The necessity of a college education

By Felix Salmon
September 10, 2012
Megan McArdle is on the cover of the new Newsweek, with a story asking whether college is still worth it, after decades of massive price inflation, and in it she makes a few good points.


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Megan McArdle is on the cover of the new Newsweek, with a story asking whether college is still worth it, after decades of massive price inflation, and in it she makes a few good points.

Firstly, college is now insanely expensive: even if it made perfect financial sense for people of Megan’s generation (she’s 38), that doesn’t for a minute mean that it still makes sense today. Certainly at this point it’s pretty much impossible to (legally) work your way through college. If your parents can’t afford your tuition and you don’t get some kind of scholarship, you will graduate with a large amount of debt — as more than half of undergraduates now do.

On top of that, the supply of new and bigger student loans has been growing at least as fast as the price of college. No matter how much a college charges, it seems, some bright financial innovator somewhere, in either the public or the private sector, is going to be able to find a way to lend prospective students the money. As a result, colleges, especially when they’re in the private sector, can charge pretty much whatever they like — and, unsurprisingly, they end up doing exactly that.

At some point, by definition, college must become a bad deal, at least for some people. Even at a cost of $0, college is going to do you precious little good if you’re, say, illiterate: the opportunity cost alone is meaningful. And the more expensive that college gets, the less of a good deal it becomes. Especially for the large minority of students who end up dropping out: nearly all of them would have been better off never going to college in the first place.

But the math is complicated: the only thing which has been rising faster than college tuition costs is the wage premium that college graduates receive over those without a degree. A degree is becoming more important, not less, in our digital economy. And so while the cost of going to college is rising, the cost of not going to college is, arguably, rising even faster.

There’s no doubt that colleges do seem to be flabbier, when it comes to controlling costs, than they have been in the past: those ubiquitous climbing walls are indicative of a broader arms race in terms of non-academic amenities. There’s a real problem here, surrounding the way in which, at the margin, universities have very little incentive to control costs. Quite the opposite, in fact: in an area where outputs are incredibly hard to measure, there’s a huge temptation to just measure inputs instead, and work on the assumption that the more money you’re spending, the better the education your students are receiving.

But McArdle doesn’t spend much time wondering about how to change universities’ spending behavior: instead, she concentrates on students’ borrowing behavior. And of the two, it seems to me that the borrowing is more rational than the spending. “It’s very easy to spend four years majoring in English literature and beer pong and come out no more employable than you were before you went in,” McArdle writes — but that’s only true if you somehow contrive to drop out of college at the very last possible minute. McArdle talks a lot about the limits of credentialism, which are real, but the fact is that a college degree gets your foot in a lot of doors, these days, which would otherwise remain shut.

And even if you do work your way up the career ladder, that college degree is going to help you, years after you get it, in ways you probably don’t even realize — unless you don’t have one. I can think of two people, in particular, who work alongside college graduates in large organizations with deeply-established HR departments. Both of them are incredibly competent, and would naturally have risen much higher up within their organizations, were it not for the fact that they don’t have degrees. They’ve both been working for many years, to the point at which you’d think that whatever they did or didn’t learn at college would be irrelevant. But it’s not. Degrees don’t just get you in to certain jobs, they shatter a glass ceiling which is very much still in existence for those who don’t have them.

McArdle’s also wrong that credentialism is a zero-sum game. For one thing, we’re part of a global economy, where many employers will hire only college grads — and if they can’t find those college grads in the US, they’ll find them in Ireland or Israel or India instead. If you want lots of Americans to have lots of good jobs, it’s a simple fact that you want those Americans to have degrees: we can’t roll back the clock to a time when employers were happy giving career-track jobs to people without them.

The fact is that while this economy is undoubtedly tough for recent graduates, especially those with liberal-arts degrees, it’s much, much tougher for people who don’t have any degree at all. And as the economy recovers, the graduates will get better jobs, more quickly, than their non-college-educated peers. It’s a simple statistical fact.

The average amount of student debt per student in this country is large in absolute terms — about $30,000 — but is still a small price to pay for a lifetime of access to jobs and promotions which would otherwise be off-limits. It’s easy to rack up much larger debts than that, but most students don’t: they turn out to be rather more sensible, when it comes to debt, than many of the worriers give them credit for.

McArdle also seems unnecessarily worried about the public fisc:

A law passed in 2007 allows many students to cap their loan payment at 10 percent of their income and forgives any balance after 25 years. But of course, that doesn’t control the cost of education; it just shifts it to taxpayers. It also encourages graduates to choose lower-paying careers, which diminishes the financial return to education still further. “You’re subsidizing people to become priests and poets and so forth,” says Heckman. “You may think that’s a good thing, or you may not.” Either way it will be expensive for the government.

“Expensive”, here, is left undefined — but again, at the margin, what would really be expensive for the government would be to preside over an economy slipping ever further behind in terms of the proportion of young adults going off to college. We need more education, and better education, and cheaper education — we do not need less education. So when McArdle proposes apprenticeship programs in lieu of college, I worry, because they feel anachronistic to me. In theory, they might work. But in practice, they’re wholly unproven, and they’re incredibly hard to simply decree into existence.

So yes, college price inflation is something to worry about, as is the inexorable rise in student debt, both on a per-student basis and in aggregate. But the answer isn’t for people to start thinking that college is a bad deal. If you’re the kind of person who can read and understand McArdle’s article, and if you are reasonably confident that you can graduate from the undergrad program you’re applying to, then college is still very much a good deal. In fact, for most of the professions you likely aspire to, it’s downright necessary.

12 comments

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Wages have been rising faster than collage costs for some degrees. But you fail to account for the fact that the rewards for going to collage are more divergent between degrees than they have ever been. I doubt McArdle argued that nobody should go to collage.

Your point about the English degree only holds water if you think the alternative is being in jail or sitting around doing nothing. There is very few things that most people could spend fours years doing that would make them less employable than having an English degree.

And I don’t understand your logic by which a global economy is supposed to refute the idea that credentialism. Either a collage degree increase a person’s intrinsic productivity or it does not. If it does not, it is a zero sum game regardless of the fact that it is a world wide zero sum game.

And then for the quote really tripped my trigger..

So when McArdle proposes apprenticeship programs in lieu of college, I worry, because they feel anachronistic to me. In theory, they might work. But in practice, they’re wholly unproven, and they’re incredibly hard to simply decree into existence.

Unproven? Germany apprenticeships are widely credited with being a key part of their manufacturing success. In the trades in America, the best still come out of the apprenticeship programs. More to point of your post, the reason so many employers value military experience is precisely because they do apprenticeship style training in a way that few others do.

And the military experience is not valued because of some kind of “values” such as discipline. If this was so, the ground pounders carrying a pack in the mountains would be valued most highly and the enlisted air force would be shunned. But in dollars terms, it is the opposite. This is because it is the training methods used that are valued not pain and self sacrifice.

Posted by apeman1 | Report as abusive

I think that the real point is that “college” is just a word and there are varying degrees of expense involved. There’s a huge difference between going to say UMass Amherst and BC. The big question is, for the investment and cost are BC graduates likely to make more than UMass graduates 5 years out? Then you can calculate all sorts of metrics that would horrify college administrators everywhere. That way you can balance the cost against the income potential. After teaching adjunct for 22 years and now being a C-level guy, I can tell you the answer and it’s not what people what to hear: it doesn’t matter where you did your undergrad after 5 years. No one cares. It’s a box to be checked on an employment application.

In fact, I regularly advise people to go to the school that presents the best value for your intended major and has a good enough reputation to get you interviews. No one is going to turn away a UMass Lowell Engineering graduate for a Northeastern one or even an MIT one. It all depends on your discipline and how you did and what you did while going to school. Some school have better Alumni mafia than others (BC comes to mind) but, really, that will only get you so far. Save the money for graduate school if that’s what you need to do but for Undergrad? Balance it out. It’s not likely to matter much, frankly.

Posted by skyman123 | Report as abusive

the only thing which has been rising faster than college tuition costs is the wage premium that college graduates receive over those without a degree.

Crucial question. Is the wage premium awarded to young degree-holders, or old ones? If it’s just a divergence of the already rich (old) degree-holders getting richer, then that doesn’t necessarily imply that young degree-holders will see wage gains relative to the non-pedigreed peer cohort.

A degree is becoming more important, not less, in our digital economy.

Insert snark about all those bloggers who are making out like robber barons. Seriously: in the best paying area of the digital economy that I’m aware of–programming–no one cares if you have a degree, they care if you can ship code.

Both of them are incredibly competent, and would naturally have risen much higher up within their organizations, were it not for the fact that they don’t have degrees. They’ve both been working for many years, to the point at which you’d think that whatever they did or didn’t learn at college would be irrelevant. But it’s not.

The thesis would seem to be “Large organisations are prejudiced in favour of credentialism”. So why not either [a] work for a smaller organisation, if you’re a non-degree-holder, or [b] teach a new approach to those who guard the gates? It doesn’t make sense to spend all these resources on something worthless if the only value comes from getting past stodgy prejudice.

The average amount of student debt per student in this country is large in absolute terms — about $30,000 — but is still a small price to pay for a lifetime of access to jobs and promotions which would otherwise be off-limits.

Just to reiterate my point: macro ≠ micro × 10^6. Is this a wasteful peacock competition or does a degree add to human capital?

Posted by stat_arb | Report as abusive

http://www.simplyhired.com/a/salary/sear ch/q-high+school+graduate

Not so fast Felix.
According to the site noted above(the first I could find) high school grads average wage is $41,000 vs $46,000 for a college grad.
Given that college usually eats up four years that’s a $164,000 opportunity cost that would take almost than 33 years to recover. College usually costs something and the present value of that something wouldn’t have to be very high to exceed the present value of the last 17 years of a 50 year working life. In fact the annual cost would have to be under $8,000 a year for each of the four years for there to be any positive payoff from a college education, and that’s using a discount rate of 4%(with any higher rate the payoff is even less).

Posted by RicNV | Report as abusive

What reading your post most reminds me of is another important part of the economy: medical care.
It also can raise prices unhindered, people complain about how much it costs, the relationship between the cost charged, and the output, as well as the quality, are tenuous, but it is still valuable on the whole.

I can imagine that both problems will be handles the same way in the future – going to Thailand or India for an education or surgery.

Posted by fresnodan | Report as abusive

“It’s very easy to spend four years majoring in English literature and beer pong and come out no more employable than you were before you went in,” McArdle writes

She’s speaking from experience, of course.

Posted by klhoughton | Report as abusive

Is it possible to agree with both of you? McArdle is speaking of an individual decision, while you are talking past her points with broad statistics. Data such as you cite should well be applied to an individual’s decision, but they shouldn’t make that decision, as there are many unique individual circumstances.

Your points are well-taken. In particular, many doors open to degrees, even if they aren’t in a relevant field. However, I would argue that starting off an independent life with $30K in student debt (I’m guessing mean, but at a rough approximation, assume median – 50% have more), plus rent, plus a car loan, plus furniture costs, etc), post-college life becomes a bit more complicated than it was when many of us graduated.

Posted by Curmudgeon | Report as abusive

The colleges’ cost problem is not merely one of “non-academic” amenities. It is, above all, the growth in faculty expense. Teacher/student ratios have increased dramatically without any shrinkage in actual class sizes. Faculties are being paid to teach fewer classes while engaging in more research and attending more academic conferences. The incentive for colleges to pursue this path is clear: US News and World Report uses cost per student (exclusive of amenities) as a factor in determining a college’s ranking, and college administrators, ever in pursuit of prestige, will advisedly become cost-maximizers. The greater prestige of any college is, of course, assumed to benefit its students on the job market, but, alas, prestige is the classic example of a “positional good”, for which an increase in demand produces no increase in supply.

Posted by SBayer | Report as abusive

The costs of college are not the same as tuition. For public universities, the total cost of college has not risen very much. The big change is cost shifting, from state taxpayer funds to student tuition funds. Public universities have done a good job of controlling total costs. But because state funding has been slashed, they must raise tuition to cover expenses.

“Since the recession of 2001, tuition hikes, as exorbitant as they have been, still haven’t kept pace with the fall in government support.” So the total cost has actually decreased.

Why is this elephant in the room ignored? How can you discuss college costs without talking about the tectonic shift from taxpayer funded to student funded college education?

Posted by jbw1 | Report as abusive

The colleges’ cost problem is not merely one of “non-academic” amenities. It is, above all, the growth in faculty expense. Teacher/student ratios have increased dramatically without any shrinkage in actual class sizes. Faculties are being paid to teach fewer classes while engaging in more research and attending more academic conferences. The incentive for colleges to pursue this path is clear: US News and World Report uses cost per student (exclusive of amenities) as a factor in determining a college’s ranking, and college administrators, ever in pursuit of prestige, will advisedly become cost-maximizers. The greater prestige of any college is, of course, assumed to benefit its students on the job market, but, alas, prestige is the classic example of a “positional good”, for which an increase in demand produces no increase in supply.

Posted by SBayer | Report as abusive

“So when McArdle proposes apprenticeship programs in lieu of college, I worry… In theory, they might work. But in practice, they’re wholly unproven…”

No Felix, they are proven in practice. Have you never worked in Germany? If you had, you’d think differently

Three years of hands-on work experience produce a far better-trained employee than four years of college, except in specialized professions, such as medicine and engineering

The reason corporations demand college degrees is because they think short-term, and don’t want the cost of training apprentices. Paradoxically, they get the cost anyway, because college grads know next to nothing about the job they’re entering. Go figure

Posted by vladimir5 | Report as abusive

It may be true, in the US, that apprenticeship programs are “wholly unproven” (though I am not so certain). However, in Europe they are well established and work extremely well. I am an American living in Switzerland, and the company I ran benefited hugely from the extremely well-trained young people who came out of apprenticeships, especially in technical disciplines. I am the first to encourage young people to attend college, but there can certainly be other paths to satisfying and well-paid careers.

Posted by dmcantor | Report as abusive