How much should graduate students be allowed to borrow?

Last month WSJ did a study of the earnings of those who earned masters degrees at selective universities.  Those who studied business or engineering did extremely well, with annual earnings above student loan debt by a sizable margin.  

Labor market outcomes were less positive in other areas, especially degrees from elite universities in areas such as drama, education, film studies, and publishing.  Half of the graduates of Columbia's program in film studies earned less than $30k after two years in the job market.  Their median debt was $181k.  

Although this is an extreme case, borrowing for graduate programs has been growing and now represents half of student loan debt.  WP columnist Charles Lane pointed out that there are no limits on annual borrowing on Sallie Mae Grad Plus loans, whereas undergraduates cannot borrow more than $12.5k per year and $57.5k total.   It is quite possible that demand for graduate degrees would become more price sensitive if this issue were reexamined.  

Some have called for student loan relief.  For instance Sen. Warren of Massachusetts wants to forgive up to $50k of debt for all borrowers.  However a Brooking Institution study found that the bottom 60% of households would only receive 34% of the relief.  Why should MBAs earning over $100k get this form of relief?

I think there are two areas where borrowers could be better served.  First, one way to provide debt relief that makes economic sense as well is to reduce interest rates.  Currently the US government borrows money at close to a zero interest rate, but this year the Grad Plus interest rate is 6.25%.  Second, universities that participate in Grad Plus should be required to divulge to student borrowers data on labor market outcomes for graduates.  How many students would sign up for film studies at Columbia if they knew the likely prospects for graduates?

College degrees needed? Watch what employers do, not what they say

Do you need a college degree to get ahead today?  Two recent headlines caught my eye.  In each case an enterprising reporter or academic does a survey of employers.

Exhibit A: WSJ reports the results of a US Labor Department survey which finds that less than 20% of all jobs require a college degree.  So maybe college is a waste of time??

Exhibit B: Harvard B-school prof Joseph Fuller finds in his survey that employers are requiring college degrees not so much because the current job requires college level skills but because college grads are more adaptable and do not require training.

A college degree continues to be one of the best investments that young people can make, leading to a lifetime learning differential 55-65% above those who stop their schooling at high school.  Are employers so stupid that they would pay that much more for nothing?  Beware the cable channel talking heads proclaiming that college is a waste of time and money.

Do you really need a college degree to be a hotel manager?

Over the last five years, more and more companies have been insisting on college degrees for entry level jobs.  At the aggregate level this might make sense if jobs are demanding more scientific knowledge or more analytical or critical thinking skills.  However, a recent study by the Rockefeller Foundation and Edelman Intelligence (WSJ story here) finds educational demands by employers are rising across the spectrum.  For instance in 2011, 29% of the job listings for hotel managers called for a college degree; this figure rose to 47% five years later.

Apparently the weak job market has created a surplus of college grads for positions that actually require advanced education, forcing many grads to lower their ambitions.  Employers react to the new applicant pool by raising their educational standards.  The Rockefeller-Edelman study raises questions as to whether this decision is really meeting employer needs.  A college degree could serve as a signal for otherwise hard-to-measure communications skills.  Yet companies are now complaining that they are unable to retain these overqualified workers.

Today's college graduates face a much stronger market than their counterparts five to ten years ago.  If this continues, I would expect companies to start using games or psychometric evaluations to evaluate communications skills directly and stop using degree possession as a screen.

The myth of the unemployed college grad

Great online NYT piece on unemployment of college grads.  Last week's jobs report put the US unemployment rate at 4.7 percent.  The NYT article leads off with a quiz that had been part of a Google survey:  The unemployment rate for high-school grads between the ages of 25 and 34 is 7.4 percent; guess the unemployment rate for college grads in the same age range!

Here are the answers they received: the average Google respondent thought the unemployment rate for college grads was 9.2%, whereas the average NYT website respondent thought it was 6.5%.  

These answers are way wrong: the actual unemployment rate for 25-34 year old college grads is 2.4 percent.  Keep in mind that this represents all college grads -- all majors, all types of schools (even the for-profits).  

So what is going on here?  One obvious lesson is that the mainstream news media have been running so many stories about unemployed college grads (usually with heavy loan obligations as well) that anecdotes have become accepted as data.  Maybe the unemployment rate for journalism majors is a lot higher than for other majors?  Maybe journalism schools don't teach their majors how to find labor statistics, so they keep writing these misleading stories.  

Do skills matter more than degrees?

Two sociologists did a study four years ago of how much learning takes place in college, and the results were not encouraging.  Scores on the Collegiate Learning Assessment were only half a standard deviation higher for seniors than they were for freshmen.  To use statistical terms, you cannot reject the null hypothesis of "no learning takes place."  The results were not uniform; those in the arts and sciences learned more than those in business and communications.

Now they have done a follow up study of how these 2009 graduates did in the labor market.  The results, summarized in NYT, show that those with the highest scores have done the best professionally.

Even after statistically controlling for students’ sociodemographic characteristics, college majors and college selectivity, those who finished school with high C.L.A. scores were significantly less likely to be unemployed than those who had low C.L.A. scores. The difference was even larger when it came to success in the workplace. Low-C.L.A. graduates were twice as likely as high-C.L.A. graduates to lose their jobs between 2010 and 2011, suggesting that employers can tell who got a good college education and who didn’t. Low-C.L.A. graduates were also 50 percent more likely to end up in an unskilled occupation, and were less likely to be satisfied with their jobs.

Overall the college graduates in this study still did much better than their counterparts who did not finish college.  But once again, this study shows that employers hire and reward for skill not credentials -- an important message for faculty, administrators, and students.  

Secrets to success after college

This Friday WSJ piece references a very interesting study about what determines success and happiness after college.  Released last May by Gallup and Purdue University, over 30,000 graduates of a wide range of educational institutions were surveyed about their engagement at work, their overall well-being, and how both relate to their college experience.

Two results stand out: (1) workplace engagement is more or less unrelated to what type of school you went to (exception: graduates of for-profit schools report much lower levels) and (2) the key variable predicting workplace engagement is successful engagement in college.  In other words, if you did nothing more than attend classes, hand in assignments and get passing grades you missed the boat. There is little payoff in workplace engagement unless you develop a close relationship with one or more professors, had an internship, or worked on a project that took a semester or more to complete.  (Aside: the payoff is even better if you do all three.)

Should universities rethink some of their PhD programs?

January is peak season for the academic labor market, as graduating PhDs await news of whether they will get on-campus job interviews or come up with a Plan B.  In business and economics the market for PhDs is very strong.  In most scientific disciplines new PhDs move on to post-docs.  Then we have the humanities and liberal arts, where tenure-track jobs are few and far between and those with academic aspirations face years of one year appointments.  

Bloomberg's Megan McArdle had a stimulating (as always) post last week where she points out that academic labor markets have become tournaments, where a lucky few get great positions but most people miss out.  The performing arts and professional sports are two prime examples of tournament markets.  Potential athletes learn at a relatively early age whether they are going to make it or not.  Aspiring actors or rockstars end up devoting their best years to the pursuit of fame, and McArdle thinks academic labor markets are like this as well.

Her suggestion will be viewed as heresy inside the hallowed halls of academe: start shutting down PhD programs in disciplines where there is a glut of doctoral candidates compared to available positions.

That constant flow of grad students allows professors to teach interesting graduate seminars while pushing the grunt work of grading and tutoring and teaching intro classes to students and adjuncts. It provides a massive oversupply of adjunct professors who can be induced to teach the lower-level classes for very little, thus freeing up tenured professors for research. 

Unfortunately, I’m essentially arguing that professors ought to, out of the goodness of their heart, get rid of their graduate programs and go back to teaching introductory classes to distracted freshman. Maybe they should do this. But they’re not going to.

I agree that the professorate is not going to do this on its own.  But will state-funded universities start to see pressure?  Will those private schools who are cash-strapped see opportunity?

Some uncomfortable data about earnings of university graduates

Over the last 40 years the earnings gap between workers with and without college degrees has steadily widened.  Even allowing for recent increases in tuition and student indebtedness, for the average student college continues to be one of the best investments he or she can make.

But is it still the case?  Weekend WSJ ran a piece by Jeffrey Selingo who raises some legitimate questions about returns to higher education.   Two of his key points have been established in a number of recent studies: (1) there is a lot of variation in earnings by major (engineers and business  do better than liberal arts) and (2) there is a lot of variation by university (Harvard grads do better than U of Phoenix grads).

The biggest surprise, however, is that in some states recent graduates from community and technical colleges are earning more than recent graduates from four-year schools.  A website called CollegeMeasures.org now tracks earnings data by school and major in five states and the community and technical college grads were doing better than the college grads in all five.  This is not an apples to apples comparison, because it does not take into account tuition costs, odds of finishing, odds of being employed, who was continuing their education after finishing school, and wages of graduates who move out-of-state.

The second biggest surprise is that some big-name schools had mediocre earnings records.  The University of Colorado at Boulder ranked sixth in the state, behind Metro State, Denver, Regis, UC-Denver, and Colorado School of Mines.  Colorado State was tenth, just behind Colorado Mesa.  

College still worth a lot

I have seen dozens of stories over the last four years that purport to show that a college degree is not as valuable as it used to be.  It is true that unemployment of college grads has gone up and salaries have fallen off.  But this does not mean college has become a poor investment.  One must compare how college grads fare compare to those without college degrees to see the full picture.

Last week NYT ran a story about a study supported by Pew Charitable Trust that focused on those age 21 to 24 in the current recession.  Here are the key findings:

People with four-year college degrees saw a 5 percent drop in wages, compared with a 12 percent decrease for their peers with associate’s degrees, and a 10 percent decline for high school graduates.

Among those whose highest degree was a high school diploma, only 55 percent had jobs even before the downturn, and that fell to 47 percent after it. For young people with an associate’s degree, the employment rate fell from 64 percent to 57 percent.  But those with a bachelor’s degree started off in the strongest position and weathered the downturn best, with employment slipping from 69 percent to 65 percent. 

College grads are having a harder time, but others are having a much harder time.  

Best majors for employment

Have a son or daughter in college, or soon to enter?  Then you might want to look at a Georgetown University study (see WP for a summary and here for the study) that shows how unemployment rates vary by college majors.  Recent graduates in health and education had the lowest unemployment rates (5.4%); majors in agriculture and natural resources, business, engineering, psychology and social work, and science also did relatively well (all between 7 and 8%).  Majors to avoid if you are worried about joblessness: architecture (13.9%) and the arts (11.1%); humanities and social sciences also have higher than average unemployment rates (9%). 

Why we have fewer science and engineering majors

Easy answer, sez WSJ and NYT in articles that ran last week: science and engineering courses are very hard and grades have not been inflated as they have in other disciplines.  An additional turnoff: salaries for STEM graduates are out of line with the workload.

Science, technology, engineering and math majors who stay in a related profession had average annual earnings of $78,550 in 2009, but those who decided to go into managerial and professional positions made more than $102,000.   

The downside -- many employers say the combination of a technical undergraduate degree and an MBA (especially a tech-focused one like we offer at NC State) -- is the ideal combination for leadership in business.

Business, finance and consulting firms, as well as most health-care professions, are keen to hire those who bring quantitative skills and can help them stay competitive.

Grade inflation

NYT blog by Catherine Rampell shows how dramatically grade distributions have changed at over 200 colleges and universities.  In 1960, 15% of all grades were A's, which rose to 31% by 1988 and 43% by 2008.  B's held their own, but the odds of getting a C have plummeted, dropping from 35% to 15% between 1960 and 2008. 

Rampell shows that grade inflation varies across different types of campuses.  Private schools have had more inflation than public schools; a private school student has an 86% chance of getting an A or B in any given class.  Grades are lower in Southern schools and schools with large engineering and science enrollments. 

Why have grades risen so much? Hard to argue that students are smarter (the trend on SAT scores is flat at best) or working harder (surveys actually indicate they are studying less).  No doubt some profs gave out higher grades in the late 1960s and early 1970s to keep folks like yours truly from getting drafted and sent to Vietnam.  But the Vietnam War was over in 1975 and this trend is continuing.  Another theory is that student evaluations are more likely to be used to evaluate faculty for tenure and raises, so faculty "buy" higher evals by giving higher grades.  I am not sure I buy that explanation either; some of the toughest graders in the Jenkins MBA program get the highest student evals.  

Don't just go to college; pick the right major!

That's the lesson from a recent study from Georgetown's Center on Education and the Workforce.  Tons of previous studies have hammered home the point that there is a tremendous difference between lifetime earnings gap between college grads and high school grads -- it currently is 84%.  The new study "What's It Worth: The Economic Value of College Majors" shows that there is a comparable amount of variation between the top paying and lowest paying majors.  Searching for top dollar as an undergraduate?  Then head straight to petroleum engineering ($120k), pharmacy ($105k), or math/computer science ($98k).  At the other end of the spectrum we have "Counseling/Psychology ($29k); Early Childhood Education ($36k); Theology and Religious Vocations ($38k); Human Services and Community Organizations ($38k); Social Work ($39k); Drama and Theater Arts, Studio Arts, Communication Disorders Sciences and Services, Visual and Performing Arts, and Health and Medical Preparatory Programs (each at $40k)."  The differential between the top paying and lowest paying majors is over 200%. 

The top paying overall field for bachelors degrees is engineering ($75k); business ($60k) ranks a respectable third behind math and computer science and tied with health majors.  The clear message to students and parents: getting into college is important but picking the right major is even more important for future earnings. 

How much is a college degree worth in China?

Fascinating symposium on NYT online about the tough labor market for college graduates in China, who make 1500 yuan per month (about $220) compared to 1200 yuan per month (about $176) for migrant workers, an earnings differential of 25 percent.  In contrast, college graduates earn on average about 75 percent more than high school graduates in the US. 

Why is the payoff to higher education so low in China?  The symposium focuses on these factors: (1) a surge in the number of college graduates this decade has not been matched by a surge in white collar jobs; (2) many of the new schools that have opened do not have very high academic standards; (3) access to college is dictated by a standardized test that does not emphasize the skills most demanded by employers; and (4) a job market that continues to be dominated by manufacturing. 

Everything important I learned in kindergarten

Today's NYT summarizes research by a team of five economists on the long term impact of early childhood programs.  The title gets your attention: "The Case for $320,000 Kindergarten Teachers."  To get a hold on the old question of whether class size affects learning, Tennessee assigned students randomly to kindergarten classes many years ago, with the classes varying significantly in size.  There were profound differences in learning; students in small classes learned more at the end of the year than those in large classes.  However as the students were tracked in later years the learning differences washed out, based on test score analysis.  Conclusion: good kindergarten teachers and small classes can help in the short term but they have no lasting effect.

The more recent research asks a broader and, I believe, more relevant question: are there any differences in adult outcomes that can be related to different kindergarten environments? The five researchers find that students who learned the most in kindergarten were more likely to have graduated from college, less likely to be single parents, more likely to be saving toward their retirement, and were earning more than those who learned the least.  Perhaps the most important lessons of kindergarten (the article notes "patience, discipline, manners, perseverance") are the most valuable for later in life. 

Tom Friedman on today's labor market

As we head further into the worst labor market in at least 30 years, some patterns are beginning to emerge. Something I keep hearing over and over again is that a college degree of any type is no longer enough. Whether it is undergraduate electrical engineers, MBAs, or law students, employers have never had so much discretion in hiring decisions. They can write the job description of an ideal job candidate and get exactly what they want without too much trouble.

In his latest NYT column Tom Friedman notes what the MBA program hears constantly from employers --

Those who are waiting for this recession to end so someone can again hand them work could have a long wait. Those with the imagination to make themselves untouchables — to invent smarter ways to do old jobs, energy-saving ways to provide new services, new ways to attract old customers or new ways to combine existing technologies — will thrive. Therefore, we not only need a higher percentage of our kids graduating from high school and college — more education — but we need more of them with the right education. ...

Just being an average accountant, lawyer, contractor or assembly-line worker is not the ticket it used to be. As Daniel Pink, the author of “A Whole New Mind,” puts it: In a world in which more and more average work can be done by a computer, robot or talented foreigner faster, cheaper “and just as well,” vanilla doesn’t cut it anymore. It’s all about what chocolate sauce, whipped cream and cherry you can put on top. So our schools have a doubly hard task now — not just improving reading, writing and arithmetic but entrepreneurship, innovation and creativity.

What have b-schools learned from the crisis?

Precious little, according to an article in this week's Economist magazine. A new course here, an ethics pledge there, and not much more. Actually this piece is much more balanced than most journalistic attempts to bemoan the fate of b-schools. It even points to economic research showing that companies using "widely accepted management techniques" outperform those who make less intensive or zero use of such techniques. This might even mean that MBAs earn more money than non-MBAs because they contribute more!

A couple of stimulating ideas mentioned in the article: (1) more economic and business history should be covered -- the recent financial crisis is all too similar to those that preceded it; (2) faculty and students should be a bit more skeptical about what management techniques can and cannot do.

The original sin of business schools is boosterism. Professors are always inclined to puff the businesses that provide them, at the very least, with their raw materials and, if they are lucky, with lucrative consultancy work.

Business schools need to make more room for people who are willing to bite the hands that feed them: to prick business bubbles, expose management fads and generally rough up the most feted managers. Kings once employed jesters to bring them down to earth. It’s time for business schools to do likewise.

What will happen in finance?

Friday's WSJ has a great piece on what is happening on the jobs front in finance and, unfortunately for MBA students everywhere, the news isn't good. Economic research has shown that growth in the financial services sector have been a key driver behind new jobs and rising incomes over the last 25 years. Remember the "Masters of the Universe" in Tom Wolfe's Bonfire of the Vanities? It has been a great run.

Now all of the investment banks have either closed or been absorbed by conventional banks. Pay micromanagement from the Fed looms. The Council of Economic Advisors estimates that jobs in that sector will drop from 4.8% of the work force last year to 4.1% in 2016.

The silver lining? WSJ cites research by Kevin Murphy, Robert Vishny and Andrei Schleifer that indicates a strong likelihood that those who would have gone into finance will now be drawn into entrepreneurship where they will "improve technology in the line of business they pursue, and, as a result, productivity and income grow." Sounds like we have the right game plan at NC State!

Falling behind in higher ed

I had been thinking about writing a piece on the value of higher education, but Peter McPherson, former president of my undergraduate alma mater Michigan State, and David Shulenburger have saved me some work in today's WSJ op-ed. Key points:

In Japan, Korea and Canada, more than 50% of young adults hold college degrees. Only 41% do in the United States.

The more educated a work force is the more value it adds to society. ... Since 1980, the gap between the earnings of those with bachelor's degrees and those with just high-school diplomas has widened. The ratio between the median earnings of men with the former and men with the latter grew to 1.99 in 2007 from 1.43 in 1980.

McPherson and Shulenburger argue that the US should set a goal of 55% of young adults with college degrees by 2025. Not sure that's the right number, but this is a discussion that we need to have, especially in light of all of the cuts in education funding that are taking place around the country. We will become a relatively poorer country if we do not figure out how to generate a higher percentage of young adults with college degrees.

The authors may be a bit too eager to let financing from the federal government play a key role in expanding access. Part of the debate needs to focus on access to higher education in terms of mode of delivery and cost. Tuition has tracked all too close to health care in terms of rising costs over the last 20 years. It is hard to see how we will make much progress on access to higher education without paying some attention to the cost side of the equation.