Learning, leverage, and the coming change in education
Institutions of learning are going to be dramatically changed in the coming years.
Rolfe Winkler is an astute blogger, and he (along with many others) sees a parallel in the markets for housing and higher education. We have students (homeowners) purchasing an education (housing) at ever increasing prices using vast amounts of leverage. That didn’t end well with housing. What will happen in education?
A college degree can be valued by the incremental earning power that it can provide over a working lifetime.
In other words, how much more will you make if you go to college than if you don’t? Are those extra earnings enough to pay back your loans with interest, along with the opportunity cost of forgoing full-time wages while you’re a student?
A common misconception is that a college degree is worth a million dollars over the average working lifetime. But a paper published late last year by the National Association of State Universities and Land Grant Colleges pegs the value at close to a tenth of that, $121,539.
This is a very rough figure. There are big differences depending on the type of school, the time it takes a student to finish their degree and other factors. In any case, the present value of going to college is positive, but not nearly as high as most think.
I do think there is a substantial intrinsic value in a college degree that makes the degree worth the investment. There are huge value propositions to a person and society at large in having an educated citizenry, so we should not decide to attain a college degree based solely upon decisions about future earnings power. (As an aside, philosophers like Rousseau and Alexis de Tocqueville recognized this fact early on). But can one justify going into ever-increasing degrees of debt for such an education, especially as alternatives become available? This is why some people (myself included) looked for a high quality education combined with great investment value in our undergraduate alma mater.
This is of course equally applicable to graduate degrees, as evidenced most clearly in this NYTimes article about the dim prospects for law students at the top law schools:
When Julia, a second-year student at the University of Pennsylvania, decided to enter law school a year ago, she expected to find a lucrative law firm job in three years — if not collecting the $160,000-a-year associate salaries at one of the uppermost partnerships. By the time she obtains her J.D., she says, she will have around $200,000 in debt.“Had I seen where the market was going, I would’ve gone to a lower-ranked but less expensive public school,” she said. “I’m questioning whether law school was the right choice at all.”
Did the student in the example above go to law school for some intrinsic love of the subject? It doesn’t appear to be so. Rather, it looks like she was placing a bet that by using a large amount of leverage she could land an exceptionally high paying job. This is the same type of conflation that is bringing so many homeowners to their knees: they began to think of their homes as investments vehicles rather than homes.
Craig Newmark does a round up of a number of excellent posts on this very subject, and links to a Seth Godin post I had seen a while back that I feel captures the coming storm perfectly:
Abundant education is easy to access and offers motivated individuals a chance to learn.
Scarcity comes from things like accreditation, admissions policies or small classrooms.
So we are seeing a divergence in learning and accreditation. Accreditation in this case is some external benchmark of what you have learned. Does an MBA know more about business than a non-MBA? Not necessarily. But for a hiring manager, the MBA simply acts as a filter. Is this filter worth hundreds of thousands of dollars of debt? If the rising tide of wages for MBA graduates were to continue, then yes, absolutely. But when we see those same waters recede, as they are now, the whole system is brought into question.
The questions moving forward, as I see them, are a) how can we continue to bring down the price of learning so that it is accessible to every motivated student, regardless of age, income, or geographic location, and b) how can we create some type of accreditation to supplement this learning that isn’t dependent upon such large amounts of debt?
[Update: I haven't read it yet in it's entirety, but this article seems like a good expose on the same subject, via @jasontuttle]
[Update II: And another great article]
Update III: Neeru Paharia, one of the Founders of P2PU in the NYTimes:
She likes to talk about signals, a concept borrowed from economics. “Having a degree is a signal,” she says. “It’s a signal to employers that you’ve passed a certain bar.” Here’s the radical part: Ms. Paharia doesn’t think degrees are necessary. P2PU is working to come up with alternative signals that indicate to potential employers that an individual is a good thinker and has the skills he or she claims to have — maybe a written report or an online portfolio.
