return on college investment: it’s about the variance, people

When I argue that we have too much college, people quickly fall on the well established fact that college graduates make a lot more than non-college graduates. But you don’t need to be an education skeptic to ask a sensible question: what’s the variance? Are some people not making the college premium? How many? Well, turns out that a firm has been calculating the rate of return for college and it varies a huge amount. There are folks who don’t make it back. Some college graduates are making a *negative* rate of return. From the economist:

A report by PayScale, a research firm, tries to measure the returns on higher education in America (see article). They vary enormously. A graduate in computer science from Stanford can expect to make $1.7m more over 20 years than someone who never went to college, after the cost of that education is taken into account. A degree in humanities and English at Florida International University leaves you $132,000 worse off. Arts degrees (broadly defined) at 12% of the colleges in the study offered negative returns; 30% offered worse financial rewards than putting the cash in 20-year Treasury bills.

None of this matters if you are rich and studying fine art to enhance your appreciation of the family Rembrandts. But most 18-year-olds in America go to college to get a good job. That is why the country’s students have racked up $1.1 trillion of debt—more than America’s credit-card debts. For most students college is still a wise investment, but for many it is not. Some 15% of student debtors default within three years; a startling 115,000 graduates work as caretakers.

In other words, before we rush more people into the college, we have to make it cheaper, much cheaper. And we shouldn’t facilitate degrees that massively bad consequences for your economic life chances.

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Written by fabiorojas

April 11, 2014 at 12:06 am

Posted in economics, education, fabio

12 Responses

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  1. please listen to this week’s econtalk podcast — highly relevant to this discussion!!



    April 11, 2014 at 1:45 am

  2. The analysis is a false comparison. No one has too much “college,” that is undifferentiated and non-specific. College is not ‘vocational’ education. It is true that many people who graduate from college with a BA or graduate degree end up making more money, but there is no job waiting for graduates in their field after graduation. The degree is related to cognitive interests or to certain determinants related to the class or ethnic origins of the individual, but the job is related to the market conditions. If the market is in equilibrium with the educational system, then each person could find a job equivalent to their education when they stopped going to school. But, equilibrium and “perfect” competition are slippery concepts in the conflicted world. Even in the professions of lawyer, medical doctor, engineer, actuary, etc (I would not however extend this list to that of occupational groups), the hiring context is competitive after the degree, so location, status, and “the wait,” all play a role in the kind of job even these guaranteed roles acquire. In any event, it takes several years before income reaches significance.

    Often, a person will find that although they have a degree, they need another degree or set of courses. With many occupations, education or training continues after the degree, and for more and more occupations there is a licensing process with several levels or types of licenses to be acquired for promotional or adaptive purposes. Few graduates realize that their education was not simply status-enhancing but was a starter experience for the future research and education they would have to do to achieve in the world of work. You will need more college coursework. Many think that once school is over, that’s it, but the promotion process even in bureaucracies and corporations requires further education and licensure, in many instances, personal research to become well-informed is absolutely necessary. But, social mobility is rare primarily because most graduates do not return to education or consider their becoming deeply informed as relevant, and they rely on hearsay to pass, but this will not lead to leadership positions (a few people will have a temperament or sexy trait that helps but this is also unusual); there is no substitute for knowledge which is often local and particular and requires frequent updating! For example, there is no job in literature or music or art following a degree. There is however work in giving lessons, teaching, or performing. After the person gets a degree in computer programming, the person will have to adapt that knowledge to specific contexts at a work site.

    The degree is cultural capital and has to be converted into economic capital through a form of activity that meets market opportunities. I will not go into the nature of the fickle and fluctuating market, but as the key environmental or external variable, the qualities of the individual are more a matter of being in the right place at the right time, with experience, degree, and license in hand, than having anything to do with intent or will. However, willingness to work is critical. When a person decides to leave, or is excluded, from the educational context, and wants to work, it is imperative that the person gets cash flow which often means entering a service occupation until a position for application emerges from the market, and pursuing that – this is often the origin of the PhD taxicab driver or dishwasher. Many jobs that are relevant to the Bachelor’s or Master’s degrees are in Academics or Administration. It is somewhat of a shock for college graduates to realize that their major was not a job category.

    It is important for researchers to distinguish major and degree from market capacities. Since most jobs are acquired on the basis of social networks, many people don’t think too deeply about their job after school, they’ll just get a job with their pa or uncle. The lack of social mobility is the reason why we have many unemployed and many available jobs, because these people are not qualified, or we can reason, people who are nearly qualified have not moved up to become qualified to take these jobs and open up the market below them for those on the next rung to move up eventually to absorb all potential workers. The solution to this morass is to expand the educational system and to get those people who are potentially qualifiable for the more complex positions trained-up and so on down the line. Good luck with that in anti-intellectual USA where reading is discouraged but exploding the population is the be-all-end-all. Perhaps the government should give tax credits for courses instead of babies!! Maybe the next cohort of politicians, who understand this problematic and want to reorganize the educational system from its current mooring in the 19th century where the academic cadre are more preoccupied with beating down the students than actually transmitting information, will relieve the pressure in graduate school admissions by expanding it, so the mid-level graduates can move up and get qualified for the leadership positions. In too many cases, what qualifies for leadership is ignorant elders with seniority status who have learned and practice nothing but the techniques of coercion and repression. The problem is the lack of specific coursework and this is due to the lack of access to graduate coursework.


    Fredrick Welfare

    April 11, 2014 at 3:45 am

  3. I’m all for making college cheaper and teach at a place that has huge demand because it is…But, what are the concrete policy implications of the argument? What department(s) would you close (in addition, I suppose, to most art, ethnic or regional studies programs) and why? Anything that operates “at a loss?” Would you just not allow students from poor families to chose majors in the fields you don’t think pay enough or would you just close entire departments with what you determine are low ROR? How would you implement what follows from your analysis? …and I’m not making an argument for dead weight or bad medicine here–just trying to get a sense of what implementation, and the end product you envision, may actually look like…



    April 11, 2014 at 11:28 am

  4. This is correct. And it is even worse, because so many people who are successful are successful despite their degree, not because of it. How many guys get into the corporate world these days, figure out how awful it is, and then turn around and make some sort of small business, or internet play? If you drop the dream of marriage and children, which many of them are, you can live pretty cheaply.

    As for academia itself, this idea of college being the default destination for everyone has ruined it. There used to be some attempt to push the knowledge envelope forward, and intelligent people who were a little different were recognized as vital to research. Now conformity and rent seeking has become the mainstream. Consensus, for example, is a political process, not a scientific one, but nowadays everyone runs around talking about consensus. Nobody celebrates the eccentric, neither the ones who turn out to be right in the face of massive social disapproval, nor the ones who turn out to be staggeringly wrong. Nobody puts any value on hypotheses creation; there is the general tendency to view people who come up with non-mainstream hypotheses as wasting everyone’s time, but if the hypotheses are testable, then they can be tested and the knowledge will be increased regardless of whether or not the hypothesis is true. Now all that happens is that people test whatever they can get funding for. This is like making the pool in which breakthroughs can happen really small; breakthroughs can still happen, but the reduction in the size of the pool reduces the odds considerably.



    April 11, 2014 at 1:56 pm

  5. I’m not sure that wages should be the only criteria here. I would imagine that an Art History major who makes 28k/ year working at a museum 9-5 M-F has a much better life than someone without a college degree who scrapes together 28k/ year working 70 hours a week at two dead-end jobs. Money isn’t everything, and sociologists of all people should know that.


    Silly Wabbit

    April 11, 2014 at 4:10 pm

  6. “28k/ year working at a museum 9-5 M-F ” … and you need a college degree for that because ….?



    April 11, 2014 at 4:15 pm

  7. You need the college degree, because the job requires such a degree and the skills that comes with it.



    April 11, 2014 at 4:54 pm

  8. Can you be specific here? Do you literally need a degree for, say, being a curator? We’ve had curators for decades and there were very few degrees. Or do you mean sales and marketing?



    April 11, 2014 at 4:57 pm

  9. I’ve spent the past semester teaching a class of students from working and lower-middle-class backgrounds in a course on higher education. They would agree that college needs to be cheaper, particularly that states should go back to the levels of subsidy for public higher education that were common in prior generations and that we should turn back the clock on the corporatization of higher education.

    But they would also tell you that your focus on the economic returns to college for people like them is not fair to them. They would tell you that they do not want to be denied the chance to grow as a person, to have access to cultural capital otherwise denied them, to explore possible futures, to meet people from diverse and different backgrounds–all the things that wealthy people take for granted as part of their college education. They would also tell you that, as Arum and Roksa have found in their post-Academically Adrift research, that the variance in outcomes is at least partially explained by students who learn little or nothing in college while taking gut courses and partying 4 nights a week. And they would largely blame us, the faculty, for letting those students get by too easily and for focusing on our research instead of teaching and mentoring them.

    My students know that college is no guarantee, but they also know that they are better off for their time in college. If you haven’t spent a semester talking seriously about these issues with the students who represent the bulk of the American college experience, you should try it and see how it changes your perspective.



    April 11, 2014 at 5:28 pm

  10. I think SW is just trying to make the obvious point that there are jobs around, where you need a college degree, but you won’t make much money – but people will stil be happy about their investments. From a societal perspective, this might not be efficient, but individual happiness isn’t always. The question of course is: How many of these jobs are around. And a further question: Should such jobs be around. In any case, an illuminating quantitative focus risks ignoring such non-monetary factors.



    April 11, 2014 at 5:32 pm

  11. The underlying “belief” in most of the comments and the original article is that college is some kind of ticket to a job or even a career. Economically, college is an opportunity to differentiate from the occupational group of one’s family, or to specialize. But, college is a form of socialization that includes a relationship to the government as a member of a valued group and a differentiation from one’s home and neighborhood and therefore a development of a value orientation that is considered more ‘solvent’ than one’s parent’s values. That is, membership in the university reorients the individual away from a parent-child framework to a professor-student framework and to a position in the horizontal departmental structure. Orienting to this framework and to the values relevant to the polity, the society, and the economic system prepares the individual for adaptation to a new class position from their origins. One criticism of higher education is that it is a system which often reproduces the same class relationships as one’s parents. This is the criticism which I am reading in this list of comments. The opportunity for social mobility requires the conversion of the cultural capital of education into economic capital through application and through continuing education and training. The value consensus pertains primarily to acceptance of the authority relations in the family, firm, and polity. The college setting being the context of working through the conflicts that the perception of contradiction raises between one’s values of origin and the new collegial values that are now expected and which involve a set of etiquette and procedural points. But, these are learned as part of the socialization experience of college, not explicitly. The technical skills that are learned are primarily in rate of comprehension and writing skills which must undergo further refinement after employment and typically further education.

    What is clearly missing is the relation of a ‘pay scale’ to the prestige of each college and to certain departments, to the contrast between family of origin and adulthood outcomes, and to the difference between students who complete or quit from graduate programs, undergraduate programs, and high school programs. Without these comparisons, we are left with the generality of a college degree related to an income bracket, which is not specific enough and hardly addresses personal situations which either lead to high achievement or to low achievement. In either case, values or fiduciary responsibilities are not addressed by the economic analysis. Lastly, the particular value orientations of each occupational group, which should not be called values anyway, are often unrelated to the developed responsible disposition that college membership instantiates. As one commentator mentioned that issue of values within science is often contradicted by the values external to science as in the funding of specific programs, and this same problem reverberates throughout the entire system: the values inherent to a “department” or occupation group or specific firm are not respected by external agencies: funding agencies, other firms and occupational groups, governmental agencies, or political groups. The problem of coordination between these entities can then be settled by either the government or the market which as you know is an historical and political problem.

    This is why I stated that college is not vocational education or job preparation. It is inclusion as a membership into a valued group, the university, but this is no guarantee of economic prosperity. One’s social capital may be enhanced by the cultural capital of education and by one’s accomplishments in terms of economic capital but the conversions between these forms of capital is not straightforward and may depend more on historical period, market fluctuations, and proximity to certain social networks. A simplistic analysis between college degree and “pay” should not be accepted as valid, it is spurious nonsense.


    Fredrick Welfare

    April 11, 2014 at 7:04 pm

  12. This completely lets employers off the hook. Part of the value of a humanities or arts major are the writing and flexible skills that graduates exit with. Yet, most employers do not understand what (potentially valuable) high level skills students exit many majors with. For example physics majors often do not work in physics, but other fields because their general technical skills are viewed as valuable. Many other majors have transferable skills that employers don’t know about… because they don’t have to.

    We also need to explain to our students HOW they can sell the skills they learn in theory, methods, stats, and topics courses potential employers (and teach employers the value of the liberal arts). Finally, liberal arts curricula allow student to combine majors like art and business; philosophy and physics and not just take narrow courses in one area.


    graduate student

    April 11, 2014 at 10:54 pm

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