Why you should care
With student debt passing $1 trillion in 2012, the jobless recent grads shouldering that debt are asking tougher questions.
Pooja Bhatia is an OZY editor and writer. She has written for The Wall Street Journal, The New York Times and the Economist, and was once the mango-eating champion of Port-au-Prince.
What’s the worth of a college education?
6 to 10 % annual increase in earnings
That’s according to a formula created in 1974 by an economist named Jacob Mincer, whose ideas about the return to higher education have dominated the conversation ever since. In Schooling, Experience, and Earnings, Mincer came up with an easy algorithm for the “rate of return” to education, and a bevy of researchers have since estimated that each additional year of schooling increases annual earnings by six to 10 percent.
But Mincer’s formula has long been under attack. Liberal-arts idealists still shudder at the very notion of a monetizable rate of return on college. An education’s worth shouldn’t be measured in dollars and cents, they argue. Rather, it’s about experience and growth: Students are souls and minds, not consumers.
We sympathize. Even now, chastened by penury and far too decrepit to go back and get a degree in something lucrative, like petroleum engineering, we wouldn’t trade our poetry classes for accounting. Too many sun-dappled afternoons on the quad reading Whitman and flirting, we guess.
On the other hand, let’s get real. Since our time on the quad, college costs have risen dramatically, heartbreakingly: 46 percent from 2000 to 2010, in real terms. Real incomes have stagnated. State legislatures have choked off appropriations to public universities, leading to an even faster rise in tuition. Student debt surpassed a trillion dollars in 2012.
Everyone’s in on the ratings game, creating enough data to confuse a postgrad, let alone a teen trying to compare costs and benefits.
Thus, the stickier critique of Mincer’s formula: It ignored the costs of higher education. (In his defense, the costs of higher education were a lot easier to ignore back in 1974 than they are in 2014.)
Before they mortgage their future earnings to pay for a shot at a better livelihood, the youth of America could use more transparency from the higher-education industry. To that end, think tanks, the media and even the Department of Education have gotten in on the ratings game, creating a welter of data confusing enough for a postgrad, let alone a teenager trying to compare costs and benefits. The Obama administration’s year-old College Scorecard aimed to cut through the cacaphony, but critics say its interface is tough to navigate.
Part of the problem is the number of variables: Not all degrees are created equal. Their worth in the marketplace depends on the type of degree and the prestige of the institution, as well as the aptitude, achievements and connections of the person who holds it, as a trio of prominent education researchers noted last year in ”Degrees of Value: Evaluating the Return on College Investment.”
And, of course, the health of the economy at graduation time matters, too. Recent college graduates have faced historically high rates of unemployment and underemployment, meaning the value accrued from a degree earned in 1999 will be generally greater than its 2009 counterpart.
A 2013 study of bachelor’s degree holders found that eight of the 10 highest-earning majors were in an engineering field. (Petroleum engineering ranked at the top, with a median income of $120,000.) The lowest-earning majors were in arts, communications and caretaking, including theology, social work and psychology.
And who would be happier? That, we expect, is something the dismal science could never know.