- While the struggling economy and barren job markets are obviously the main sources of fuel for the prodigious rise in student loan debt that we’re seeing, prospective students must also take it upon themselves to shop for college and advanced degrees like any other purchase or investment.
- Assigning a value to a college education is not guesswork. Most student simply eschew the legwork required to make a reasonable cost-benefit analysis.
- In order to evaluate the expected return on an investment in a particular degree from a particular institution, one must answer four main questions: 1) Will I graduate?; 2) How long will it take?; 3) What will the net cost be?; 4) What can I expect to earn after graduation?
- There is reason to be concerned that the combination of high-cost of education and stiff competition in many industries is killing intellectual diversity by forcing young people to study what they think will get them hired.
- Interestingly, two-year technical degrees currently offer great value given the lack of mid-level skilled workers in the job market.
- At the end of the day, college isn’t for everyone and wasting money only to drop out will leave you laden with debt without the degree necessary to boost your income and pay it off.