By The Economist April 5th 2014
Hard subjects pay off
Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.
Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.
Colleges that score badly will no doubt grumble that PayScale’s rankings are based on relatively small numbers of graduates from each institution. Some schools are unfairly affected by the local job market—Murray State might look better if Kentucky’s economy were thriving. Universities that set out to serve everyone will struggle to compete with selective institutions. And poor colleges will look worse than rich ones that offer lots of financial aid, since reducing the cost of a degree raises its return.
All these caveats are true. But overall, the PayScale study surely overstates the financial value of a college education. It does not compare graduates’ earnings to what they would have earned, had they skipped college. (That number is unknowable.) It compares their earnings to those of people who did not go to college—many of whom did not go because they were not clever enough to get in. Thus, some of the premium that graduates earn simply reflects the fact that they are, on average, more intelligent than non-graduates.
What is not in doubt is that the cost of university per student has risen by almost five times the rate of inflation since 1983, and graduate salaries have been flat for much of the past decade. Student debt has grown so large that it stops many young people from buying houses, starting businesses or having children. Those who borrowed for a bachelor’s degree granted in 2012 owe an average of $29,400. The Project on Student Debt, a non-profit, says that 15% of borrowers default within three years of entering repayment. At for-profit colleges the rate is 22%. Glenn Reynolds, a law professor and author of “The Higher Education Bubble”, writes of graduates who “may wind up living in their parents’ basements until they are old enough to collect Social Security.”
That is an exaggeration: students enrolling this year who service their debts will see them forgiven after 20 years. But the burden is still heavy for many. It does not help that nearly a third of those who take out such loans eventually drop out of college; they must still repay their debts. A third transfer to different schools. Many four-year degrees drag on longer, and so cost more. Overall, the six-year graduation rate for four-year institutions is only 59%.
The lousy national job market does not help, either. A report by McKinsey, a consultancy, found that 42% of recent graduates are in jobs that require less than a four-year college education. Some 41% of graduates from the nation’s top colleges could not find jobs in their chosen field; and half of all graduates said they would choose a different major or school.
Chegg, a company that provides online help to students, collaborated the study. Dan Rosensweig, its boss, says that only half of graduates feel prepared for a job in their field, and only 39% of managers feel that students are ready for the workforce. Students often cannot write clearly or organise their time sensibly. Four million jobs are unfilled because jobseekers lack the skills employers need.