The Dollars and Sense of a College Degree
I never thought I’d be in the restaurant business: it’s risky, I don’t like to cook, and I know very little about the industry. But I believe in investing in people and a few years ago, my husband and I helped fund two very talented restaurateurs who dreamed of opening a Spanish restaurant. We looked closely at their track record and their passion for their work and weighed those factors against the risk that is inherent in the restaurant business. As with any investment, we looked at whether the amount invested would burden our family if it was not successful. Incurring debt was not an option, as there were too many uncontrollable factors in the economic marketplace. This experience made me look at a college degree from a similar perspective.
Ideally, an investment in a college education is about more than just a financial return. It is an investment in people; students who become educated citizens with the ability to financially support themselves, their families and their communities. But if the cost is so large that it outweighs the future benefit, the resulting burden can negatively impact their lives for decades. Sadly, this is exactly what is happening. Costs have skyrocketed and the investment in time has extended beyond four years, further increasing the expense. Underemployment and the low salaries earned in many fields are not producing enough income to justify the cost. The lifelong burden of debt and lost time has severely hampered many in this generation of college graduates as well as those who dropped out.
Eighty-eight percent of freshmen report that they are in college to get a good job but the dramatic economic disruption we are experiencing has created a disconnect between colleges and the job market. Students, accustomed to memorization and test taking, have not been well prepared to operate in this new agile economy. A recent survey by Strata-Gallup of 43,000 students highlights this issue. According to Bill Hansen, president and CEO of Strada Education Network, “Students are telling us they feel underprepared to enter the workforce while employers bemoan the skills of recent graduates.”
The idea of borrowing to finance the cost of a degree has led to $1.5 trillion in student loan debt. A new paper by the Roosevelt Institute reports that higher levels of debt and education haven’t necessarily boosted young Americans’ financial futures. Between 2000 and 2017, the share of employees with degrees increased by 6% but this didn’t translate into an earnings increase among those workers. “The idea that student debt pays for itself is just a false economic inference,” said Marshall Steinbaum, research director at the Roosevelt Institute.
The College Application Process is Time-consuming and Expensive
In reality, the significant investment in college starts when children are young. The initial price is paid in time, with a focus on academic programming in preschool, rather than unstructured play. Then, for those who can afford it, extracurricular sports and activities are incorporated into their lives with the hope of a scholarship or advantage on a college application. Next, comes an investment in tutoring as students move through elementary, middle and high school. In addition to tax dollars for public programs, private tutoring is a rapidly growing multi-billion dollar industry.
After that, people pay for AP classes to boost transcripts, test prep for PSAT/SAT/ACT and the tests themselves, which are costly–especially when taken multiple times. Test prep services and materials, as well as the tests, have produced another multi-billion dollar industry. Students are required to spend at least 20 minutes filling out the application to take the ACT or SAT. This information is then used to sell students tailored test-prep materials or sold to colleges for student recruitment.
As students move into high school, some invest in the application process even more by hiring private coaches to help. College tours in groups or privately are an added cost — again, for those who can afford it. Submitting applications to multiple institutions–3 to 6 for the majority of students–becomes costly and is now a revenue generator for universities who make over $200 million on rejected applications. This process disproportionately favors higher socio-economic groups and continues to discourage those from disadvantaged backgrounds.
Lastly, there is the increasing cost of mental and physical health services needed to sustain students through this exhaustive process. Hospital visits increase during the school year and many students complain of a range of maladies from stomach aches and headaches to panic attacks and depression. Suicide-related hospital visits more than doubled between 2008 and 2015.
Measuring the Lifetime Value of a Degree
Much is made of the lifetime earnings of college graduates compared to those who do not have a bachelor’s degree. But this doesn’t factor in their debt burden or their mental health issues. What is it worth if your quality of life is diminished? Historically, having a degree produced higher incomes, but I question the forecasting of its value into the future in an economy that is transforming so dramatically–creating new types of jobs, new ways of working, and new vehicles for providing education and training.
The million or more dollars often quoted is an average number that doesn’t account for the numbers of graduates in each income category. Danny Iny, author of Leveraged Learning, contends that graduates from Ivy League schools and those with degrees like engineering and medicine represent a minority of the total and skew the “average” results. He tells this story to provide perspective:
Imagine there are 10 guys hanging out in a bar with each making the average household income of about $60,000. Bill Gates walks in and the average income in the bar goes up to $1 billion–but those 10 guys didn’t get any richer.
Another consideration is that data collection systems have not caught up with the rapid change in the economy. New jobs are continually being introduced and freelancers are having a significant impact on the market, yet the Bureau of Labor Statistics still has broad, old economy categories and inadequately tracks freelancers. We are in murky waters where clarity and surety in the data make it difficult to forecast far into the future.
More importantly, the data espousing the importance of college degrees is often based on job postings. According to LinkedIn, 85% of jobs are filled through networking and many companies now look to fill the job internally or by using a trusted referral before posting online. As I discuss in my blog, Preparing Our Children to Pioneer a New Frontier, independent workers are increasingly representing a larger share of the workforce. They tend not to post jobs when needing additional skills for a project, instead, they network with other independent workers.
The College Investment Choice
Whether the college investment is worth it depends on many factors but begins with the maturity and focus of the student, their interests and their financial wherewithal. A successful outcome depends on the fit of the college for the student. Student engagement is a far better predictor of success than a selective college, according to a new white paper by Challenge Success. Their research indicates that colleges that provide the opportunity for students to deeply engage in learning, campus community, and real-world experiences are more likely to thrive after college.
For decades, the promise of a college degree has acted as a cultural beacon to a life of prosperity and our education system has been designed to focus all students towards this goal. The degree holds a revered place in our society as an elevator of status and income, yet it does not necessarily offer a sure-fire path to financial success. In many cases, its pursuit has been financially detrimental. The high cost of preparation throughout a student’s life (both personal and financial), the inability of colleges to keep pace with economic change and the emergence of alternative pathways leading to new types of jobs are all redefining the value a degree.
It is time to set new beacons for success, not a one-size-fits-all model that ignores the uniqueness of our children, our family circumstances, our community surroundings and this era we are living in. Some students are interested in attending college, others are not. In our society, we need all kinds of learners and contributors, from degree holders to skilled workers. There are now post-high school education pathways available to cater to a broad spectrum of students. We need to empower all students, regardless of their background, to pursue the opportunity that best suits them. As colleges transform to better reflect the realities in the economy and as new pathways create short-term, more affordable options, we all need to educate ourselves about the value of an investment in college and whether it makes sense for each of our children.