diminished returns (to a college education)

As an investment, college is over-rated in one sense and under-rated in another.

College education is under-rated in that its typical rate-of-return is quite high. But it is over-rated in that it is often pursued haphazardly (as one of the premier middle-class reflexes) or by imagining that a college education, in and of itself, will guarantee greater success. This is a none-too-surprising result of govt subsidies for college tuition; if something is subsidized, it will be used "too much"/inefficiently.

Two recent articles shed some related light on this topic: from Marty Nemko in the Chronicle of Higher Education (hat tip: Melanie Hughes) and from Janie Cheaney in World...


First, from Nemko...

Among my saddest moments as a career counselor is when I hear a story like this: "I wasn't a good student in high school, but I wanted to prove that I can get a college diploma. I'd be the first one in my family to do it. But it's been five years and $80,000, and I still have 45 credits to go."

I have a hard time telling such people the killer statistic: Among high-school students who graduated in the bottom 40 percent of their classes, and whose first institutions were four-year colleges, two-thirds had not earned diplomas eight and a half years later. That figure is from a study cited by Clifford Adelman, a former research analyst at the U.S. Department of Education and now a senior research associate at the Institute for Higher Education Policy. Yet four-year colleges admit and take money from hundreds of thousands of such students each year!

Even worse, most of those college dropouts leave the campus having learned little of value, and with a mountain of debt and devastated self-esteem from their unsuccessful struggles. Perhaps worst of all, even those who do manage to graduate too rarely end up in careers that require a college education....

Today, amazingly, a majority of the students whom colleges admit are grossly underprepared. Only 23 percent of the 1.3 million high-school graduates of 2007 who took the ACT examination were ready for college-level work in the core subjects of English, math, reading, and science.

Perhaps more surprising, even those high-school students who are fully qualified to attend college are increasingly unlikely to derive enough benefit to justify the often six-figure cost and four to six years (or more) it takes to graduate. Research suggests that more than 40 percent of freshmen at four-year institutions do not graduate in six years.

Colleges trumpet the statistic that, over their lifetimes, college graduates earn more than nongraduates, but that's terribly misleading. You could lock the collegebound in a closet for four years, and they'd still go on to earn more than the pool of non-collegebound — they're brighter, more motivated, and have better family connections....

This is what Labor economists refer to as the signal value of education-- in helping the market distinguish between those who can and cannot jump through the hoop of a college education. This is still valuable for employers and employees, but taken to an extreme, it would imply that education serves no purpose in building up "human capital".

College is a wise choice for far fewer people than are currently encouraged to consider it. It's crucial that they evenhandedly weigh the pros and cons of college versus the aforementioned alternatives. The quality of their lives may depend on that choice.


Then, from Cheaney...

Two cycles converge this spring: the quadrennial general election campaign and the annual college rush. Desperate high-school seniors are pulling together last-minute applications or anxiously awaiting the letter that opens the pearly gates to the institution of their choice; meanwhile candidates are promising more funds to help more young people realize their higher-education dreams. And more funds are necessary. Average costs (tuition, room and board) at nonprofit private colleges have risen 81 percent since 1994 (to well over $30,000 per year). The costs at public universities are a much lower investment—around $6,000—but still a healthy chunk of change.

The vast majority of students receive some kind of aid: scholarships, grants, work-study, even laptop computers. Still it may be worthwhile, before constructing this particular tower (see Luke 14:28) to count the cost. Is graduating with a $100,000 student loan a promising way to start a career—especially if entry-level jobs in your field are paying $30,000 per year? And if your fiancée carries a similar burden with prospects little better?

Charles Miller, an investment strategist and former chairman of the University of Texas Board of Regents, is one of many who are airing their doubts in public. In a letter to the College Board last April, Miller challenges the common assertion that "college is worth a million dollars" over the years in individual earning power. That claim, he says, is based on flawed assumptions, such as failing to adjust for inflation, factoring in advanced degrees, and assuming that students finish a four-year degree in only four years (when less than half actually do). The College Board naturally disagrees with Miller; for one thing, its periodically updated "Education Pays" report doesn't tout that million-dollar figure. But yes, they insist: In time, an individual's earning power rises with every year of college completed....

There are, or should be, good reasons for going to college—like preparation for life and a professional career. But many young people without professional goals could get their life preparation elsewhere, like travel, apprenticeship, or volunteer work. As a mere rite of passage, or a way station between adolescence and responsibility, college is probably not the best use of one's money.

None of this is meant to discourage young people from their dreams. But the once-solid link between higher education and higher income is rusting away while nontraditional opportunities are blossoming. It might be wise to give alternatives a second look.