Is college worth the investment?
Email 
Print
Is a college education worth it? In the free market of ideas, maybe. In a labor market that can’t be sustained by wage growth or job creation, probably not. Another bubble may be bursting.
The college degree payback may be long and may not materialize for decades. A six-figure education may not be a guarantee to higher real wages in the near future and it may not be worth going into debt to finance it.
I’m not alone in this sentiment. A widespread public skepticism is fueled by poor short-term job prospects. It’s not surprising that 57 percent of those surveyed by the Pew Research Center said that higher education doesn’t provide a good value and 75 percent said it’s just too expensive for most people.
As young people attempt to enter the workforce and face an unemployment rate twice that of the majority of the general population, you have to take pause and examine what’s happened to create this bleak situation.
After World War Two, employment was plentiful. People who wanted a decent job in manufacturing or the white-collar sector could find one and stay there for 30 years. About one-third of private-sector workers were guaranteed union benefits, healthcare (even in retirement) and defined-benefit pensions. Productivity was on the rise and consumers drove the economy because they had plenty of disposable income and little debt.
That era, called the “Great Prosperity” by former Labor Secretary Robert Reich, ended in roughly 1977. Over the past 30 years, collective bargaining, decent manufacturing jobs and guaranteed benefits began to disappear. I remember that time because I was just getting out of college in the middle of a nasty recession and took a low-paying job myself.
Because high-paying manufacturing jobs were offshored over the past generation, workforce preparation increasingly focused on services and the white-collar sector. While office-oriented employers mostly demanded workers have college degrees, there were no extra payments for overtime. Guaranteed pensions were thrown into the maw of the stock and bond markets in the form of 401(k)s. Healthcare was also eroded.
Real wages, that is, what you earned after you subtracted inflation and taxes, entered a freefall in the past two decades. “Rather than be out of work, most Americans quietly settled for lower real wages,” Reich recently told Congress, “or wages that have risen more slowly than the overall growth of the economy per person.”
That brings us back to the value of a college degree. If the price of college had tracked real wages, net job growth or just inflation, then college tuition should have fallen dramatically in recent years relative to the outgoing economic tide of the middle class.
Yet the depletion of household wealth and earnings in recent years has made the gap between college bills and incomes even wider. While consumer inflation has soared some 107 percent since 1986 (through late 2010), college tuition has ballooned 467 percent.
Why the huge disparity between consumer prices and higher education bills?
Colleges benefited from a huge influx of students — the children of baby boomers — so they didn’t see their enrollment numbers decline significantly. The opposite was true; leading them to believe that there was a robust demand for their services. Universities kept investing in bricks and mortar and hiring professors while raising their prices to pay for it all. At the same time, states dialed back on their funding for public universities.
Then the catastrophic meltdown of 2008 skewered the economics of paying for college. Those who lost home equity had less collateral for home-equity loans or cash-outs. Bond returns were dismal and stocks had a bum decade.
Responding to this massive wealth evaporation, roughly about the time the U.S. housing market (and then stock market) collapsed, private non-profit colleges started a wave of tuition discounting, according to the National Association of College and University Business Officers.
Discounting reached an all-time high of 42 percent last year, the group reported, with 88 percent of freshmen receiving institutional grants. I expect this trend to continue as more and more families pull out of four-year colleges.
In the interim, if more students attend community colleges, eschew loans and encourage their children to take advanced-placement courses in high school — and demand tuition discounts — the paradigm will continue to shift and prices for bachelor’s degrees will fall across the board.
When the bubble bursts, though, it won’t be for the expectations that Americans have for their children after college. After all, even the Pew study shows that college graduates will likely have a $20,000 annual earning advantage over high-school grads.
A college education is a value relative to future earnings, vocational success and its ability to lift you above the economic burdens of underemployment and stagnant earnings. Right now, that equation just doesn’t measure up for most families.
Comments RSSPost Your Comment
-
Reuters Money
-
Thirty years from now the big university campuses will be relics. Universities won’t survive. It’s as large a change as when we first got the printed book. Do you realize that the cost of higher education has risen as fast as the cost of health care? And for the middle-class family, college education for their children is as much of a necessity as is medical care—without it the kids have no future. Such totally uncontrollable expenditures, without any visible improvement in either the content or the quality of education, means that the system is rapidly becoming untenable. Higher education is in deep crisis.
Seeing things as they really are, Forbes (March 10, 1997)
We need to focus not on college degrees, but on skilled labor. Bring back the pride in manufacturing and improve training and quality of workers.
American blue collar jobs went offshore not just because of price, but because of poor quality. Germany was able to keep lots of manufacturing jobs, because, despite being almost double the cost of US workers, the quality is impeccable. We need highly skilled workers who take pride in their jobs, not kids with degrees in “media” or “culture” who just end up in dead end jobs, if they are lucky
When lazy college “students” drop out of their primary major and instead elect for Political Science, or Graphic Design, then yes, it is a pointless waste of money and they get what they deserve. Your degree is as good as you intend it to be.
Thank you John Wasik for being a guy that periodically dares to report the truth. You did it a few months back on the actual state of Social Security (e.g. Not bad, and not bankrupt) in the face of a tremendous campaign by the investment industry to create an environment of fear.
But, you are closer to some profound truths. I find Reich a whiny old Lib, but the fact is we never came out of the recession of 1974-75. The peak was more closely 1973, but there was much smoke and confusion during that period. Carter never addressed it, and Reagan simply pretended we could buy our way out of it. If you understand that, you begin to understand the last +30 years. Lying, incompetent politicians, political parties so tied to policies that cause more harm than good.
But, I came back from the Vietnam war and used my G.I. Bill for a Bachelors, and it was one of the very few very smart things I ever did. When I talk to young friends now coming back from Iraqistan I hear them saying the same words I said. Education is not about the money, it’s about the mental process that develops that allows you to deal with life.
Not everyone needs a college education, but as a society we put so much emphasis on pursuing higher education and that a lack of such a degree spells disaster on your future prospects. I have a Bachelors and a Masters degree which has afforded me a comfortable, corporate job as a “knowledge worker” creating documents using software programs we refer to as “tools”. If I had it to do over….I would have gone to a trade school or joined the Navy to get technically trained in Electronics, Nuclear Power Systems, etc…then started my own contracting business selling my technical services back to the Government and private sector.
The article completely missed the biggest reason college costs have risen… Government guaranteed student loans. When you have a college that knows the students can get loans, then colleges have no reason to keep their costs in check. In fact they have every reason to raise tuition to the maximum amount that the students can borrow and that is what they did. Eliminate ALL government backed loans and imagine what would happen…. Little John and Jill would have to find someone that believed that their education would put them into a position to repay the loan… Do you think any institution would loan money if the student wanted to get a degree in women’s studies or English or any of the other completely worthless degrees? No way… I’m sure they would find institutions willing to fund a education in Engineering or something that could be used to get a job, but the pointless degrees would wither and die.
So lets start some real reform and eliminate 100% of all government backed student loans.
and how do you suppose students will learn subjects like math, medicine and physics?
May I ask what the alternatives are? If we are not going to be a manufacturing nation and a college degree is no longer a guarantee of a good paying white collar job, then what are we offering our youth? An eternal round of barista jobs? And, it is a sad day indeed when one must look to the military as the employer of last resort.
It doesn’t matter who is to blame for this situation. It is a systemic failure. It’s been decades in the making. Republicans have controlled the government just as long as have the Democrats, so pointing fingers at past failures is not going to help us. Nor is this whacky Tea Party notion of taking us back to an 1850s sized Federal Govt. with drastically limited powers (the dream of the rich, country club elites and the Koch Bros.)
When only two ossified parties can control the conversation this is the kind of public policy paralysis one can expect.
“How do you suppose students will learn subjects like math, medicine and physics?”
Be honest, how many people really need to know anything about physics? less than a fraction of a percent of the population. Medicine? About the same number as physics. Math? Again not that many… basic math skills will suffice for 99% of the people.
Imagine a world where 100% of the population was some white collar office worker…. just how would that world operate… no one to fill the vending machines in the break room… no one to deliver mail to anyone in the offices… Want to get lunch at a subway? Sorry, no one employed there. Want to buy something in the local grocery store… sorry no one works there, no one stocks the shelves no one even bothers to grow the food that would go into a grocery store.
The first step is to accept that a world doesn’t need everyone to be college educated. The world needs a mix of people that often need little education at all. Once you accept that fact you can address the problem that college has become something of a habit that people send their kids to because they think they are supposed to without thinking about where it really makes sense. Another reason you have so many people getting worthless degrees, because some students aren’t smart enough so they slide down to the dummy degrees.
For the record, I still think that college is worthwhile for teaching critical thinking, although it’s not the only place where that can be taught. As for guaranteed loans jacking up the price of college, I think we’re looking at a chicken-and-egg problem here. I think the use of loans has expanded because of increasing unaffordability and the fact that banks were backstopped by the government in offering these profitable products. I also believe that government should offer our best students in liberal arts, teaching, medicine, research, engineering and the social sciences generous amount of grant aid. It’s troubling to me that college debt has crippled so many graduates who can’t find jobs. We have to get crushing debt out of that equation if we’re to be a productive society again. BTW, I had a choice to enter a national military academy back when I was 18. Not only would my education be paid for, I would have been retired with full benefits by now. Yet I don’t regret my decision to get my liberal arts degrees in the least. Of course, that was during a time when I paid for nearly all of my education and got a tiny scholarship to pay for the rest. We clearly need more scholarships!
To “ThermoNuke”, just because a student decides to pursue a degree related to the liberal arts does not mean that the student is “lazy”. In fact students of History, English, Economics and the like study just as many hours as students pursuing technical degrees. The primary difference being Liberal arts degrees usually have a focus on the written word, while technical degrees place a higher emphasis on mathematics.
@Yirmin
Is the problem that people are trying to get an education? Or that the education they are trying to get is below acceptable standards? Education, across the board, from elementary through undergraduate has become a battle for revenues rather than the simple goal of teaching and bettering society.
You also have to consider the fact that the for-profit sector has some of the highest cost of attendance with the lowest achievement rates.
Government backed loans offer access to those who have the capability but not the means. It’s up to the institutions to establish who is capable. Many institutions just don’t care because it means they’ll get more money even if that student fails.
i just can’t see any reason why people would spend 200K+ for a history or political science or liberal arts major. the money just doesnt add up. for engg or medicine the fees are high because the infrastructure is costly.
Here is my list of reasons:
1)Colleges are often overbloated with expenses. Does a student really need a large beautiful campus in order to learn?
2)Government money to help subsidize education is running out.
3)Wages are stagnant as tuitions rise.
4)Americans buy too much stuff that they think they need in order to be happy, so, off to college I go so that I can make more money later. When I graduated from Dental school in 1977 my car was a 64 Dodge dart with part of the floor missing from salt rust(I could see the road go by through the floor). Today I have three nicer cars and sometimes long for the days when I had my crummy Dodge Dart. And by the way, cell phones which are so important for everyone today, make it too easy for someone to call me about some pidley crap that I don’t need to know about anyway. If you want to talk to me, make the effort to find me first. REAL friends knock on your door.
5) For a lot of students, college is a convienient way of postponing life in the real world. It was for me.
@123456951,
#5, much agreed lol
Why do Americans study subjects like social science and English? If they show interest in science/engineering, they will get good jobs. I came to the US from India to do my MS in Mechanical Engineering. I applied to 100 jobs before graduation and 200 jobs after that. I went to 3 job fairs and faced much humiliation. In the end, I got 2 job offers. Americans should take a hard look at what they are studying, and be prepared to persist until they get a job which matches their education. There is no other way.
One cannot calculate the return on investment if the stream of future wage income is not predictable. This and other implications are in my research on change in savings and income growth at http://knol.google.com/k/savings-and-gro wth#
The value of a college degree (in terms of income potential) can vary wildly depending on the student’s major.
As a student my ONLY reason for attending college is for the sake of earning more money later in life. That’s why I’m studying electrical engineering and not English. Making the investment of time and money into an education for any other reason is just silly.
A suggestion for lowering the cost of tuition at public universities: Get rid of lower-division general education requirements altogether. It makes absolutely no sense to FORCE a civil engineering major to study art history or philosophy. (And please, spare me the “Making better citizens” B.S., non-major GE courses are consistently the poorest quality classes offered, and many of these students are going deep into debt bankrolling the frivolous parts of their education.)
@123456951, you say “Americans buy too much stuff that they think they need in order to be happy..” as a critique. In the same breath though you say you went to college and now have three “nicer” cars. A bit hypocritical don’t you think?
“A suggestion for lowering the cost of tuition at public universities: Get rid of lower-division general education requirements altogether. It makes absolutely no sense to FORCE a civil engineering major to study art history or philosophy. (And please, spare me the “Making better citizens” B.S., non-major GE courses are consistently the poorest quality classes offered, and many of these students are going deep into debt bankrolling the frivolous parts of their education.)”
The reason for those classes has not been nor will it ever be to make you a better person. The rationale is to increase the number of credits that you need to graduate and thus increase the number of years that you will be required to spend at the university paying tuition with government loans.
I like yourself went to school to get a degree that would allow me to make money… When I look back at the number of credits I have that were in classes I use vs the number of credits in classes that were completely useless… It is about 50/50… And that is only because I moved into managment, if I had passed on working myself up in the company I could have easily been as successful with only 20% of the courses. How often do I need to discuss 19th century American poetry, or think about James Joyce? Never…. it was just fluff you had to do to get the degree and justify toiling away 2 years longer than you really needed.
So, out of curiosity, what will happen when we all just dive right into the workforce from high school? Or do we even need high school? After all, a lot of high schools are a drain on our economy and give nothing to society except for Mathematics, Physics, and English.
To be frank, without colleges, we would degrade as a society because of a lack of edumacation.
To lay the sarcasm aside for a moment, another aspect about college that everyone is missing is the networks we build, the friends we make, the people we meet, and the experiences we have together. You are measuring college based solely on economic terms. I hope your life means more than dollars and cents.
College broadens the horizons, helps people approach issues differently, and gives us the tools to attack the mountain of problems that we have inherited from earlier generations. We here in college are still optimistic – we have our entire lives in front of us. This combined with the tools that college provides will allow us to help make the next wave of changes. We might fail 99 times out of 100, but without this education, these experiences, and this network of friends, we’d fail 100 out of 100.
I would argue that college is more important than ever (if you measure it in terms other than economics) if we want to try to make the world a better place.
Yes, your right, I’m a hypocrit. Life is full of paradoxes.
“Because high-paying manufacturing jobs were offshored over the past generation, workforce preparation increasingly focused on services and the white-collar sector.” “Guaranteed pensions were thrown into the maw of the stock and bond markets in the form of 401(k)s. Healthcare was also eroded.” “About one-third of private-sector workers were guaranteed union benefits, healthcare (even in retirement) and defined-benefit pensions. Productivity was on the rise and consumers drove the economy because they had plenty of disposable income and little debt” Thank the Free Market- Free trade loveing, anti union – sell out REPUBLICANS!
In 1970 Tulane University’s tuition was $1640.00, and a nice new car was about the same. Now Tulane is $40,000.00 and a nice new car is $40,000.00 or more. I don’t really see a rise in education costs, just a decline of the value of the dollar. Figuring this decline in the dollar, the $4.00/gallon gas everyone is screaming about is still cheap. Minimum wage laws, union gains etc etc have not changed the relative value of things, just made the dollar cheaper. Everyone now makes more dollars which won’t buy as much but are taxed at a higher rate. It isn’t a political party thing, both are responsible.
There is a bubble here, but while most of the comments seem to target “worthless” subjects, they should more accurately be targeting “worthless” institutions. There is a demand for English majors, and graphic design majors, but the supply far exceeds that demand. Those who are admitted to a respectable institution will satisfy that demand, and those that are not, and choose to study elsewhere, will flip burgers.
Some disciplines, such as engineering, have external standards to meet. Programs not meeting those standards lose their accreditation, and their respectability. Sadly, most disciplines do not have that protection. Institutions can offer a degree in most disciplines with no clear standard of what that actually means. A senior-level course at one institution can be freshman-level at another, or even high-school level. Add to that the retention-driven pressure (particularly at less-desirable private schools, a.k.a. diploma mills) to make courses easy and grades high, and we see many college graduates with skills comparable to those of a well-prepared high school graduate.
The problem is that not all high school graduates have the same propensity for academics, yet we push uniformly to a “4-year” program, so the quality of “4-year” programs inevitably varies wildly. What is surprising is that the less-able students are willing to pay a comparable price as the more-able students for a vastly inferior product, with the false hope that it will make them competitive. It will not.
@ TAMU – For the liberal arts, I consider myself a student of history with a dash of literature and a side of theology. Didn’t need any handouts or formal education for that, did it on my own by reading. I used the handouts for a computer and information science degree that did actually get me a job.
Yirmin’s comment gets to first base but I’ll get the RBI. Going back to the two degrees I named- if I was a bank and you were a potential student fresh out of high school with one of those as your intended degree, there’s no way I’d sign the papers. It’s the local big box or the military for you, unless you’d like to have some of this smelly pile of free money for a stab at engineering, discrete mathematics, foreign language or the like.
Education does need to be subsidized, but it needs to be targetted and focused like a laser, it must have objectives and guidance, it must be cultivated and crafted as the most powerful stimulative tool of the people’s money that it is.
@Yirmin
Well Physics and Math are key reasons you can type such an absurd post. Medicine will likely keep you alive for a long time to spout such nonsense. I came from a poor family and Federal loans made up the difference between scholarships and actual cost of living 4 years at school. I earned my degrees in Math and Computer Science and made 95k in a multinational out the gate. The government funding education is a good thing.
In other words they are not ‘worthless’ degrees, think ‘leisure’ degrees. Not eligible for a kid out of high school to get public funds to pursue. This is guidance. The same can be done with the institutions themselves.
A point to make is the role government guaranteed loans play in the bubble and inflation in tuition prices. As in just about every case of government cash infusions, the markets are disrupted. Here, kids take out school loans for 4 years of undergraduate school, and a few years of graduate/school, and leave with debt in excess of $100,000.00, some approaching $200,000.00. At the same time, schools, flush with cash, continue to raise tuition to build more brick and mortar, name stadiums in which they have no teams, go into entertainment, and expand beyond their core competencies. The solution is to return the job of student loans to local banks who can watch and make sure students don’t get in over their heads. The by-product is less money for schools to spend on non-educational endeavors.
College education has become obsolete a long time ago. However, that is exactly the point: it does not matter what you study but you actually buy your future income. A good college education is a ticket to higher income, nothing more. A simple way how elites try to keep their wealth. And for the time being, it works: only with the right tickets one can get closer to the Fed’s printing press, i.e. jobs in finance… So it is not a bubble it simply reflects the real inflation.
As an expert in socio-economics, I recently wrote an opinion on the challenges of education for the attention of, among others, United Nations Public Administration Network, the Ministry of Education of the People’s Republic of China, the Ministry of Education of Malaysia, APEC Secretariat and ASEAN University Network.
The contents, an excerpt of which is disclosed below, corroborate the author’s opinion as to the economic rationale of higher education under the current circumstances. This opinion is available for download from the document database of United Nations Public Administration Network at: http://unpan1.un.org/intradoc/groups/pub lic/documents/other/unpan044319.pdf.
“A vicious cycle is being sustained by sheer imbalance between supply of and demand for knowledge on the job market. It results in ongoing decrease in the value of knowledge viewed as the fourth economic factor, thereby putting tremendous pressure on salaries and wages. Added to ever-increasing need for furthering studies, not so much on purpose of knowledge development as differentiation on the job market, it makes return on investment in education a delicate issue. Where households fail to get the money invested in studies back, they end up poorer and poorer generation after generation. For most people, who find it hard to bring about necessary comparative advantage, education fails to deliver on its promises of a better life as a result of being more knowledgeable and competent. This trend, which affects all countries indiscriminately, is even more marked where the social system is such that investment in offspring as retirement plan is required, as we have in less advanced countries. Unchecked democratisation of higher education in each and every field certainly helps develop society on the basis that collective knowledge is the sum of individual knowledge plus synergy thereof. It may also foster attractiveness at international level. But, in the meantime, it undermines return on investment at individual level, as the value of the degree obtained plummets because of oversupply.
Moreover, the afore-mentioned principles and cycle are exacerbated where higher education academic achievement is being impeded by lack of foundations to be built up at primary and secondary level. Under certain circumstances, the former is viewed as a means to offset the latter’s shortcomings, with questionable results though if we bear in mind that intellectual potential and knowledge structure form primarily in the first nine years of an individual’s existence then to a lesser extent an extra nine-year or so period of time. Under such circumstances, we understand why four years in the last leg of a student’s life cannot prove significantly effective if the foundations are not laid properly. Loads of information and technical knowledge cannot supersede core competences, which make one able to expand his or her knowledge base both in depth and breadth on the one hand and avail themselves of the resources necessary for lifelong learning and flexibility on the job market on the other. Higher education cannot offset lack of standards of primary and secondary education.”
The Student Loan Corporation had a recent infographic on the ROI of particular majors. At the end of the day, it’s the major that will determine the career, although the school you go to has a lot to do with the type of job you have as well. Take a look at the SLC infographic here: https://www.studentloan.com/pay_for_coll ege/roicollegemajors.htm.