AT MANY COLLEGES: NEGATIVE MARKET VALUE
“Many students and their
families extend themselves
to
pay for a college education out of fear of falling into the low-wage
economy. That's perfectly understandable. But how sound an invest-
ment is it? One way to figure this out is to treat a college degree like
a stock or a bond and compare the cost of obtaining one with the
accumulated returns that it generates over the years. (In this
case, the returns come in the form of wages over and above those
earned by people who don't hold degrees.) When the research firm
PayScale did this a few years ago, it found that the average
in-flation-adjusted return on a college education is about seven per cent,
which is a bit lower than the historical rate of return on the stock market.
[Peter] Cappelli [a professor of management at the University of
Pennsylvania’s Wharton Business School] cites this study along with
one from the Hamilton Project, a Washington-based research group
that came up with a much higher figure-about fifteen per cent- but by
assuming, for example, that all college students graduate in four years.
(In fact, the four-year graduation rate for full-time, first-degree students
is less than forty per cent, and the six-year graduation rate is less than
sixty per cent.)
pay for a college education out of fear of falling into the low-wage
economy. That's perfectly understandable. But how sound an invest-
ment is it? One way to figure this out is to treat a college degree like
a stock or a bond and compare the cost of obtaining one with the
accumulated returns that it generates over the years. (In this
case, the returns come in the form of wages over and above those
earned by people who don't hold degrees.) When the research firm
PayScale did this a few years ago, it found that the average
in-flation-adjusted return on a college education is about seven per cent,
which is a bit lower than the historical rate of return on the stock market.
[Peter] Cappelli [a professor of management at the University of
Pennsylvania’s Wharton Business School] cites this study along with
one from the Hamilton Project, a Washington-based research group
that came up with a much higher figure-about fifteen per cent- but by
assuming, for example, that all college students graduate in four years.
(In fact, the four-year graduation rate for full-time, first-degree students
is less than forty per cent, and the six-year graduation rate is less than
sixty per cent.)
“These types of studies, and there are lots of them, usually find that
the financial benefits of getting a college degree are much larger than
the financial costs. But Cappelli points out that for parents and students
the average figures may not mean much, because they disguise enormous
differences in outcomes from school to school. He cites a survey, carried
out
by PayScale
for Businessweek
in 2012, that showed students who attend
M.I.T., Caltech, and Harvey Mudd College enjoy an annual return of more
than ten per cent on their ‘investment.’ But the survey also found almost two
hundred colleges where students, on average, never fully recouped the costs
of their education. ‘The big news about the payoff from college should be the
incredible variation in it across colleges,’ Cappelli writes. ‘Looking at the
actual return on the costs of attending college, careful analyses suggest that
the payoff from many college programs - as much as one in four - is actually
negative. Incredibly, the schools seem to add nothing to the market value of
the students.’"
Cassidy, John, “College Calculus, What’s the Real Value of
College Education?” New Yorker, September 7, 2015, pp: 80-84.
