What’s a college degree worth in the Great Recession?

Bloomberg Businessweek ran a special report a month ago titled What’s Your College Degree Worth? Less than you think. Exclusive new research suggests most students would be better off never setting foot in a classroom. (See info on Carleton’s #1 ranking (St. Olaf runner-up) in MN: What’s Your College Degree Worth?)

Bloomberg Businessweek Over the course of a working life, college graduates earn more than high school graduates. Over the past decade, research estimates have pegged that figure at $900,00, $1.2 million, and $1.6 million.

But new research suggests that the monetary value of a college degree may be vastly overblown. According to a study conducted by PayScale for Bloomberg Businessweek, the value of a college degree may be a lot closer to $400,000 over 30 years and varies wildly from school to school. According to the PayScale study, the number of schools that actually make good on the estimates of the earlier research is vanishingly small.

Juxtapose this with a June NY Times column by David Brooks titled History for Dollars.

David Brooks There already has been a nearly 50 percent drop in the portion of liberal arts majors over the past generation, and that trend is bound to accelerate. Once the stars of university life, humanities now play bit roles when prospective students take their college tours. The labs are more glamorous than the libraries.

But allow me to pause for a moment and throw another sandbag on the levee of those trying to resist this tide. Let me stand up for the history, English and art classes, even in the face of today’s economic realities.

And then later, Brooks talks about The Big Shaggy and takes a poke at blogging and journalism:

The observant person goes through life asking: Where did that come from? Why did he or she act that way? The answers are hard to come by because the behavior emanates from somewhere deep inside The Big Shaggy.

Technical knowledge stops at the outer edge. If you spend your life riding the links of the Internet, you probably won’t get too far into The Big Shaggy either, because the fast, effortless prose of blogging (and journalism) lacks the heft to get you deep below.

Finally, in the NY Times two weeks ago: American Dream Is Elusive for New Generation

For young adults, the prospects in the workplace, even for the college-educated, have rarely been so bleak… The college-educated among these young adults are better off. But nearly 17 percent are either unemployed or not seeking work, a record level (although some are in graduate school). The unemployment rate for college-educated young adults, 5.5 percent, is nearly double what it was on the eve of the Great Recession, in 2007, and the highest level — by almost two percentage points — since the bureau started to keep records in 1994 for those with at least four years of college.

I graduated from a 4-year half-assed Catholic bible college (AKA St. Thomas) but none of our 4 kids went to a 4-year college.  So I’m undecided about the issue.

34 thoughts on “What’s a college degree worth in the Great Recession?”

  1. You know, this topic seems to come up during every recession. I remember reading an article in the financial section of the Tucson newspaper back in the early 80’s that suggested that buying your kids a house was a better investment than buying them a university degree.

    I’m afraid I think this question is too complex really for a simple answer. There’s a difference as to weather we are refering to a technical (and among those I count engineers, physicians, applied scientists, accountants, etc, etc) or a liberal arts type education. Although I believe a college education would be of benefit to anyone, regardless of the career they pursue, there are some careers where without the education you simply don’t get to have a career. Many of those careers are lucrative, so the question is really just how you minimize the pain of the initial outlay of money and not weather it will be economically worth it.

    I wouldn’t feel too bad about the half-assed Catholic bible college crack…everyone knows that most of the British landed gentry are inbred! Besides, I know of at least one person in our town that thinks meteorologists and climatologists are really just social scientists!

    1. OK, spelling is not my strong suit today…instead of “weather”, let’s try “whether”.

  2. Well, the Bureau of Labor Statistics would argue that having a college degree is MORE valuable in a weak economy. If you look at the unemployment rates by education level, as education goes up, the rate of unemployment goes down. Typically, the unemployment rate for people with a college degree is several points lower than the overall rate. If you look at the current recession, manufacturing and construction have been hit the hardest, two segments which employ folks with less education.

    1. Athena, that is one hilarious cartoon. But you’re not over-educated tho it’s pretty fucking understandable (gee, where have I seen that phrase?) that you think that right now.

      Your way of approaching getting a job is the problem, methinks. Stop by my office some morning and I’ll explain my hypothesis.

  3. When you are talking money and degrees, well, a lot of rich people have very very well with a few years of basic education. On the other hand, if you are measuring spiritual satisfaction and a higher education, you can go from a few thousand dollars per year to something considered rather priceless.

  4. With so many kids getting college degrees, it stands to reason that college degrees are not as valuable as they used to be.

  5. David – There are a lot more kids getting degrees over the past 40 years, that is true. However, I’m sure you’ll agree that our economy has shifted dramatically over the past 40 years, as well. The employment options for someone without a college degree are quite limited. One can still make a go of it in the trades, but many of the decent-paying manufacturing jobs that were once available are gone and not coming back. However, the options for someone with a college degree, especially a degree from a well-respected liberal arts college, are quite diverse. The effect of the recession on those options is significant, but as the economy recovers, those grads will recover more rapidly than those without a degree.

  6. David: When you factor in the costs of an education and the lost wages while in school, the benefits of a college degree for earning potential are significantly reduced.

    Suppose a kid just getting out of college now (like Athena) had gone to work for $20,000 per year (about $10.00 hour) 4 years ago, instead going to a college that charges $30,000 per year. The college kid is $120,000 in debt while the non-college kid is $80,000 to the good, making a difference of $200,000.

    Personally, I think a college education may be the most oversold and overpriced commodity in America (now that house prices have crashed).

    When I was attending my half-assed Catholic bible college, I could pay for almost one semester of tuition by working during the summer. Now, my kids are lucky to pay for one class. And, the loans for college are not dischargeable in bankruptcy either. We may be seeing an era when there are lots of Athena’s out there – living with their parents, paying off student loans, and competing with scores of other well-qualified college kids for scarce jobs.

  7. David – you are correct, the individual who attends college does start out substantially in the hole. However, the lifetime earning capacity of the college graduate is much greater. So, over 20 years, the earnings differential balances out, assuming their wages stay the exact same over time. If their wages double after ten years, then the college grad comes out well ahead.

    I do agree that the cost of college education has become prohibitive. My wife and I attended the school up Summit from your bible college, yet I seriously doubt my children will be able follow our footsteps. The state schools, like Mankato (where I teach) are quite affordable. Most, if not all, of my students pay as they go and come out with no loans at all.

    1. David: The amount of financial aid also determines what the college degree is “worth”.

  8. Some folks must have grown up on a different planet than me! It boggles my mind to think that someone can go to college and study whatever today’s equivalent to “underwater basket weaving” is, and then expect to get a job. Going to college is not always about learning stuff you enjoy; sometimes it’s about studying something you don’t enjoy so much (but are good at) and can use in a career.

    1. One can actually sell baskets for 1500 dollars or more. Teaching, writing books and lecturing on the history of baskets, done by a college educated person, or someone who has learned through other methods, born with the gift of gab, etcetera, can make certainly someone a comfortable living, at least for as long as many American jobs last these days.
      search art baskets

      1. CAUTION: ADMITTED THREAD DRIFT !

        There are the most amazing baskets at the NF Art Guild shop; they are very fine weaving, reminiscent of the ‘Nantucket baskets’, and are from an artisan in Faribault (I think).
        Check ’em out…

    1. Curt: I have to question the accuracy of the reporting. That idea is just too dumb to be true.

    2. David, it’s on Entenza’s website:
       

      He would also require every Minnesota student to apply to at least one accredited postsecondary institution in order to get their high school diploma. The idea is to make sure students understand the postsecondary education options available to them.

  9. As a person who recently found herself unemployed after 18 years with a local company, I can tell you that I found out the hard way that a college degree does make a difference. I don’t agree with the logic behind it, but that is the reality. I am a prime example of why. I have worked with organizing volunteers for 30 years with the 3rd largest all volunteer community celebration in the state of Minnesota and have worked with many of the non-profits in our community for years.

    After being laid off from my current job I decided to make a change in what I wished to do for a living. I applied for a “Volunteer Coordinator” position with a local employer who knew my involvement with volunteers very well. I was sent a “rejection” email explaining that even though I was highly qualified for the position, I didn’t have a bachelor’s degree so therefore they could not even interview me. I have a high school education and 30 years of documented successful experience in this line of work which I would put up against any new college graduate.

    It all worked out for the best in the end, I now have a job that I love doing and I’m working with an organization whose cause I am very passionate about. Everything happens for a reason.

    And..I do have to admit that I did listen one morning at GBM to the Griff Wigley hypothesis on finding a job. It does work. I did it.

  10. Curt and David….Griff is correct about Entenza’s plan for our young people and college. This is just one of his many questionable plans. Another one is in the paper this morning where he again states the Minnesota needs to opt out of NCLB….and pass up over $500 million in federal school aid. MAK is quick to point out how foolish that is, and that no state has opted out to this date. I’ll admit NCLB needs a lot of work, but you need to work with the people to change it, not run away from it and kiss the $500 million good bye (Oh, I forgot, we can just replace the $500 million with new taxes on more rich people….)

    But, one thing stands out in this thread is what David says in #8. If in fact a college degree is essentially becoming the equivilent of what a HS degree was 50 years ago, what are all the young people that don’t even finish HS going to do for employment? We have schools in almost every one of our major cities in America operating with regular graduation rates of 50-60 percent. What are the the 40-50 percent of the students that don’t even have a HS degree going to do with their lives? Obviously many decide to steal, sell drugs, etc but that isn’t really a long term life plan. Is society going to support these largely unemployable people? And are we ever going to do anything about the increasing numbers of dropouts?

    1. Regarding Entenza’s plan, all I can say is that it is the silly season. Why not promise stuff you know the legislature will never endorse because, well, it’s dumb. Emmer seems to be doing the same thing. My favorite promise is the elimination of state taxes on military retirement pay. That would cost the state $20-25 million a year, and we have a deficit already. In the end the legislature will never get behind it because, well, it’s dumb.

      During the silly season promises bloom like the prickly weeds in my garden, and are just as worseless and annoying. But hey, you’ve spent time in the political arena, so I’m not exactly revealing anything you don’t already know.

    2. I don’t think this idea is completely over the top. I grew up in a community smaller than Northfield and it was a general expectation that students would attain some sort of post-secondary education, whether it was a four-year liberal arts college or a two-year at the local technical school. I would say about 85% followed through on that goal. Encouraging students to explore post-secondary options does expose them to opportunities that they might not otherwise realize are available. I know of at least one local college that requires some of their undergrads to apply to graduate school as a way of exposing them to post-graduate options. I think mandating it for every student is unrealistic, but I do see some merit in the idea of encouraging youth to think a little more broadly about their career options.

      However, the bigger problem, as you indicate, is the ridiculously high rate of high school drop outs. Minnesota has the greatest disparity in graduation rates by race of any state in the country. Yet, I haven’t heard any of the candidates address that.

  11. Ray and David, Entenza says he’ll make up for the millions lost by opting out of NCLB by “not teaching to the tests”. What percentage of time does he think is taken up by teaching to the tests? What is he going to do? — lay off $500 million of teachers? That would be around 8,000 to 10,000 teachers, I guess. That would be about 20% of all teachers, if Mr. Google’s numbers are correct.

    On a lighter note, if Entenza gets to implement his plan to require all high school grads to apply for college, Northfield will soon have three colleges. I’ll open MIT (the Minnesota Institute of Taxidermy and Underwater Basketweaving–thanks Phil). I’ll charge a bargain rate application fee and deny admission to all. This will keep overhead low–no pesky faculty, no facilities.

    1. Well, applying to a community college only costs $20…bargain rate would have to be in the $10-15 range. May not be as lucrative as you hoped! Still, the cost of the rejection letter, envelope, and stamp could still run only $1, so there’s a decent profit margin regardless!

    2. I believe the article says “accredited” post-secondary institutions. You might be able to find someone to grant accreditation to your school, but it’ll probably cost you more than it would be worth!

  12. It’s certainly reasonable to ask about the money value of a college education.

    But the title (What’s Your College Degree Worth? Less than you think. Exclusive new research suggests most students would be better off never setting foot in a classroom) of the Bloomberg Businessweek piece alluded to above is misleading. Nothing I found in the article itself supports the assertion about “most students”. (Maybe some hyperactive copy-editor ….)

    The BB piece’s main (only?) point seems to be that some other estimates of the value of a college education are be too high. This may be true. (Or false … it depends a lot on the methodology. For instance, it matters a lot whether the calculation takes scholarships into account in calculating the cost of a college education. The BB numbers do not do so.)

    In any event, it seems to me that the BB results, flawed as they are, quite effectively undercut the title’s thesis about “most students.” Even at, say, Willamette University, which BB includes among its 20 worst “buys”, a (no-aid!) student’s return on investment (ROI) is calculated by BB at 6.3% over a 40-year career.

    That’s not bad by any standard, and it’s even better if one takes into account, as seems a no-brainer, that on average a Willamette student gets about a 75% price reduction through scholarships. At Carleton (my second-favorite local school), says BB, the ROI for a full-pay student is no less than 10.6 percent. And, like Willamette, Carleton rebates about 75% of tuition in financial aid. What’s not to like about that?

    Sure, there are lots of good questions, by no means all financial, to ask about the value to individuals and to society of a college education, and about who should pay for all this. But I’m underwhelmed by BB’s reasoning.

    By what criteria, David L, do you see college education as “the most oversold and overpriced commodity in America”?

  13. Phil….(#14.1)acually I think about 26 or 27 states have a provision not to tax military pensions. It should not be veiwed as part of the ‘silly season’ but should be taken seriously, at least have serious discussion. When you eliminate taxing military pensions you tend to attract military retirees. They are generally a well trained, low service demanding group that volunteers for a huge variety of tasks in a state. They take care of themselves, are very law abiding, and have military medical care. And the big kicker is, they spend their dollars in the state they live. We do have a climate that is not totally welcoming to many of them, but the tax plan is one that should be discussed.

    1. Ray, I believe 11 states or so have full military pension exemption, but many others (including MN) have some sort of partial exemption or tax credit. But I know for many veterans taxes are not the number one factor when deciding where to live after retirement. Most of us have kids, so the quality of education in MN is a much bigger draw than some may realise. Actually the biggest turn-off about MN is…no big surprise here…the weather! Number two is probably the lack of a military base with all the retiree resources that generally come with it.

      The reason I throw military pension exemption into my “silly season” pile is because, in today’s economic environment, it was no chance of getting through the legislature. It is a hollow promise, just as much as Entenza’s silly college application idea is. If either candidate think their proposals will pass, they are either dense or deluded. Since I don’t think either candidate is dense or deluded, I have to conclude that what they are is incredibly calculating. They both know they can make the promise, propose the legislation, watch it get shot down, and then get further political traction in the future as they point out that “the other guys” screwed “the veterans” or “the kids”. And so seems to always go the “silly season”…

      A serious discussion on this topic would have been to increase the amount of the gross income at which the military pension tax credit zeros out. That currently occurs at about $37,000 or so, meaning that it doesn’t affect working retirees at all and helps only about 2-3% of all military retirees total. An increase to $50,000 seems reasonable. It still wouldn’t affect most working retirees, but it would help more of those I consider “truly retired”. I think a proposal like that would have a fighting chance of passing…but of course that wasn’t what the candidate promised.

  14. Ray, here’s a thought that ties these threads together (and which I think will appeal to Paul): Let’s not tax the income of people with PhDs from accredited universities. When you don’t tax PhD income, you tend to attract people with PhDs. They are generally a well trained, low service demanding group with a track record of volunteerism. They take care of themselves (or have spouses to handle that responsibility), are very law abiding, and typically have employer-paid health insurance. By not taxing PhD income, Minnesota could become a magnet for higher education. Perhaps some of the extra brain power that would be drawn to the state could be brought to bear solving the state’s budgetary problems.

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