College is a Risk, Not a Guarantee

Jason Fertig

Many people have bought products – from defective electronics to lemon automobiles to insipid cereals – and then realized that they did not get their money’s worth.  Most consumers are aware that there is a chance they will not get what they pay for when they purchase a product or service.  Hence, people tend to do some homework before deciding whether to pay the “Apple tax” on a new computer or whether to fork over a few bucks more for free-range chickens.  Yet, if consumers can be so meticulous in their purchasing habits of smaller goods, why are so many people failing to connect the dots when deciding on the larger purchase of a college education?  

I have an experiment that I’d encourage a daring individual to try.  Walk up to a college administrator, dean, professor, etc. and present the following scenario/question: “I want to major in ________.  What kind of job will I get with that major?”  This is also a great question to ask during college visit tours.  My assumption is that an overwhelming majority will answer that question with something analogous to, “Oh you want to major in finance; you can work at a bank” or “Oh, you want to major in history; you can become a lawyer.” 
 
But, isn’t that a vague response to a decision that warrants a five or six-figure investment?  Many tend to affirmatively shake their heads to those responses without realizing that the advice implies what a graduate “can do,” not what they “will do.” 
 
Serious investors who are seeking advice on a five or six-figure investment in the market would not just want to hear, “You have the option of bond funds, stock funds, or REITs.”  They want something more concrete.  Thus, wouldn’t it be more comforting for a person who sees college as an investment in future earning potential to hear, “Industry Y is doing well; Firm X in that industry plans to hire five of our graduates per year in the next three years.”  That answer would give the student investor a more definitive goal to work towards (much the same as investors who set retirement goals as opposed to blind investing).   
 
Of course, colleges are not employment agencies.  Plus, the labor market rapidly changes; few schools are prepared to perfectly match students with open positions.  If they did, colleges would admit students (to the school or to majors) based on the supply and demand of available jobs.  Instead, students undertake a great deal of risk that their investment will pay off with increased income, but there is no guarantee.  Unfortunately, even as the student loan bubble continues to inflate, too few students (and their parents) appear to grasp the magnitude of risk that they are undertaking when they enroll in college.
 
I wonder how those who advocate college for all (or most) because of the wage premium would respond to my opening scenario.  Oh wait, I already know – “statistics show that individuals with college degrees earn more money than those without the degrees.”  Proponents of sending more people to college continue to use that wage premium statistic as a shield against criticism, even though that shield is flimsy and falling apart.
 
Yet, as I continue to read the ongoing debates about who should go to college, I feel like at times I am reading an apples-to-oranges comparison because all too often the debaters conflate the macro and the micro variables.  Both sides are guilty of this.  The college-for-all crowd wears the wage premium like a badge of honor, even when asked how that premium applies to students at the margin.  Their opponents like to look at more efficient online courses as a panacea to rising college costs, but such courses are effective learning mediums for only a sliver of the population. 
 
Both sides rely on statistical abstractions rather than what we know about real life and real people.
 
The flesh and blood people are the ones who have $50,000 of debt and no job prospects, the ones who cannot identify all three branches of the federal government, the ones who write at an elementary school level, the ones who are bright enough to make the Dean’s list, but do not have the funds to attend college, and the ones who needed their engineering degree to get where they are today.  Some of them belong in college, some do not.  Can’t we just agree on that?
 
This is a frustrating debate at times because this jogging in place is damaging to future students.  At the moment, the population operates under the assumption that college is a necessary next step after high school and that the hefty price tag is worth paying at all costs.
 
That just isn’t the case.
 
While we can keep arguing whether college is worth it, the people who really need to answer that question are the ones who are ponying up the dough at the cash register.  We owe it to them to provide the best information so that they can make an informed decision.  They need a clearer definition of the assumed risk of enrolling in college.  They have to wrestle with the notion that a future graduate may have to pay $300 a month for 30 years after graduation, regardless of where that student goes after graduation.
 
Of course, a good college education does provide intrinsic rewards beyond a future paycheck such as an enlightened mind and a love of learning, but at the moment those benefits do not characterize the intentions of most students.  Hence, we need mechanisms to reduce (what Austrian economists call) the malinvestments in higher education.  The sooner this happens, the less pain will be involved and the quicker we can shift our intellectual energy from running in place to moving forward.   
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