Is Higher Education Worth The Cost?

In this video, I’ll look at whether higher education is worth the cost.

Tuition in the United States is soaring. Look at this chart from the American Enterprise Institute using data from the Bureau of Labor Statistics:

[Chart shown at 0:16.]

Naturally, student debt is soaring as well.

The February 2017 Quarterly Report on Household Debt and Credit from the New York Fed:

[Report cover shown at 1:10.]

Reported: “Outstanding student loan balances increased by $31 billion, and stood at $1.31 trillion as of December 31, 2016.” The $31B jump was in Q4 alone.

It’s a growing percentage of overall debt:

[Chart shown at 1:36.]

And its delinquency rate is rising:

[Chart shown at 2:15.]

Why might this be? Presumably, the cost of college is rising because the value of the education it bestows is worth more, right? Wrong.

The Washington Post reported in December 2013 that between 2003 and 2012, the median income of US college graduates with bachelor’s degrees dropped from almost $52,000 to just above $46,000, both in 2012 dollars.

Four years later, how do things stand now?

According to the Class of 2016 Student Survey Report from the National Association of Colleges and Employers, “just over 46% of 2016 graduates received a job offer before graduation, down from 51% from the Class of 2015.” The median salary offer was $47,358, which is 4.9% less than the inflation-adjusted 2012 figure of $48,388.

High cost, high debt, falling compensation = no good.

Television host Mike Rowe put it aptly:

[Mike Rowe quote shown at 4:07.]

Why don’t the jobs exist anymore?

The short answer is that they’ve been outsourced or automated, and the latter trend is picking up steam. Algos and bots are the workforce of tomorrow.

Knowledge is never a waste, but we need to stop thinking about higher education as job training, and reprice it accordingly.

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  1. Jason Campbell
    Posted May 4, 2017 at 4:24 am | Permalink

    I certainly agree with you on considering the ROI for an advanced education, while somehow finding alternative ways to support a diverse knowledge base in our society (hopefully without the crushing debt that is becoming a real problem in the U.S.).
    A larger problem you alluded to is that with robotic automatic, artificial intelligence and other advanced technologies growing, many jobs previously performed by a team of skilled workers will be reduced to only a handful of specialists with advanced educations in relevant fields. Elon Musk has thus come out with the opinion that a guaranteed minimum income social welfare model will someday become necessary.
    Any thoughts on this?
    Jason (formerly of Sano, Japan)

    • Posted May 15, 2017 at 6:56 pm | Permalink

      Nice to hear from you, Jason. It’s been a long time.

      I do think that when automation infiltrates deeply enough into society, large swathes of the population will become unemployable. These swathes will expand over time, to the point that traditional economics no longer apply. When automation is doing nearly everything at a level above human capability, and cares nothing for economic gain, some kind of basic support for remaining people will be necessary. This is very far out, but a thought experiment gets us there.

      I do not expect any kind of robot war or other Hollywood style climax. The truth will be more sobering. Robots will just do everything better, steadily, until no rational employer would be able to justify choosing human capital over robotic. Among many other reasons, there’s this overwhelming one: New people need to be trained and need to improve to catch up with their predecessors on the job, whereas new robots will begin at precisely the skill levels inherited from their predecessors, build upon them, and pass their progress onto the next gen of bots. In short order, robots will outpace people and the tables will never be reset.

      People will naturally have fewer children into the economy that can’t support them, and the planet will work its way back to a more reasonable human population of about 2 billion. The robot economy would easily be able to support that with the output of its efficiency.

      Along the way, many attempts will arise to stop this inevitability. I predict government imposed maximum bot/human work ratios. Companies will respond by “employing” people and then leaving them in playrooms all day to preven them from interfering with the more efficient operations of the bots. Eventually, the people will be paid to stay home. Then social crises will ensue, and so on, until finally the tide is simply too much.


  2. Tom
    Posted April 25, 2017 at 6:24 am | Permalink

    It’s unfortunate that two year degrees in the trades have been dismissed as demeaning by the elitists. You can make a pretty good living as a finish carpenter, plumber, or electrician – if you don’t mind sweating and/or getting a little dirt on your hands. With a few years of experience under your belt and some business savvy, you can even be your own boss.

    It’s much easier to get an advanced degree in Gender Studies (or the like) and then complain about your horrendous student debt and the fact you can’t find a decent job.

    • Posted April 25, 2017 at 3:41 pm | Permalink

      Hear, hear, Tom.

      I’d like to see a culture of apprenticeship return to the mainstream.

      All of my microeconomics courses combined didn’t generate the knowledge I obtained in two semesters of part-time work at a brand-new sandwich shop in Boulder, Colo. back in 1991. From the marketing plan to the vendor relationships to the tax considerations, my sandwich education topped my classroom education on this front.

      I showed my textbook to the shop owner one day. He said, “I don’t know what any of these equations are for. If you can add, subtract, and calculate margins and percentages on this business calculator, you have all the math you need.” He was right.

      If a sandwich shop could teach a kid that much about business, imagine how much an experienced tradesman could teach a kid looking to make a living in the trades.

  3. Henri
    Posted April 25, 2017 at 3:02 am | Permalink

    As an observer from Europe, I would like to suggest including the costs of NOT being educated into the equation, that cost being the chance of certain presidents being elected. (And yes, we in Europe are guilty as well…)

    • Tim
      Posted April 25, 2017 at 3:35 am | Permalink

      Henri: Spot on. We should evaluate the trend of the gap between the non-college educated salary vs. the college grad. Otherwise we’re assigning other economic variables to college education.

      Additionally, since over the generations we’ve trended toward the thinking of a college degree being necessary where previously it was the high school degree, this means a greater proportion of us are attending college. That being the case, some of the “drag” on the results could be attributed to previous calculations based on only the cream-of-the-crop attending at all, versus a larger more general pool of graduates in the last generation or so.

      Finally, if truly concerned about generating value from the investment, we should also be focusing on comparing a specific tier of college and even a specific major, since making the right decisions, different for each individual, can have widely different outcomes. Broad-brushing all graduates together doesn’t necessarily paint a useful picture for anyone, other than the person who just wants to get a degree, any way, any how. I’m not suggesting Ivy league universities or the like are the only worthwhile endeavors in any shape or form – in fact there are hundreds of options that are outside of what’s generally considered elite, but provide elite results because they are the right fit for the individual. If we don’t consider this aspect, then we’re not truly interested in optimizing potential.

    • Posted April 25, 2017 at 3:34 pm | Permalink

      Good points, Henri and Tim.

      Knowledge and critical thinking will always be vital. We need a more cost-effective means of instilling them in the population.

      When higher education is fancy job training in disguise, it is important to separate the cost/benefit by major and ensuing career. Comparing the outcomes of a degree in political science with one in petroleum engineering is painting with too broad a brush.

  4. Scott
    Posted April 25, 2017 at 2:07 am | Permalink

    The shakeup in education is coming. But all of the well-paid folks in the system will fight back to keep things status quo. Kids now should be able to get a 4 year degree mostly online for 5 or 10k. I’m not sure what jobs can be automated that a highly educated person does. Yeah, floor traders were replaced by machines but that’s an exception for the most part. No algo is going to replace the vast majority of professional professions.

    • Posted April 25, 2017 at 3:30 pm | Permalink

      For now, you’re right about the safety of professional jobs, but the threat to them is coming more quickly than people think.

      There are already algos that can write news stories, compose music, analyze weather, read x-rays, and so on. There has not been a wholesale change to them, but they’re getting better all the time. When they’re ready for prime time, I predict the switch will be fast and merciless. No company would prefer messy people to trouble-free, lower-cost automation.

      Algos and bots do not: sue, complain, create office drama, stop working, do bad work, steal from the company, get pregnant, become depressed due to life issues, and so on. They just work, 24 hours a day.

      The old Chinese adage will apply: The fruit ripens slowly, but falls suddenly.

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