Sunday, January 19th, 2014

Replay: Is College Worth It?

This post originally appeared on October 22, 2012 at New Geography.

Is college worth it? The question almost seems ludicrous on its face. The unemployment rate for people with a college degree is only 4.2% versus 9.1% for people without a college degree and 13.0% for people with less than a high school education. In this economy, that should be an open and shut case.

Yet in an uncertain world, many are questioning the value of college. There’s significant talk of a “higher education bubble.” Skyrocketing tuition rates and the correspondingly high levels of student debt has driven a lot of this. Tuition has been rising at a much faster rate than inflation overall. Total student loan debt is now at $1 trillion. And unlike other forms of debt, student loans can’t be easily discharged in bankruptcy.

In many ways college finance does mirror the housing bubble. You’ve got an asset everyone believes will only go up in value, a multi-party transaction, a situation where the seller of the product (the college) gets their money up front and so is indifferent to the student’s ability to repay, third parties insured against loss by the federal government, a non-transparent market where each student is in effect charged a unique price, young and unsophisticated consumers who are told they “have to get” a college degree, financial products without any income requirements, and even worse the asset (a degree) doesn’t have a secondary market.

All of these factors create a situation ripe for exploitation and abuse. Indeed, it isn’t hard to see that the massive increases in tuition cost are heavily driven by the ability of students to get huge loans with few questions asked. And as with the housing crisis, outright fraud by educational institutions is likely more widespread than commonly believed. The University of Illinois law school falsified its admissions data, for example, by inflating its students LSAT scores. The “cockroach theory” (if you see one, there’s probably a lot more you don’t see) suggests that this type of behavior is probably rampant.

Students and their parents are starting to wise up to the game, and the amount of student loan debt they think appropriate is plummeting. For example, in 2011 only 21% of people felt $20,000 in college debt was too much. Just a year later that percentage increased to 42%. In 2008, 81% of adults thought a college degree was a good investment. In 2012 that had dropped to 57%. That’s a stunning decline in the number of people who think college is worthwhile, though it might suggest that the problem is less with the value of a degree itself than in how much is paid for it. But there are anecdotes to suggest that some feel college (especially graduate school) isn’t worth what it used to be.

Why is that? In part it is surely the economy. Though degreed adults as a whole have lower unemployment, youth unemployment and probably more important underemployment remains high for college grads. A shocking 53% of recent graduates are jobless or underemployed. This has fed through into popular culture, with student loan debt relief being part of the grab bag of demands made by the various “Occupy” movements. When you graduate from college with huge, non-dischargeable debts, and you can’t find a job, particularly in your chosen field, you no doubt complain loudly about this to your friends.

But there’s also good reason to believe college is worth less today in many cases. Back in the 1980s and 90s the value of college was clear. Manufacturing was in decline. If you didn’t have a degree, you would probably struggle. In contrast, a college degree was like a golden ticket to success.

Today, in the age of globalization, it’s not so simple. Those without degrees are still hurting, but so are plenty of people with degrees. The emerging new separation is not between those with degrees and without, but those in jobs that are subject to international competition (tradeable) vs. those that aren’t (non-tradeable). High skill, white collar workers like computer programmers suddenly found themselves in competition with much lower paid people in places like India. This upended that entire job market. Today you might be better off as an ironworker or welder whose job has to be done on site than as an accounting manager whose entire department can be sent to the Philippines. A college degree is no longer a guaranteed passport to prosperity.

Also, today’s technology driven world is changing so rapidly that skills learned in college can prove obsolete by graduation. At the same time, open source frameworks and cloud computing have dropped the cost of starting a tech business to almost literally zero. In the dot com era, it took millions of dollars to buy servers and database licenses if you wanted to start a company. Today anybody can start a technology business in his bedroom.

So if you’ve got a good idea, why wait around for graduation to get started? The role models here are Bill Gates and Mark Zuckerberg, who dropped out of Harvard but both got rich starting companies. This dropping out of college to start companies is actively being encouraged by some folks like Peter Thiel, who is actually paying people to do it.

What these modern day Timothy Learys overlook is what Bill Gates and Mark Zuckerberg already had in common. Namely, they had already gotten in to Harvard. If you make it to Harvard, you already probably come from a privileged background. Thus you’ve got a family safety net in place if things go south. Those from working class backgrounds aren’t so lucky. Indeed, I’m struck that many suggesting that college isn’t the answer are presently in upper-middle class or better situations.

For a limited number of people, dropping out of or skipping school to start a business might make sense. But trend setters may manage to convince a significant numbers of kids from marginal backgrounds to forgo the college education —perhaps in a needed skill — that would provide necessary credentials and culturally acclimate them to the new economy world. Many of those kids don’t have a family cushion to fall back on. For them, turn on, tune in, drop out is not the answer.

The real answer isn’t to skip education, but to be more judicious about the decisions being made. Racking up large amounts of debt probably isn’t the right answer. The marketing promises of especially for-profit colleges should be heavily discounted. For some, getting education through going into a skilled trade may be a good choice. College majors that don’t deliver skills in demand in the marketplace or that aren’t considered valuable credentials by employers ought to be scrutinized. But getting an education remains one of the single best decisions any person can make.

Topics: Education

10 Responses to “Replay: Is College Worth It?”

  1. Joe Beckmann says:

    It took too long for you to get to the point: “judicious decisions” about education have frankly always been wise (or, as it were, judicious). Yet, with $100,000 undischargeable debt, such decisions are more immediate and less strategic. Relatively few degrees are worth that much money, and they are, most definitely, beyond the range of most B.A.’s.

    Federal and state agencies making such loans or loan guarantees ought to post the expected Return on Investment within five, ten, and fifteen year intervals, in order to advise debtors and to reward high-value degrees while showing low-value degree holders their risks. Anything less is in fact and in theory conspiring to steal from the poor and give assets to those who, by family or other asset, engineer higher grant portions of their degree costs.

    And the choice is rarely one of “skilled trade” or “profession,” since there is frequently, in the course of a career, much bouncing between skilled professions and limited trade experiences. Degrees need not take two, four, or ten years, and ought to reflect interests as well as demonstrated skills – and those skills are only rarely demonstrated by test skills. Degrees should show career as well as interests achieved, documented in realistic portfolios, and transferable to a discrete range of professions, jobs, and leadership roles.

    But that’s not what colleges give. Too bad…for the colleges. The bubble is upon us and it’s places like Harvard – with $3 billion pending for their expansion into Boston – where that burst will cost loads of endowment. With wise investors like Larry Summers, people ought to remind themselves that Harvard is still the fourth branch of state government, and “the college in Cambridge” is the first public college in America….

  2. Matt says:

    The real issue is not how to pay for college (which is what the conversation usually centers on), but why college costs so much. Colleges should be forced to take a hard look at their finances and skyrocketing costs of attendance, instead of pushing those burdens on to the students.

  3. Chris Barnett says:

    Colleges and universities probably mastered “airline pricing” before the airlines did, Aaron. I’m pretty sure that two students sitting next to one another in a college classroom are probably paying different prices for the seat.

    This works fine for elite institutions with huge endowments. (And by this I mean the Ivies, Chicago, Stanford, MIT, and a relative handful of others that can afford to adopt a “no loan” discount/financial aid policy.) It might work for the state schools giving in-state discounts as the price of state support. Other schools are going to have trouble as the peak of the Millennial generation passes through college age…they will be priced out of the market for students.

    The real issue is the cost side of the equation. How many associate and assistant vice-chancellors for this and that does every university have now? Administrative bloat has been fairly well-documented.

  4. the urban politician says:

    Great article Aaron, and something I have been thinking a lot about recently (which you, as usual, formulated beautifully in this well put together post) especially as I think about my young ones going to college some day.

    At some point there are diminished returns on the investment as we keep seeing tuitions rise at our colleges and universities.

    Sometimes I wonder if the truest value of college is just the social one, ie saying that you “went to college”. Not to mention it is perhaps the only time in your life when you can be surrounded on all sides by young, single women who are available. Perhaps that is where the tuition has some of its value as well?

  5. wkg in bham says:

    College a good idea? Yes if the following hold:
    • Top 20% scores in SAT.
    • A real desire to study something serious or degree is a prerequisite for the field (e.g. teaching). Nothing w/”studies” in the name or a psudo-science.
    • No borrowed money involved – no IRA’s raided. There are lots of ways to do this: ROTC, co-op programs, etc.
    • Acceptance to a name-brand school. Doesn’t need to be an Ivy. Any Big 10 OK.

    Otherwise: quit school at very earliest opportunity. Apprentice as plumber, electrician, HVAC tech, etc. Continue schooling on the side. GRE. Selected courses at JC or State U branch nearby. Lots of reading. Object is to have own contracting business by age 35. Alternative would be a starter business w/initial financing by good old dad.

  6. Chris Barnett says:

    The truest value of advanced education, TUP, is learning about research and critical thinking, as well as how to assemble groups around ideas (i.e. selling concepts and building coalitions). If you don’t understand the basics of sciences, statistics, and peer-reviewed research, you’ll fall for all kinds of bs.

    Sure, it can be done outside of formal education, but the time of life normally allotted to college (18-23 or so) is when the brain matures its executive functions. It’s a good time to hardwire some skepticism and thoughtfulness.

  7. TUP, I’ve long argued that one purpose of college is that kids aren’t ready to go to work in a professional environment at 18, but are much more so at age 22.

    With today’s hookup culture I keep reading about, there does seem to be more focus on access to singles than there was back in my day. (Not that we were prudes or anything).

  8. wkg in bham says:

    Re Chris Barnett says: “Sure, it can be done outside of formal education, but the time of life normally allotted to college (18-23 or so) is when the brain matures its executive functions. It’s a good time to hardwire some skepticism and thoughtfulness.”
    Mr. Renn @ “TUP, I’ve long argued that one purpose of college is that kids aren’t ready to go to work in a professional environment at 18, but are much more so at age 22.”
    I was fully independent at 18 (I was born in 1948). My father was in the Navy fighting WWII at 17. Shame on us. Way too protective of our offspring. I simply cannot understand kids living with their parents until they are 25 or 26 years old. They need to be gone somewhere when they graduate from high school. Yep, they’re going to make all kinds of mistakes. The proper degree of skepticism will be learned quickly. Yep, they’re going to be a lot more polished at 22 or 23, regardless of how they get there. I’m not against a true college education. But for too many, college is little more than a five year party. My outrage is that the colleges are “aiding and abetting” this situation. An interesting post:




    BTW, I went to college (BSEE Univ. of Fla. – 1971). Some support from parents, but co-oped with GE. I’m not opposed to college education. But it needs to be a real education from a real university.

  9. Michael Lewyn says:

    One assumption underlying the “let them eat trade school” theory is that any idiot coming out of high school can just go ahead and become an electrician, plumber etc. But these jobs have the same difficulties as other professions.

    First of all, these skilled occupations are not recession proof; unemployment among electricians was 12.9% in 2011, higher than the national average. (

    Second becoming an electrician requires not just a year or two of trade school, but at least two years of apprenticeship.

    In fact, this profession seems to require 4 years of apprenticeship and some pretty serious physical skills:

  10. urbanleftbehind says:

    Michael #9:

    I would concur with your assessment of the multi-year training and the difficulties that licensed upper trades have when the overall economy is underperforming. In many high-wage (union shop) areas, prospective apprentices have to be “sponsored” in by another union member. Consequently, though not surprisingly, usually only family members, godchildren and veryclose friends even get into the apprentice programs, particularly for electrician and heavy equipment operator.

    One advantage of being an even moderately qualified tradesman is that he/she(yes) has a skill that can be used to get side jobs, barter opportunities and at a minimum, the avoidance of major household expenses resulting from needed home repairs. I use the distinction “upper trades” because there are the jobs that people are most averse to relying on “day labor” or unlicensed professionals, though I’m sure it happens on smaller scales (odd jobs) and in areas with a weak/nonexistent union tradition.

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