Higher ed may be broken, but the alternatives/solutions are not that great either

Saw this post going viral Burn the Universities and Salt the Earth. As the title suggests, the author has a low opinion of universities and higher-ed in general.

Gen Xers and Boomers need to understand that the Millennials have a right to be angry about their student loan debt. The Millennial generation was lied to by every person they trusted, every authority figure, every parent, teacher, guidance counsellor, college professor, college administrator, and politician. A combination of good intentions and horrible systems analysis created a vicious giant which ground their bones for its bread and shit their futures out of its bowels after digesting them, leaving them indebted husks of no additional value than when they left high school.

But this is not really true. For something to be a scam suggests that it is a poor deal, yet even after accounting for student loan debt and inflation [0], college grads still earn more money than non-grads. In exchange for money and time, in return college grads generally earn more money and have better career prospects, so college is like any other consumer service in which money and time is exchanged for some benefit. IF the wage premium were negative or non-existent, then, yes, college would be a bad deal and the author would be right.

College grads also have half the unemployment rate compared to high school grads. The unemployed college-educated barista trope is more the exception than the norm, as the typical barista likely doesn’t have a college degree. Moreover, the wage and wealth gap has only widened since 2008 and even more so since Covid, in addition to other benefits such as better working conditions. It was low-skilled workers who were fired en masse during the pandemic or required to risk exposure to Covid, whereas highly-paid professional workers were given the option of working from the safety and comfort of home while not forfeiting any hours/pay.

What about ‘useless degrees’ such as gender studies? Despite all the hype about a generation of unemployable women’s studies majors, only 10% of grads major in the humanities. The vast majority of grads major in ‘actionable’ subjects such as psychology, business, nursing, or various STEM subjects. Few people graduate college with specific careers in mind, but rather because having the degree improves one’s prospects overall.

It’s not as bad as the author is making it seem. The average debt for a student is around $30k, or about less than a new car (also, there is more financial aid and scholarships than ever, so the amount of money students actually pay is much less than the sticker price, further making college a good deal after accounting for wages [2]). In fact, high ranking colleges tend to have the most financial aid. Even after accounting for inflation and student loan debt, college grads today, especially from competitive institutions, are making more money than ever. Young people are competing and working hard, not as victims of a cruel system, but because the financial returns are worth it.

On Hacker News and Reddit, there are plenty of of stories of people in their 20s and 30s who went college (and not just limited to computer science majors), took out loans, and have good jobs and even significant net-worth due to investing [the post-2009 bull market is the biggest and longest ever, exceeding even the 80s and 90s on an inflation-adjusted basis] and home ownership [real estate has also done very well since 2009, and mortgage rates are lower than ever], all while paying down their loans [student loan debt interest is much less than credit card interest or car loan interest, but much less media and political hype/outrage over that, and unlike a car, a degree gains value due to higher wages]. If the stock market is returning 10-25%/year or home equity is gaining 7%/year [1], which it has since 2009, making the minimum payment is better than paying off the student loans at once.

It’s not like they are poverty-stricken due to debt and poor job prospects. The superior performance of the stock market and real estate since 2009 has only magnified the premium of having a degree, as the higher wages from having a degree can be invested in rapidly appreciating assets, whether in stocks or real estate , by taking advantage of historically cheap mortgages. So the college wage premium is two-fold: higher wages, but then also compounded returns from investing said wages in rapidly appreciating assets.

Later on, the author suggests that online learning will undo the higher-ed hegemony, and that inexpensive certificates will replace costly diplomas:

In 2005 Sal Kahn started a YouTube channel to tutor his cousin in mathematics. It went viral, grew, and now the Khan Academy provides a free way for anyone to learn math, its curricula growing. Chop.

All of these things contribute to undermining the absurdity that was and is the university system. All most people care about with college is having a diploma to act as a hiring signal for their first job, and as the alternatives to paying a quarter million dollars for the campus experience proliferate, the rates of kids choosing expensive campus life will continue to fall.

I don’t see online education upending higher ed at all. Covid was supposed to change that, and the evidence thus far suggests nothing has changed even if more classes are being held online. The college wage premium is wider than ever. The Ivy League is more prestigious than ever. The top 30 universities are still as important as ever.

The problem is not the universities, even though they are hardly absolved from blame. Higher ed provides a service mutually beneficial to both parties: graduates exchange their time and money for increased earning power, and employers have a way of screening for competency even if the signal is expensive. So the system, as flawed as it is, is working. The bigger problem is the proliferation ‘4-year-degree substitutes’ that do not confer anywhere close to the same benefits as an accredited, 4-year degree yet are marketed as such. Higher ed may leave a lot to be desired, but replacing it with even worse alternatives is not a solution either.

Coding bootcamps, often touted as a solution to student loan debt, are actually more expensive and worse overall than 4-year degrees due to higher upfront costs, fewer/worse payment options and terms, and poor career prospects. That is a scam, if someone is paying thousands of dollars for a certificate on the promise of saving money, saving time, and getting a job, but only ends up spending more money, wasting time, and getting no job. A 4-year-degree degree is a universally recognized credential in the eyes of employers. Certificates? Not so much.

‘The trades’, although not a scam, tends to also have a lot of certification involved, which can be expensive and time consuming, especially when such certificates need to be periodically renewed. A college degree last a lifetime and does not need to be renewed. Also, there is a lot of training involved, and it requires that one be inducted into a guild and starting out as an apprentice, which does not pay well or at all. There is also inconsistent pay and high rates of occupational injury, as well as a lot of traveling. But nevertheless some people are very successful at trades work. One of the benefits is being able to set your own rates, and no matter how fast or how many features the latest iPhone has, there will always be a lot of demand for plumbers and electricians.

The biggest losers are dropouts. They get all of the debt of having attended college but none of the benefits. As many as 50-60% of college students fail to graduate within 5-6 years. This is a major problem, more so than college being too expensive. I think reform needs to be focused on screening applicants who are unlikely to graduate, than trying to make college more affordable or replacing degrees with inferior substitutes.

Another major problem with online courses and certificates is a lack of rigor, which is probably why employers do not give them much consideration. University-level STEM classes generally involve problem sets, which are difficult, as well as exams. Just vaguely learning how something works by watching a video, does not in any way demonstrate close to the same mastery as having to apply such knowledge to solving specific problems under a timed environment and while being graded for competency.

Overall, I agree with the author that there does seem to be too much debt and credentialism. But nothing is going to change until the either the era of the ‘6-figure professional job’ goes away–or–until low-skilled jobs pay as well as professional jobs. I don’t see any of those happening. All the evidence only suggests that society will continue to split along the lines of uneducated and the educated. Higher-ed is not going away, and the college wage premium will not shrink. Student loan debt will not fall either as long as the aforementioned factors remain in place

[0] Another common argument is that high school grads have a 4-year head start over college grads, but the college wage premium even holds after accounting for that. Also, this purported head start is negated to some degree by a higher unemployment rate for high school grads compared to college grads.

[1] After accounting for the significant leverage afforded by cheap 10-30-year mortgages, home appreciation, and not having to pay rent, the returns from real estate rival or even exceed that of the S&P 500.

[2] Even though colleges charge a lot of money, there are many financial aid, forbearance, and deferment programs available, compared to credit card debt or other forms of consumer debt, which have far fewer payment options, higher interest rates, and worse terms overall, especially after taking into account 2005 reforms to the bankruptcy law. Credit card interest not uncommonly runs at 20% but much less outrage by the media over that. Payday lenders charge 100%+. Sill, less outrage.

2 comments

  1. “I think reform needs to be focused on screening applicants who are unlikely to graduate”

    That would be racist.

    If your dropout percentages are correct then the system is working, but I have a hard time believing it is. Then again liberals turn very conservative when it comes to their own property, kids, health and physical safety. And there is, apparently, a rebellion over CRT among liberals when it affects their kids.

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