Is College Worth It?

By Rajkamal Rao  
One of the most important decisions that a high school student has to make is whether or not to go to college. 

Critics of college say that investing four years of a young person’s life is too long of a commitment when the student could sharpen existing skills by attending a short job training program or gain valuable experience on an internship or job.  They contend that college has become frightfully expensive in recent years, burdening students and families with huge debt.   [The debt issue compounds itself because America’s graduation rates are extremely low].  They quote US Department of Education data which says that education loans now exceed $1 trillion, with nearly seven million borrowers, mostly those who don’t graduate in time or drop out of college, in default. 

To critics, therefore, investing in college is just not worth it. 

But going to college has its advantages.  The College Board, clearly not an unbiased party to the debate, conducted a long study in 2013 that concluded that, “on average, four-year college graduates continue to experience far less unemployment and to earn higher salaries than their counterparts with only a high school education.” 

Other independent analysts have drawn similar conclusions.  The Federal Reserve Bank of New York, a crucial pillar in our financial system, said in a report:  “An analysis of the economic returns to college since the 1970s demonstrates that the benefits of both a bachelor’s degree and an associate’s degree still tend to outweigh the costs, with both degrees earning a return of about 15 percent over the past decade.”

The New York Times summarized its own findings in its Upshot column, saying that “in 2013, Americans with four-year college degrees made 98 percent more an hour on average than people without a degree.”

So, who is right? 

The short answer is that both sides are partially correct.  The accurate and complete answer, however, is that going to college is worth it if it pays off in the long run. 

While this is rather intuitive, the difficulty is rooted in how one defines what worth really is.  For most people, “worth” denotes a financial dimension that is precise, although for academics, this word may be more abstract.  For such purists, going to college is all about pursuing one’s passion, exploration, thinking and learning - subjective and imprecise terms which mean different things to different people.

We define worth in financial terms.  College is definitely about pursuing one’s interests and expanding intellectual curiosity, but we must not forget that there is a real, measurable price tag to the college experience.  We argue that students need to consider college the same way as they would any other investment - like buying shares of a company’s stock, a car or even a home.  They need to carefully analyze what they are likely to get for what they put in, that is, they need to estimate their financial return on investment, in addition to the emotional benefits that a college degree provides. 

Several independent organizations and media outlets have pointed out how the promise of college is falling short each year, in part because US families aren’t really paying too much attention to the financial aspects of a college education.  We present five quotes which summarize the many burdens college-bound students and families face: 

Exploding Tuition.  “Tuition at public colleges and universities has nearly quadrupled since 1980 in real terms (and tripled at private ones).”
Source:  The Atlantic, the Real Cost of College.

Rising Student Debt.  “69% of seniors who graduated from public and nonprofit colleges in 2013 had student loan debt, with an average of $28,400 per borrower.”
Source: The Institute For College Access and Success

Low Graduation Rates.  “[Just] 59 percent of first-time, full-time students who began seeking a bachelor's degree at a 4-year institution in fall 2007 completed the degree at that institution [6 years later], by 2013.”
Source:  The National Center for Education Statistics

Low ROI.  Return on Investment (ROI) on college education is not always stellar.  “Too many degrees are a waste of money… some degrees pay for themselves; others don’t.”
Source:  The Economist 

Where and what one studies matters.  “In 2013, 48% of employed U.S. college grads were in jobs that required less than a four-year degree.”
Source:  McKinsey Report

We believe that a college’s responsibility is not only to provide an excellent education but also to empower the student to have a reasonable chance of pursuing an appropriate career after graduation - given all the constraints a student faces.  There are nearly 7,000 post-secondary educational institutions in the US - do all of them share in this vision? 

Surely, many do not.  As former management consultants, we began to think about how to give students and families an edge so that they can filter out the bad institutions and select only those colleges where they have a reasonable chance to succeed, get in to good careers and quickly pay off their college loans. 

The only way we knew how was to look at college selection through a Return on Investment (ROI) lens.  The ROI approach is a time-tested measure for every major financial decision that people and companies make every day. 

Over three years, we interacted with over 10,000 students and families at various Indian schools and undergraduate colleges.  What we found were two stark differences compared with the average American family planning to send their children to college - and both were rooted in anxieties about ROI.

First, the Asian family is well involved in the student’s college selection process challenging the student’s likes, dislikes and assumptions.  By taking a “devil’s advocate” position, parents get fickle-minded students to focus more on long-term returns.

Second, the Asian family is deeply concerned about the actual, numeric ROI of their education dollars.  With household incomes earned in currencies that are often a fraction of their American counterparts and with multiple children to send to college, Indian families are often leveraged to the hilt having to take a second mortgage on their only home to pay the high costs of a US education.  And students generally respond to this anxiety in return, assuring parents that they will do everything they can to find a job after graduation; earn in dollars and help pay these loans back.

But being anxious about ROI is one thing.  Having a structured approach to choose colleges that have the potential of meeting their ROI goals is another.

This was where we came in.  We leveraged our expertise in understanding the US economy for over 26 years and tested our ROI-based model to college selection before bringing it to market.

For example, we taught students to look at US Bureau of Labor Statistics data to select states and regions with low unemployment rates and high GDP growth numbers because we know that students who graduate from such states have a better chance at promising careers.  We coached students to research the US Occupational Handbook database to find occupations and industry combinations that are in demand - and tailor their profiles, if appropriate, to pursue an appropriate education. 

In our seminars and workshops, we explained how articulation agreements between two and four year colleges are an under-exploited avenue to get into premier schools via the back door, often at a huge discount.  If paying US tuition rates was still an insurmountable burden, we encouraged students to look at countries like Germany and Finland, where education in many universities is 100% free.

Our numerous interactions encouraging students and parents to look at ROI-based college selection methods were nothing short of remarkable.  People began to appreciate how our filters could help them lower the odds of failure, and better, improve the odds of success.  We can’t count the literally hundreds of parents and students who have thanked us for simply making them aware of the wealth of free resources that we tap in to and teaching them the tools to exploit them.  Because while all of this information can be Googled, they said, they needed to hear it all in one place - in a structured approach - so that they could do further research on their own to find the best matches to suit their needs.

We are not alone in attempting to disrupt the staid, stodgy US higher education marketplace.  The White House’s new College Scorecard released in September 2015 contains information on employment outcomes - the first-ever comprehensive and reliable data on post-college earnings for students who attended all types of undergraduate institutions - all based upon tax records.

Recently, LinkedIn, the mega networking site, recognized what we have been saying all along.  In kicking off its own university ranking list based on career outcomes, the company said in a blog post:  "More than ever, students go to college because they want to get jobs — good jobs. To that end, students and parents want to know which schools give them the best chance at getting a desirable job after graduation. This is where we can help.  By analyzing employment patterns of over 300 million LinkedIn members from around the world, we figured out what the desirable jobs are within several professions and which graduates get those desirable jobs. As a result, we are able to rank schools based on the career outcomes of their graduates”.

To summarize, when considering one of life’s most important decisions about what to do after high school, parents and students confront numerous conflicting facts, marketing messages, opinions and options.  Traditional methods of choosing colleges based on “fit” and other “feel-good” factors are no longer sufficient in today’s demanding economy.  More rigorous, objective and analytical ways to consider ROI factors and outcome are becoming increasingly important.

And this really is the premise of our work.  It is written with the single-minded focus of a former management consultant and zeroes in on improving ROI during every step of the college selection process.

Our objective is to help educate US students (and parents) about our unique, independent and unbiased tools/tips to help them get more out of every dollar they plan to invest in post-secondary education.  These include lowering the cost of college by exploring innovative solutions, and selecting colleges which improve students’ chances of getting internships and jobs after graduation.

Our goal is simply to get every college-bound student (and family) in the US be ready to do the necessary research in a structured manner and make meaningful, informed, ROI-based decisions about college by the end of 11th grade.

A Note About Rao Advisors Premium Services
Our promise is to empower you with as much high-quality, ethical and free advice as is possible via this website.  But parents and students often ask us if they can engage with us for individual counseling sessions.

Individual counseling is part of the Premium Offering of Rao Advisors and involves a fee.  Please  contact us for more information.

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