WARNING: This Degree May Make You No Better Off Financially

Economics dictates how the world works. I didn’t learn this from my father, who is an academic economist, or from my undergraduate schooling in economics, or even from my first year of graduate studies in economics. Rather, I learned this from simply being alive. In both a theoretical and practical sense, economics is the study of scarcity and nothing in life is immune to the forces of economics, including higher education.

In the classroom, I’ve engaged in debates about what makes something valuable and what ought to be valued. There is, however, one thing that I’ve never heard discussed in an economics classroom: is higher education worth it? Or, in economic parlance, do the benefits of higher education outweigh the costs?

This is a tricky question, however, because I think there is a difference between ‘schooling’ and ‘education’ that is oft ignored in the discourse around this topic. ‘Schooling’ is largely about garnering credentials and ‘education’ is largely about learning; schooling is a ‘results oriented’ process and education is a ‘process oriented’ process. Sometimes there is some overlap between the two, but not always.

In economically positive terms, we live in a society in which schooling is valued more than education is valued. This isn’t necessarily wrong, it’s just how things work in a highly specialized economy. I think it’s important to acknowledge this point when talking about the distinctions between schooling and education. If one wants to increase their chances of financial success in a highly specialized global economy, then credentials don’t hurt. If one wants to increase their chances of being a decent human-being than getting an education won’t hurt either.

In a society that largely values financial success, it’s not surprising to learn that the number one reason most people choose to attend college in modern times, then, is because they believe that having college credentials will increase their lifetime earning potential. In fact, high school students are inundated with this message and with the statistical evidence supporting it.

It’s certainly true that, on average, those with college degrees earn more than those without degrees. Average, however, can be a misleading term. Psychological research consistently shows us that, in general, people overestimate their own abilities when compared to the average because we look at ourselves in what UVA psychology professor, Jonathan Haidt, calls a “rose-colored mirror”.

As any statistician will quickly notice, some graduates will earn significantly more due to their degrees and for some it will not make a difference. This wouldn’t be problem if a financial return weren’t necessarily expected; however, most people expect a financial return on their education investment. Somewhere along the way, we forgot to tell young people that twelve percent of mail carriers have an undergraduate degree. There is nothing wrong with being a mail carrier with a college degree in the slightest, but it would be somewhat sad to learn that many of these mail carriers thought their degree would improve their financial prospects.

For most young people, it’s fairly evident that most of the best paying jobs in today’s economy require some form of schooling credentials. What’s not always tacitly understood is what makes those credentials valuable or the ruthless competition that occurs to get those jobs. As any economist will tell you, the important thing to note about credentials is that they become increasingly valuable as a signaling mechanism when they are scarce. When only a few people have college degrees in a job market, they stand out to potential employers. What happens, however, to the signaling mechanism when everyone graduates from college? The answer is simple: the degree becomes less valuable as a signal if everyone has one or can easily attain one. Employers must find another way to find the best candidates.

In today’s economy, many people are frustrated with a system in which they apparently didn’t fully understand. We’ve told our young people that schooling will help them make more money over the course of their life and most of them go to college with an ingrained belief that a college degree will help earn them more money over their lifetime. They are thus disappointed to find out that this isn’t always true. By telling lies, we’ve inflated their expectations into a bubble that is bound to burst with disappointment.

There is some good news, however, for those who want to drop out of the credentials arms-race. If one has ambitions to pursue a career or entrepreneurial dreams that don’t require credentials they can still school themselves at a fraction of the cost. It has never been easier and cheaper to become schooled if you live in a developed country with access to the Internet. A financially expensive formal schooling isn’t necessary when there is a vast amount of technical knowledge that can be consumed online and at libraries for free. This isn’t devaluing the hard fought knowledge that is won in academia, but merely helping to share it with people who may not otherwise be able to afford it.

Higher education was never meant for everyone and when push comes to shove, for many people the financial costs of school simply outweigh the financial benefits. This should not be kept a secret. We should stop lying to high school kids and pretending that this reality doesn’t exist. Colleges and universities should also try to drive this point home. WARNING: This degree may make you no better off financially.

I’m sure many people on the business side of academia scoff at this idea because it would decrease enrollment and thus decrease the institution’s bottom-line. The reality is that this is true, but it is also necessary. Schooling is a business, but education shouldn’t be.

I believe that those who recognize the non-financial value in a formal education will analyze their decision in non-financial terms and move onto higher education regardless. Alas, I think these are the exact kind of kids we want moving on into the higher education system anyway, not the ones who are simply money hungry.

The Myth of Egalitarian Higher Education

Many modern higher education advocates suggest that it’s educational opportunities (not inherent genetic differences in intelligence) that cause some members of our society to succeed more than others.  This, however, is downplaying the role genetics plays in intelligence.  I believe intelligent people will find a way to financially succeed even without higher education.  Bill Gates and Steve Jobs are two such famous examples, but there are countless others.

At the root of it, many higher education advocates think that everyone should go to college because it will make society more egalitarian.  Plato would have disagreed; he realized that not everyone is cut out to be a philosopher king.  What’s important to note is that many of these higher education advocates usually have some sort of financial incentive to purport such egalitarian non-sense.

Does formal higher education really make people intelligent?  Many people contributing to the dialogue surrounding higher education seem to believe the answer is ‘yes’, but I believe this is incorrect.  Egalitarians desperately want to try to attribute differences in intelligence to factors like education and not genetics.  However, the importance of genetics in determining one’s intelligence is too often downplayed.

Consider the following question: Is Johnny, an intelligent Harvard graduate, intelligent because Harvard made him intelligent or is he intelligent because he chose to go to Harvard?  Those who believe that Harvard made him intelligent are committing the popular post hoc logical fallacy.

Despite all the egalitarian rhetoric, some people are in fact more intelligent than others and where (or if) they got their college degree has nothing to do with it. Intelligent people aren’t necessarily intelligent because a school made them that way. Intelligent people usually go to great schools precisely because they are intelligent. People who aren’t interested in learning won’t magically become intelligent or lifelong learners just because they pay $100,000 for an “education”.  Rather, they’ll just be financially poorer for it.

Is Higher Education Worth It?

Peter Thiel claims were in a higher education bubble here. In some ways he’s right. Seth Godin writes about the higher education meltdown here. In some ways, he too is right. NPR host, Korva Coleman, discusses the debt burdens of a college education with a panel of people from academia here. Much of what the guests on the program say is also spot on. Will Hunting famously said, “you dropped 150 grand on a fuckin’ education you could have got for a dollar fifty in late charges at the public library!” in the movie Good Will Hunting. And despite his Bostonian crassness, what he says smacks of truth as well.

What all of these people have alluded to is that a college education is not the golden ticket to financial success in life that it was once thought to be. In other words, it has become a poor investment decision for a growing number of people. There are two main reasons for that: the economics of learning have changed and college degrees are too easy to get. For these reasons, I don’t believe that everyone needs a formal college education, particularly the working business class.

In the past, much of the worlds knowledge was locked up in the libraries of elite universities and colleges. That has changed. Knowledge is no longer stored in the treasure chests of formal institutions. To use economic parlance, the cost of accessing information has decreased. Information is bountiful now and the cost of accessing knowledge (aside from an initial intellectual curiosity) for anyone who has an internet connection is virtually nil. A formal educational institution is thus no longer necessary to acquire knowledge or to learn most practical business skills.

Let’s consider an example as to how the economics of learning have changed. 100 years ago there was probably a greater benefit to memorizing the Periodic Table of Elements for some jobs. In fact, memorizing the table probably made you more valuable in that specific job market since not everyone had easy access to that knowledge in their memories. I, however, just did a Google search and within less than 10 seconds I came back with this chart as posted by the Los Alamos National Laboratory which I think most people would agree is a credible source. Again, in economic lingo, there is a relatively low cost alternative to memorizing information since we can easily access it on the web almost anytime and anywhere. Consequently, the ability to memorize and then regurgitate obscure information is not as valuable now as it may have been in the past.

Tests that often require nothing more than memorization are, however, exactly what most educational institutions use to measure how much you learned or how valuable you may be to an employer. How does this ability to perform well on these types of tests indicate anything of importance to potential employers? Strangely, there is one way; it displays status over other poorer test taking peers.

This status is exactly what makes a college degree valuable. A college degree, then, is merely a signaling mechanism to tell the world that you are supposedly smart (whatever that means) and that you worked hard enough to get something that not everyone is capable of doing. What happens to the signaling mechanism when everyone graduates from college? You guessed it, a degree becomes worthless as a signal if everyone can get it. Test taking skills certainly display a type of status, but to confuse this with education or to correlate it with ones future career success is a mistake. Yes, I’m actually suggesting that the ability to take tests doesn’t tell you much about a persons intelligence or their potentiality as an excellent employee or entrepreneur. Formal education institutions, however, have a financial incentive for you to believe otherwise.

Nearly everyone has heard some variation of the statistic that college graduates earn more over their lifetime than do non-college graduates on average. While that may be true, I think this is an abuse of statistics. Some graduates will earn significantly more due to their degrees and for some it will not make a difference. Consider this: twelve percent of mail carriers have an undergraduate degree. I’m pretty sure you don’t need a college degree to deliver mail. If you consider formal education an investment and you become a mailman, you’re not going to receive a return (at least in dollars) on your investment and you’ll be stuck with a pile of debt to boot. Although most of what I’m talking about relates to undergraduates, there are plenty of PhD’s working as janitors, driving cabs, and selling hot dogs in America.

I’m certainly not suggesting that working class citizens shouldn’t be educated, but rather, I’m suggesting that we shouldn’t confuse an expensive formal education with being educated. Telling kids across the board to go to college, as many politicians do, because they’ll earn more money is a terrible piece of advice. Aside from a small handful professions most people need no formal educational credentials to do their job well and will not necessarily make any more money for merely having a piece of paper with the words “business administration” written on it.

There are several things that can make a college experience valuable outside of the classroom. Personal relationships, business connections, mentorships, and personal growth all come to mind. I think those things are very important, but there are other much cheaper ways to obtain them. If you want to be educated, there is no rule that says you have to pay thousands of dollars in order to read Plato’s The Republic. There is a vast amount of culture that can be consumed online and at libraries for free. Here’s an optimistic thought: it’s far easier and cheaper than ever to be an educated and actively engaged citizen of the world for almost anyone living in a developed country.

A memorable line from Judge Smails in Caddyshack is that “the world needs ditch diggers, too.” Public officials are doing the metaphorical ditch diggers and business people of America a huge disservice when they preach to them to take on unnecessary debt by going to college. Why do we continue to propagate the myth that everyone should go to college then? Clearly, not everyone should go to college and to suggest otherwise is to demonstrate a failure to understand what the educational system is really about. As I mentioned, intellectual curiosity and an internet connection are the two most important things needed to acquire knowledge today. The other benefits (aside from the status) that come from attending college can be found elsewhere by anyone with a lick of ambition. Furthermore, when the signaling mechanism of college is destroyed the elites will find other ways to signal that they are elites and everyone will remain the same relative position only with more debt!