(Editor’s note: This article was posted on Forbes.com on June 12.)
Hardly a day goes by without the publication of articles on the plight of recent college graduates. Large numbers are either unemployed or employed in jobs that don’t call for any academic preparation. Many are struggling with the burden of their college loans.
In addition, the educational value of college is questionable. In their book Academically Adrift, sociologists Richard Arum and Josipa Roksa concluded that more than a third of recent college graduates had coasted through without adding anything to their human capital. Reports that employers often find graduates applying for jobs to be weak in basic skills are numerous.
Nevertheless, higher education boosters continue to proclaim that college is undoubtedly “worth it” and “still a good investment.” A recent study by the Public Policy Institute of California is a good example of this sort of thinking. It purports to show that earning a college degree “remains a good investment.”
The technique of this study (and dozens like it) is to compare average earnings of workers who have college degrees with average earnings of workers who don’t and conclude that because the first group does significantly better, having gone to college was a good investment. The degrees are regarded as causing the “earnings premium.”
That analysis is extremely misleading. The most glaring flaw is that it draws a conclusion about future conditions (earnings that people who go college now can expect) from data based on earnings for college graduates going decades back. Conditions today, both with regard to college academic rigor and the labor market, are much different than they were 40 years ago.
If a college degree were a regulated investment opportunity, it would have to bear the standard warning that past performance is no guarantee of future performance. The future won’t be similar to the past for many college graduates and telling young people that college will be a good investment is careless and irresponsible.
In truth, going to college isn’t an investment at all.
When college cheerleaders say that there is an earnings premium for graduates, they make it sound just like investing in financial instruments. “Buy this bond and you get interest payments in return; buy a college degree and you get higher wages in return.”
But that isn’t the case. No one receives any payment or premium merely for having finished college. Employers do not reward workers just for having passed enough classes to earn a degree. They reward workers for their productivity. Going to college might increase a person’s productivity, but it’s neither necessary nor sufficient for that.
Let’s consider three students to make that point.
Student A was diligent in high school and enrolls in college with an excellent academic foundation. He concentrates on his work and substantially raises his level of knowledge and skill. After graduating, he finds a good job in his major field and continues to advance. For him, college was worthwhile because it helped augment his human capital.
Student B got through high school with a minimum of effort. He has little interest in or aptitude for academic pursuits, but still he enrolls in a college – many schools will gladly accept weak and disengaged students like him – because he’s heard that getting a degree will boost his earnings. Thanks to grade inflation and the watered-down curriculum, he coasts through college and obtains his degree in some undemanding field.
After graduating, the best job he can find is working in a game store. He has nothing show for his college years but a piece of paper and lots of debt.
Student C was a good student in high school, but instead of enrolling in college, she earns several badges and certifications in things she’s interested in, such as computer programming and (her grandmother’s native language) Portuguese. She assembles an online portfolio with those and other material showing what she can do. Shortly after her 20th birthday, she’s offered a job by a Brazilian importer that needed a capable American representative.
She is doing well without a college degree because she understood that you’re not rewarded for credentials, but for capabilities.
College used to look like a good “investment” because earning a degree usually entailed at least some serious work and having done it set the individual apart. Having that degree was a competitive advantage in landing a job, but success always depended on personal performance rather than educational pedigree.
These days, with the labor market saturated with college graduates, the time and money spent on college is often wasted. What young Americans should think is, “How can I raise my value and demonstrate it?” That might best be done in college, like Student A, or it might be done elsewhere, like Student C.
College itself isn’t an investment, just one way of increasing your value.