With student debt hitting $1 trillion this year, there’s been a lot of debate over the value of a college degree. When it is worth the investment? Are private schools a waste of money? And who’s to blame for the debt crisis?
We’ve put together a panel, including Zachary First, managing director of the Drucker Institute, William Zumeta, professor in the Evans School of Public Affairs and College of Education at the University of Washington, Katie Bardaro, the lead economist at PayScale, and Mark Schneider of the American Institutes for Research, to weigh in on these questions live. Here’s the transcript from the debate:
2:00 Aimee Groth, Business Insider: Let’s start with this: is college a worse investment than it was 20 years ago? 2:01 Katie Bardaro, PayScale: I think the answer is, it depends largely on what people major in 2:02 Mark Schneider, American Inst. for Research: the return on the college investment is driven by the institution a student attends, the degree they earn and their field of study. As college has become a mass product, there are a lot more students attending schools with lower ROIs. 2:02 Zach First, Drucker Inst.: Agreed. Though on average, getting a college degree is still a heck of a smart investment relative to the alternative. 2:03 Katie Bardaro, PayScale: Based on research from PayScale, there is a wide range in expected pay across majors. The median mid-career pay for a Petroleum Engineering major is $163,000, while the median mid career pay for a Social Work major is only $45,300 (http://www.payscale.com/college-salary-report-2013/majors-that-pay-you-back) 2:03 Mark Schneider, American Inst. for Research: BTW: the evidence is that college overall is still a net positive human capital investment, but students need to be aware not only of the average, but the large variance in ROI. 2:03 Katie Bardaro, PayScale: I agree with Mark — all of those factors should be considered when making the college choice. 2:04 Zach First, Drucker Inst.: For sure. And the bottom line is that no major is worth it if the student doesn’t have the passion to persist through to graduation. 2:04 Aimee Groth, Business Insider: Should universities be doing more to educate students? 2:05 Aimee Groth, Business Insider: on this investment – and the reality of where their majors will take them 2:05 Katie Bardaro, PayScale: Yes, they should, but whether they will is another question. 2:05 William Zumeta, University of Washington: Sure. Good information is key to smart choices by consumers. 2:06 Zach First, Drucker Inst.: Amen. Some institutions are better than others at putting student needs first. 2:06 Zach First, Drucker Inst.: Just like mortgage bankers. 2:06 Katie Bardaro, PayScale: In many ways, running a school is like running a business. It is not advantageous to warn students that the high tuition cost at their school might not be justified in future earnings. 2:06 Aimee Groth, Business Insider: Which ones? They’re usually the more expensive schools? 2:07 Zach First, Drucker Inst.: Here’s one not often on the national radar: Alverno College. They do a first-rate job of telling students exactly what they’ll learn and then giving them evidence of that learning as it happens. 2:07 William Zumeta, University of Washington: The more expensive ones whose outcomes don’t justify high costs.
2:08 Katie Bardaro, PayScale: All schools have a wide range of opportunities. Expensive schools may be the right choice for some, but not others. In other words, if you are going to major in theology (typically a low paying major), then don’t go to the fancy private school, but rather a in-state public school 2:08 Mark Schneider, American Inst. for Research: Tuition and cost of attendance often are not related at all with labour market outcomes. Clearly attending an Ivy League school is for most students a great investment. But there are plenty of really more expensive schools where student labour market outcomes are poor.
2:09 Zach First, Drucker Inst.: Yes, price is a strangely unhelpful signal in American higher ed. 2:09 William Zumeta, University of Washington: One element that does not get enough attention is the differences in what students bring. Average returns for a particular school are not likely to fit each student. 2:09 Aimee Groth, Business Insider: Can you explain more William? 2:09 Mark Schneider, American Inst. for Research: My published work in Virginia and Tennessee show the range of labour market outcomes. In TN it was using only public institutions, but VA had many not-for-profit schools in the database. The data I released drives down returns to the program level. 2:09 Zach First, Drucker Inst.: Look, for example, at all the clustering around certain sticker price points in private undergraduate institutions. Then look at the wide range across those schools in the amount of financial aid given. 2:10 Mark Schneider, American Inst. for Research: PayScale’s data and the work that I have published using linked state student unit/UI wage data show a wide range of wage outcomes across campuses and across majors. Students should “know before they go” about what the likely employment and wage outcomes of their choices of schools, degrees, and majors.
For example, in Virginia, graduates from schools with the highest first-year earnings average well over $50,000 while graduates of the colleges with the lowest-paid alumni average half that. Tuition cost is not related to earnings, so some students could be paying $20,000 to $40,000 more every year for a school with the same payoff as a far less expensive one.
While there are large differences in the earnings of students with different majors within schools (IT degrees almost always payoff far more than philosophy or religious studies degrees), even within majors, large differences exist between the earnings of students from different schools.
You can find more documentation about these differences in the reports I have published and on the www.CollegeMeasures.org website, which uses lots of PayScale data. I have also posted a simple “bubble graph” for three large programs in a set of Virginia’s community colleges as an example of the range of outcomes that students should know about.
The bottom line: As tuition rises and as landing a job with wages sufficient to support a “middle class life style” remains challenging, students can make choices that are better informed by the likely labour market outcomes.
2:11 Aimee Groth, Business Insider: Should colleges be moving away from liberal arts? 2:11 William Zumeta, University of Washington: Harvard gets more qualified students which has a lot to do with why its results look so good. For an individual, expected returns should be based on prior students with his or her characteristics (gender, academic qualifications, etc.)attending the particular school. 2:12 Katie Bardaro, PayScale: I might be biased since I attended a liberal arts school, but no I think liberal arts still has something to offer. What matters is what you do with it. 2:13 Zach First, Drucker Inst.: Right on, Katie. What colleges should move away from is teaching *any* discipline without a clear way of measuring the extent of the student’s learning. 2:13 Katie Bardaro, PayScale: One piece of advice we have given recent high school graduates in the past it so take classes the prepare you both for your dream career and a safe fallback career. 2:13 Katie Bardaro, PayScale: that* 2:14 William Zumeta, University of Washington: Not all of them certainly. The top schools emphasise liberal arts and many of their graduates go on to graduate or professional schools and do well. Also, schools that do need to pay more attention to BA grads job prospects can integrate liberal arts concepts into professionally oriented majors. 2:14 Mark Schneider, American Inst. for Research: In the short run, students with liberal arts degrees lag students with technical and occupationally oriented degrees. We still need to measure what happens 10 years out. But it is not enough to say “on average” this happens. We need to know how students from specific programs at specific campuses do in the short term and in the long term. 2:15 William Zumeta, University of Washington: Yes, and by specific student characteristics. 2:15 Katie Bardaro, PayScale: One big win with liberal arts schools is they tend to have a strong alumni network, which can help with career opportunities. 2:15 Zach First, Drucker Inst.: And the long run is exactly where the risk is in any technical degree — what’s current today may well be antiquated in 10 years. 2:15 William Zumeta, University of Washington: Yes, jobs are mostly secured through informal channels not by responding to ads. 2:16 Aimee Groth, Business Insider: Should we be teaching students how to prepare for that? Require them to all take entrepreneurship for example? 2:16 William Zumeta, University of Washington: One way to prepare for the long run is to be prepared to continue to learn, whether in grad school or in other ways. Effective liberal arts education seems to help. 2:17 Zach First, Drucker Inst.: For the ROI-minded prospective student, I would think that critical thinking is the skill that would matter above all others. As William notes, it’s the ability to learn continually that has the biggest payoff over a lifetime. 2:17 Mark Schneider, American Inst. for Research: this cycles back to the question of validating the quality and usefulness of what schools teach. For me, the wage data (which is part of ROI calculations) serve as a validity check on the what schools say they are delivering–and the quality of what they teach. 2:17 Katie Bardaro, PayScale: Students should definitely take STEM classes, even if they are not majoring in a STEM field. Many jobs that previously didn’t require analytic thought or data handling now do. 2:18 Aimee Groth, Business Insider: When is college not worth it? 2:19 Mark Schneider, American Inst. for Research: there are schools where the ROI is lower than the cost of money. 2:19 Zach First, Drucker Inst.: According to James Heckman, Nobel Prize–winning economist, “If you’re not college ready, then the answer is no, it’s not worth it.” 2:19 William Zumeta, University of Washington: But wage data alone is too narrow. It is not clear why we should value a career in teaching less than one in law even though the market does, as long as students know what they are getting into. 2:20 Katie Bardaro, PayScale: Great quote. Some people treat college as a right rather than as a privilege, but the truth is not everyone is cut out for college and in fact, may be hurting those who are. 2:20 Mark Schneider, American Inst. for Research: Following up on Zach’s point, student success rates in developmental education are so low that until we figure out how to deliver those services, there is question about the value of enrolling in college if you are far from college ready. 2:20 Zach First, Drucker Inst.: I think William makes a great point. ROI can change quickly and dramatically. Just ask any attorney who graduated from law school in the last 10 years. 2:21 William Zumeta, University of Washington: We talk about “college” too much in my view. Most people would benefit from some postsecondary training but we don’t need a nation full of BA holders. 2:21 Mark Schneider, American Inst. for Research: I agree with the other part of William’s comment. I am totally in favour of “know before you go.” 2:21 Aimee Groth, Business Insider: So trade schools? 2:22 William Zumeta, University of Washington: Various kinds of job-related training, much of it offered by community and technical colleges. 2:22 Aimee Groth, Business Insider: Can you compete just as well against other BA engineers if you have that training? 2:22 Mark Schneider, American Inst. for Research: My data from the states shows the value of Associate’s degrees, especially those in occupation and technically-oriented fields. Early career wages for these students exceeds the average for Bachelor’s students. 2:22 Katie Bardaro, PayScale: There is something to be said about vocational jobs. One can be quite successful in one and they will not be outsourced. 2:23 Zach First, Drucker Inst.: Amen all around. We have developed a strange narrative in the U.S. around the undesirability of some technical degrees and careers. But many are highly lucrative. 2:24 William Zumeta, University of Washington: These schools have lots of problems with poorly prepared students too and are under-resourced. It’s a shame. 2:24 Aimee Groth, Business Insider: Is Peter Thiel onto something? Should we be paying, or encouraging young entrepreneurs to skip college altogether? 2:24 Mark Schneider, American Inst. for Research: BTW: certificates are the fastest growing post-secondary credential and in Tennessee students with certificates in construction trades beat everybody else in terms of early career wages. 2:24 Zach First, Drucker Inst.: There’s also a societal argument for diversifying the kinds of degrees and certifications our citizens pursue. [Cambridge economist] Chang [Ha-Joon] has noted that Switzerland—one of the richest countries in the world and the nation with the third-highest ratio of Nobel scientists per person—has a lower rate of college enrollment than every other rich nation, as well as other beacons of prosperity like Argentina, Lithuania, and Greece. In fact, once a country has crossed some very low threshold, there is no relationship between the number of graduates and national wealth. The explanation is simple: a typical college education does not linearly increase labour productivity. 2:25 Katie Bardaro, PayScale: We talked earlier about whether it is the university’s responsibility to educate students about ROI. Instead I think it is the responsibility of High Schools, Parents/Guardians and think tanks. People need to know before they go. 2:25 Zach First, Drucker Inst.: Forgot the quotation marks; that bit is from The Economist here [http://www.economist.com/blogs/freeexchange/2012/09/college-enrollment] 2:25 Aimee Groth, Business Insider: Thanks. That’s a great quote Zach 2:26 Zach First, Drucker Inst.: Peter Thiel is absolutely not on to something. His idea sounds sexy, but what he’s really doing is poaching exceptionally rare talent. 2:26 Zach First, Drucker Inst.: Those kids in his fellowship program would succeed anywhere at anything. The rest of us mortals would benefit from a good education. 2:26 William Zumeta, University of Washington: In general we should not encourage able students to skip postsecondary education. Bill Gates was an outlier. 2:27 Mark Schneider, American Inst. for Research: Peter Thiel is trying to make Bill Gates the path for students without the skills and talent that Gates had. It’s a cute argument, but totally lacking in scalability. 2:27 Aimee Groth, Business Insider: Let’s talk about debt – who’s to blame for the crisis? 2:28 Katie Bardaro, PayScale: I agree with Zach and William. In talking to the general public about data frequently, I have observed that people justify their opinions with outliers. They focus on extremes rather than what is typical. 2:28 Katie Bardaro, PayScale: Well, according to the Bennett Hypothesis, government subsidies are in part to blame. 2:29 Aimee Groth, Business Insider: What’s the Bennett Hypothesis? 2:29 Mark Schneider, American Inst. for Research: College debt is an investment in human capital—and a problem only if graduates don’t earn enough to pay it off.
Borrowing $50,000 when you are likely to earn $25,000 is pretty much a recipe for unhappiness—no matter how much you love what you studied. But borrowing $25,000 to pay for a degree where you are likely to earn $50,000 is a smart investment.
Students can boost their chances of paying off their debt if they choose their degrees, their majors, and their schools carefully and if government shares the data it has mined to help them make wise choices. The information is available, but far too often not accessible when students make choices about colleges and majors.
Turning these data into ROI calculations can summarize these calculations into a single metric that students can grasp.
2:29 Zach First, Drucker Inst.: Aimee, it depends how far back you want to go. In my view, the debt crisis began with the noble goal after WWII of paying for every GI to get a college degree. 2:30 Katie Bardaro, PayScale: The Bennett Hypothesis is that Federal Aid and College Tuition tend to rise together. Here is a great discussion had about the research: http://www.mindingthecampus.com/originals/2012/02/why_they_seem_to_rise_together.html 2:30 William Zumeta, University of Washington: I would not call it a crisis. The recent run up is related to big jumps in tuition which in turn come from state cuts caused by the recession and aftermath. But debt has been slowly climbing for a long time along with tuition.
2:30 Mark Schneider, American Inst. for Research: again, debt is only a problem in relation to a student’s ability to pay it off. 2:31 William Zumeta, University of Washington: Right! The averages don’t look so bad, especially if you see the economy eventually improving. 2:32 Zach First, Drucker Inst.: Another contributing factor is the lack of high-quality, widely known market signals. PayScale’s ROI ranking is a good example of an effort to rectify that. But basically, most consumers have no idea how to differentiate a “good” school from a “bad” one. 2:32 Aimee Groth, Business Insider: And how do we fix that? 2:32 Zach First, Drucker Inst.: The football teams’ W-L record? The alumni giving rate? There are some really bad measures in use today, many of them part of the U.S. News ranking. 2:32 Katie Bardaro, PayScale: Here is a link to our ROI study for those who are interested: http://www.payscale.com/college-education-value 2:33 William Zumeta, University of Washington: Again though, students need to be careful about how much debt they incur given their major and cost of attendance. Maybe the big tuition they are borrowing for to attend a middling private college is not worth it, as PayScale shows. 2:33 Zach First, Drucker Inst.: One way to fix the information problem is to get into the market, just like US News did years ago and just like Payscale is doing today. 2:34 Mark Schneider, American Inst. for Research: ROI is based on (a) the probability of graduating; (b) how long it will take to earn the degree and (c) the real cost of attendance (that is net price rather than sticker price). with these three pieces of data plus wages, ROI calculations are fairly easy. We need to get these numbers into the public sphere and figure out the best way to have them enter into the considerations of studets and their families as they think about college choices. 2:34 Katie Bardaro, PayScale: I think some students feel the name brand private school is the only choice, but unless they major in something lucrative or are one of the lucky few to get a job, it is not worth it financially. 2:34 Zach First, Drucker Inst.: Another way to fix it is to increase transparency. The federal requirement for a window sticker that shows MSRP and other info on every new car did wonders for that industry. We’d benefit from the same treatment for net tuition: what does the average student at a given college actually pay, net of financial aid? 2:35 William Zumeta, University of Washington: The feds seem to be working toward what Zach calls for. More power to that effort. 2:35 Mark Schneider, American Inst. for Research: Net Price data exist, but how to get them used is the challenge. 2:35 Zach First, Drucker Inst.: There is absolutely massive variation in net tuition at institutions where the sticker prices are nearly identical. 2:35 Katie Bardaro, PayScale: From the DOE: “the Higher Education Opportunity Act of 2008 (HEOA), by October 29, 2011, each postsecondary institution that participates in Title IV federal student aid programs must post a net price calculator on its website that uses institutional data to provide estimated net price information to current and prospective students and their families based on a student’s individual circumstances. ” 2:36 Mark Schneider, American Inst. for Research: Yes, but finding them and using them is a different and far more difficult task than saying they exist. 2:36 Zach First, Drucker Inst.: Hat tip to Katie! To Mark’s point: How do we get that net tuition info more widely used? 2:36 Aimee Groth, Business Insider: Are we moving toward this? Has all this discussion in the past year especially led to some changes? 2:36 Zach First, Drucker Inst.: It’s a complicated concept for your average consumer. 2:36 Aimee Groth, Business Insider: Or yes – Zach just as you said 2:36 William Zumeta, University of Washington: Mark makes a good point. We need research on how consumers, especially those from underrepresented groups, make their choices, why they don’t use available data, etc. 2:38 Aimee Groth, Business Insider: So using the Bennett Hypothesis, is the price of college right where it should be? 2:38 Zach First, Drucker Inst.: The airline industry has figured out how to sell seats on the same plane at very different prices in a relatively transparent way. But I’m not sure any consumer wants to look to that industry as a model these days. 2:39 Mark Schneider, American Inst. for Research: there is an interesting question about how these data will get into the hands of consumers. Government has a role, but I think private firms are going to be the way in which these data get disseminated. And I am not talking about expensive college counselors, but companies like myedu.com or Noodle may be the way in which studets ultimately get information to make better decisions. 2:39 Zach First, Drucker Inst.: A contrarian argument might be that the cost of college is not yet high enough. 2:40
Graph by Adam Looney and Michael Greenstone, the Brookings Institution 2:41 Mark Schneider, American Inst. for Research: But these are averages. It’s all about the variance across schools and programs. 2:41 Zach First, Drucker Inst.: For sure. 2:41 Katie Bardaro, PayScale: That’s not a popular argument :) 2:42 Aimee Groth, Business Insider: Ok guys – we’ll have to wrap this up 2:42 Katie Bardaro, PayScale: The truth of the matter is median household income is ~$52,000 (http://quickfacts.census.gov/qfd/states/00000.html), which is the annual price of some private schools. 2:42 Aimee Groth, Business Insider: It looks like our event is to capacity (another tech glitch, doing this debate for the first time) 2:43 William Zumeta, University of Washington: Federal student aid policy probably does encourage tuition increases that are larger than they otherwise would be. One thing that would help is more stable, regular increases in Pell maxima and loan limits. The pattern of long flat periods followed by big jumps is not optimal. It has encouraged states and institutions to allow tuition spikes when states wanted to cut higher ed appropriatons. 2:44 Katie Bardaro, PayScale: I think we all brought up a lot of great points. Much of the needed information exists, now we just have to get people to find it. 2:45 William Zumeta, University of Washington: See my recent book, “Financing American Higher Education in the Era of Globalization” (Harvard Education Press, 2012), which covers many of the issues we have been talking about. 2:45 Zach First, Drucker Inst.: Send a copy to Peter Thiel! 2:45 William Zumeta, University of Washington: Good idea! 2:46 Mark Schneider, American Inst. for Research: And since we are in the shameless commerce section, check out www.collegemeasures.org to see how I have linked student data with workforce data to start addressing these issues. 2:47 Aimee Groth, Business Insider: Thanks guys. This was an excellent debate. Many great points were made that need to still be explored in another debate / Business Insider post.Follow their conversation live:
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