Bill Gates dropped out of college. Steve Jobs dropped out of college. Mark Zuckerberg dropped out of college. These famous examples don’t mean that dropping out of college is a blueprint for great financial success, but it does serve as sufficient proof that a college degree is not a necessary item in having a successful career, much less living a successful life.
While practically every college and university will cite various studies purporting to prove that a college education is worth hundreds of thousands of dollars to those who possess them, the studies are so badly flawed as to be nearly as fraudulent as the degrees the academic institutions are selling. Consider the following factors:
1) The so-called “return on investment” studies do not compare similar populations. The American education system is highly meritocratic, and wide-scale, pre-college testing means that even poor, lower-class, minority individuals are identified and provided subsidized university educations. Since the vast majority of the cognitive elite attend college, whereas relatively few of the cognitively disadvantaged do, comparing college graduates to high-school graduates is not meaningful without first correcting for the average difference in intelligence between the two groups. In other words, it is possible that most of the income gap between the college-educated and the non-college educated is determined by who goes to college rather than by the college degree or the education it purports to represent.
2) The studies rely upon income data from individuals who graduated as far back as 1981. Given how much the national economy, demographics and college-attending population has changed in the last 30 years, it is simply absurd to think that their historical income patterns have any bearing on those of college students who are graduating this spring, much less matriculating this fall.
3) Few of the studies factor in either actual time-to-graduation or graduation rates. It is deceptive to calculate a return-on-investment assuming four years to graduation and a 100 percent graduation rate when it takes the average college graduate more than four years to graduate, and 40 percent of those who matriculate and “invest” in their educations never graduate and receive neither a degree nor any return on their monetary expenditure.
4) Even the one study that did include actual time-to-graduation and graduation rates, the 2011 Payscale study published by Bloomberg Businessweek, based its average incomes on “about 1,000 … alumni who are full-time, U.S.-based employees.” The problem here should be obvious, as the study systematically discounts all of the unemployed and part-time alumni. This has the effect of significantly exaggerating the average income of college graduates, since it has been recently reported that 53.6 percent of college graduates under the age of 25 are either unemployed or underemployed.
The Payscale study concluded that the average 30-year ROI was $387,501; however, the study did not take into account that the average 2010 college graduate owed $25,250 in college loans upon graduation. And since this debt figure does not include the 40 percent of non-graduating students and the rate of defaults on student loans has risen to 8.8 percent, it should be readily apparent that the interest owed on that seemingly small amount of debt will tend to considerably reduce average ROI from the estimated $387,000. Note that at the current Plus Loan interest rate of 7.9 percent, the 30-year value of that $25,250 in debt is $247,118.
However, the main reason one cannot consider the cost of a college degree to be an investment is because a degree is not transferable and holds no intrinsic value. Unlike stocks, bonds, housing or even art, the owner of a degree cannot sell it. It is no more an investment than an airplane ticket or a bus token. There are, to be sure, many jobs in government and corporate America that require college degrees, but it makes no sense to argue for the intrinsic value of college degrees on the basis of artificial requirements that only have the potential to limit one’s future income.
None of this should be taken to mean that college educations are totally worthless or that it makes no sense for anyone to pursue a college degree. What it does mean, however, is that no prospective college student or parent can blithely accept the results of the return-on-investment studies and expect them to have any meaningful application to any individual situation. Every college decision must stand or fall on its own unique financial merits, and, in many cases, a careful review will demonstrate that taking out a student loan and paying large sums of money in return for a 60 percent chance of obtaining college degree does not make financial sense.