The College Bubble: Yes, College Is Incredibly OverratedMarch 3, 2012
Every American teen has heard it. Whether it’s from a parent, a rich uncle, or an earnest high school counselor, the advice comes tumbling out in well-worn clichés.
“Go to college and invest in your future,” “Work with your head, not your back,” and even the occasional “Get a degree, and you’re set for life.”
The narrative is familiar, and the idea itself is a comforting one for teenagers unsure of their place in life, and their direction for the future. It should be no surprise that Americans are getting college degrees at a record rate. But the clichés surrounding higher education also help conceal a dangerous reality; college isn’t a sure investment. And like most investments, there are winners and losers in the college market.
Lifetime Earnings Uncertain
Speaking in generalities, the high end estimates of how much extra you’ll make in your lifetime with a bachelors degree hover around the one million mark.
Unfortunately, that number has been critiqued by scholars such as Mark Schneider, vice president of the American Institutes for Research, who points out that the million dollar figure doesn’t factor in the cost of higher income taxes, inflation, interest payments on student loans, and the basic cost of getting an education—four years of potential productivity and tuition.
An analysis by Charles Miller, (who headed former U.S. secretary of education Margaret Spelling’s Commission on the Future of Higher Education), points to a more realistic lifetime earnings figure of $279,893.
A grimmer estimate by the National Association of State Universities and Land Grant Colleges puts the number at $121,539. But still, in the aggregate, a four-year degree that can earn you $120,000-$280,000 more than a high school education over your lifetime doesn’t sound like a terrible investment. And it isn’t. Extra earning power, combined with the added prestige of a college education, is a decent investment for most.
But before we wholeheartedly jump on the college bandwagon, it’s a good idea to remember that general statistics do not justify individual decisions. And here is where the horror stories begin.
Students who spent four years and over a hundred thousand dollars majoring in Gender Studies or Sociology or Folklore often graduate with a crushing load of debt and realize—surprise!—that their degree is worth next to nothing.
Indeed some degrees appear to exist for no reason other than to limit graduates options to moving back into Mom’s basement, or dealing pot to make ends meet.
Not All Schools Are Worth the Time or Money
Like most investments, a college degree isn’t a one size fits all solution. The return on your investment depends on the school you get into, the degree you choose, and (horrifyingly for many students) your personal drive to succeed. Take for instance, the average student at MIT.
According to Forbes BusinessWeek, the total cost to graduate from MIT is $189,300, and the return on the investment over the next thirty years is $1,796,000. That’s a 12.6% annual return on investment across all majors. Not bad at all. Of course, MIT is the school with the best investment return, followed by Ivy League schools such as Harvard and Yale.
But what if you can’t get into the very top tier? The statistics become considerably grimmer. BusinessWeek notes that “over the past 30 years, the S&P 500 Index averaged about 11 percent a year. Only 88 schools out of the 554 in the study had a better return than the S&P.” The average student attending Willamette University in Oregon, for instance, would realize an anemic 6.3% annualized net return on investment, far worse than the stock market. Clearly, it’s possible to make a bad investment in college.
Yes, Your Major Does Matter
And here is some more bad news for prospective students: your major matters. According to the National Association of Colleges and Employers (NACE), “engineering disciplines account for eight of the 10 most highly paid degrees.” Computer science and information science rounded out the top ten.
Indeed, math and science majors average a much higher income than liberal arts majors across the board. The highest earning major for the NACE study was Petroleum Engineering, starting at $86,220. The lowest earning major was English, with an average starting salary of $28,430.
Overall, liberal arts majors consistently underperformed in terms of average starting salary. In other words, if you plan on majoring in “Community Studies” and partying your way through school, don’t call it an investment.
“Do What You Love” Will Probably Cost You
Ultimately, looking at college earnings expectations has the effect of bursting several precious myths propagated by colleges and the culture as a whole. Incoming students are encouraged to “do what they love,” and “follow their dreams, and the money will follow you.”
Unfortunately, if your dream is to major in liberal arts, the money probably won’t follow you.
Too many students enter college with the comforting thought that as long as they graduate, lucrative employment will be waiting for them, only to find that their major isn’t much use to anybody but the professors that teach it.
Too many parents urge their kids to go to college against their will, because “you need a college degree to make it nowadays.” Unfortunately, for many, the exact opposite is true. All too often, a college degree means no job and a load of high-interest debt.
Horror stories of students being crushed by debt are a common fixture of the news landscape, and while it can be overly sensationalistic, media coverage of student debt reveals that it isn’t something to be trifled with. Students often borrow tens and even hundreds of thousands of dollars pursuing a degree, only to find that jobs are scarce, and the loan payments are high. Worse yet, student loans can’t usually be wiped out by bankruptcy.
In some cases, students who have racked up huge amounts of student debt preparing for professional careers have been barred from taking professional exams because of their debt. The bottom line is that starting a career thousands of dollars in debt isn’t as easy as it seems when signing loan agreements as a freshman.
And the alternatives to college are not as horrific as they’ve been portrayed. Many skilled trades are much more lucrative than those requiring liberal arts degrees. Often, high-earning fields such as computer technology, emergency services and investing don’t require a degree. And ultimately the things that make a successful career—like entrepreneurship, innovation and practical skills–are often learned better from real world experience than in the classroom.
Make an Informed Choice
The issue isn’t whether to get a degree or not. Instead, prospective students should examine what they want to do with their life, and decide whether they need a specific degree to achieve that goal.
Certainly, money isn’t everything, and many will chose non-lucrative professions for non-financial reasons. Many professions require a degree. But the key is making an informed choice. Going to college to “find yourself” or for no other reason than because it’s expected is a risk.
In short, college should be viewed as a potential means to a specific end — not a golden guarantee.
Investing in yourself is similar to every other kind of investment in one important way; you should do as much as possible to learn about your investment before committing. Vagueness doesn’t cut it when it comes to investing four years and tens of thousands on a degree. So go ahead, invest in yourself—wisely.
Originally published here by a student of UC Davis School of Law.