13 Aug 2012
As we discuss higher education, the most significant question we’re attempting to answer in this decade is, very simply:
What is the value of a college education?
One of the reasons that this is such a hot topic is the fact that tuition costs are rising at an alarming rate. It’s natural to question the value of any good or service when its price begins to rise; the question of value is far more relevant in higher education today due to the dramatic shifts in availability and perceived benefits. The rise of the Massively Open Online Course ecosystem has given the general public access to tools and teaching that, until now, has been held exclusively inside those institutions of higher learning. Employers are looking more toward the talent, work ethic, and general competence of a prospective employee more than their degree (or lack thereof). The effective distance in earnings for college and non-college educated employees is shrinking.
What, then, is the real value of a college education – and is it worth the cost?
Let’s be clear at the outset of this little analysis: this is a discussion about money. There are many intangible benefits to both a college and workplace education; they will be discussed but, as they are harder to quantify, we’ll stick with the digits as much as possible.
Before we arrive at value, we need to have a cost discussion. You might want to sit down for this: you’ll be getting some bad news mixed with some very unexpected numbers. Let’s break the cost discussion into two parts:
Why is tuition increasing in general – and why so sharply?
Where does the money go?
Tuition is definitely on the rise: between 1999 and 2009, tuition increased, on average, 46.74% – a huge leap compared to the cost of living change during the same period. If you attended college in that 10 year period, you saw your tuition rise nearly 5% every single year. Starving students indeed.
In order to answer the question of why tuition is rising so steeply, we need to understand the actual revenue model for schools. Let’s take a look at the numbers. Following are the major averaged revenue sources for U.S.-based public undergraduate (community college) institutions:
This is fascinating on several levels:
- Tuition is a small percentage of the actual revenue per FTE (Full-Time Equivalent, or student to the layman)
- State and Local Appropriations is the lion’s share
- State and Local Appropriations are falling alarmingly (~5% over 10 years)
The “Total Operating Revenue” number is arguably the most telling: it has risen barely 6% over the same 10 year period.
Why is tuition rising so sharply? The numbers tell the story: tuition is rising to offset the fall of nearly every other source of revenue. It makes sense. Of all of the revenue categories identified above, tuition is the only source that remains in the full control of the school. When other revenue sources fail them (and they are), the only response available to the school is to raise tuition.
The complete data set used, including the above table and tables outlining public research, public master’s, public community colleges, as well as private research, private master’s and private bachelor’s institutions is available for download at the bottom of this post. It is an excellent resource and shows some exceptionally alarming numbers. Take a look – specifically at private institutions. How are they even surviving?
Knowing where the money comes from is half of the cost discussion: the other half is where it goes. Let’s cut right to the numbers.
For public institutions, the money flows out as such:
And for private institutions:
Before you draw conclusions from the above, there is one missing critical piece of data: the overall revenue numbers per FTE. Revenue per FTE for public institutions was, according to the 2008 numbers, $23,090.67/year. For private institutions in the same year (2008): $40,094.33. Plugging revenue numbers into the expenses above, we find that public institutions spend about $9,993/year for the instruction of a single FTE. At private institutions, it is $15,371.
In getting away from the dollar amounts and back to percentages, we can infer something very important about higher education institutions:
All institutions, both public and private, place a heavy, heavy emphasis on instruction.
In short: they exist to teach. A truly astonishing find!
You’ll note that the above tables include the 10-year and 1-year changes in spending. This is an effort to reflect the current priorities, as derived from assignment of revenue. A recap of the most interesting numbers:
- Public institutions are spending dramatically more for Institution Support today than they were 10 years ago – at the expense of operational, public service, and instructional expenses.
- Private institutions have increased spending on Student Services, Academic Support, and Instruction – in that order.
Bear in mind the actual dollar values behind the percentages. Public institutions have far less to work with – less wiggle room, so to speak – and budgets must reflect that reality. Still, the marked rise in institution support (12.10%!) is surprising.
Even so, the picture is the same. All institutions of higher learning are almost single-mindedly focused on teaching the students that enter their hallowed halls.
Take a few minutes to read through Michael’s thoughts and his source material. It is genuinely outstanding. It will give you a picture of what kind of monetary value various levels of college education carry. Armed with the numbers provided here, you can derive the following:
- A college degree is still worth the expense incurred.
- The monetary value of a college degree is decreasing.
- For now, the decreasing value of a college degree is matching pace with the rise in tuition expense – an expected outcome – although this is changing.
Let’s take a step beyond the dollar values and discus the intangibles of a college education – and the alternative.
Before we continue, let me explain a bit about my own background and experience: I dropped out of college after nearly 3 years at Brigham Young University and a little over a year’s worth of community college. My wife and I were preparing to have our fourth child at the time and painfully decided that it would be best to suspend the education until our finances were a little more stable. The intent was always to return and finish the undergraduate degree (at a minimum).
To date, that hasn’t happened. I’ve been in the workforce for nearly 10 years now, currently working as a Senior Software Engineer at a small startup (Space Monkey) in Salt Lake City, UT. Having had a taste of both worlds, I can give a somewhat unique perspective on the benefits of both.
I have learned more and more effectively in the work force, outside of college. I’d be willing to wager that this kind of experience – hurried, unforgiving learning immediately out of school – is nearly universal. This is a part of entering the work force. For some, that experience is relatively short-lived. Due in part to my early departure from school, that process has never stopped.
You will note that I acknowledge that there are things I am still learning that I would have learned in school. But there is a matter of intent involved: higher education is not necessarily geared toward vocational training. In short, higher ed isn’t designed to get you a job. What is taught at institutions of higher learning is precisely that – higher learning. They teach us to learn how to learn, how to think – preferably, how to think critically.
The path to learning to think is often matched with vocational skills. After all, much of what we do in the world of computer science, for example, depends on the faculty to think critically. And yet, nearly any C.S. major who has left school for the work force will attest that they felt unprepared for their first job. Industry is different from education – by necessity.
Let me sum up my experience with two questions:
Would I choose to finish my degree prior to entering the work force, if I could do it over again?
If circumstances had been different, absolutely. I have rarely felt the lack of a degree in my chosen field, but I have indeed felt it. With this said, I do not regret leaving college when I did. It is possible (though difficult) to learn what must be learned without the aid of a paid professor.
Will I return to finish my college education?
This depends on the goals I choose to pursue. I have always enjoyed teaching. If I elect to pursue teaching as a career, I would need to return to finish my college education (including post-graduate work).
As I said, I have only rarely felt the lack of a degree. I have seen that demonstrable competence is vastly more important to an employer than any form of credentials. Here’s an example.
There is certainly more to this discussion of value. Remember the statement at the outset: we were going to focus on the digits and the quantifiable aspects rather than the intangibles. To recap our discussion:
- Tuition is on the rise – but only to cover the actual cost of education.
- Students aren’t being ripped off: an institution’s single biggest expense is instruction (surprise!).
- As per Michael Feldstein’s post, there is still a significant monetary value in a degree, though this is being diminished by the market and displaced by rising costs.
- My own personal experience indicates that it is possible to make it in the post-education world without a degree. There are definitely pros and cons and, if I could do it over (with differing circumstances), I would choose to finish the degree first.
Sources and Additional Resources