MY WORRIES ABOUT COLLEGE

"America is the most educated, unskilled nation on the planet."
- Mike Rowe

I like this time of year, particularly for kids entering their senior year of high school. They are excited to be at the end of this stage of their lives and look forward to college. I am excited too, but I’m also a little worried. My wife and I were the first people in our respective families to graduate from college. Things are much different for people going to college today.  

When I started college, 23% of men in the country had a 4-year college degree. Contrast that with the reality that nearly 65% of today’s high school graduates go to college. If college degrees really differentiated one person from another thirty years ago, that “degree” of differentiation no longer exists.  

College Games

Without going down the rabbit hole regarding mankind's search for meaning, most young men and women go to college because they believe it will help them with their career prospects. After all, the statistics show that people with a bachelor’s degree earn, on average, 73% more than people with a high school degree. Furthermore, the differential in earnings between college graduates and high school-only graduates has increased 50% since the late ‘70s.

That income differential is what drives people to college, but why is the differential there in the first place? I know that sounds like a basic question, but it’s not. Most people believe in the importance of college because they believe that college makes them tremendously more knowledgeable and greatly improves their critical thinking skills. 

I simply don’t believe that is true. 
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Think about knowledge and your ability to retain it. How many of you took a foreign language in college? How about biology, chemistry, or physics? How about trigonometry or calculus? How about finance or accounting? How much of that knowledge have you retained? Heck, how much of that knowledge was even valuable? Unless you are in a career that requires you to use that knowledge, you probably don't remember much of it at all. Fifteen years ago, the U.S. Department of Education gave about 18,000 people the National Assessment of Adult Literacy. Less than a third of college graduates received a composite score of “proficient”—and about a fifth were at the “basic” or “below basic” level. None of this should be surprising to anyone that has returned to school after summer vacation, but we talk ourselves into believing things that simply are not true. Most of the knowledge that colleges provide goes into the mental "circular file" (aka, the mental trash can).  

Some of you might say, "College really isn't about knowledge. Their true value is in their ability to improve the critical thinking skills of their students." Ok, that's a fair comment, but I don’t find that data compelling as to its accuracy. There are a lot of employers that certainly don't think so either, especially given grade inflation (the average GPA is 3.2). Because of the concern, a new test called the College Learning Assessment Plus, or the CLA+, was developed. It is given to incoming college freshman and exiting seniors and its goal is to measure the improvement in critical thinking skills over their time in college. At some smaller colleges, where students entered with weaker skills and lower freshman scores, a rigorous curriculum really did make a difference in the scores. At more than half of schools of the 200 schools studied however, at least a third of seniors were unable to make a cohesive argument, assess the quality of evidence in a document, or interpret data in a table. At some of the most prestigious universities, test results indicate the average college graduate had little or no improvement in their ability to think critically. We have a desire to believe that we know how to teach people how to think and how to learn. When looking at the educational literature on the subject - and that research spans nearly 100 years – it is clear that we don't. 

Thomas Jefferson once wrote that "there is a natural Aristocracy among men; the grounds of which are Virtue and Talents.” We know this to be true, even if we don't like to admit it. Some people are tall. Others are short. Some people are attractive. Others are less so. The same thing goes with intelligence... otherwise known as IQ. In the US, the average IQ is 100. If you were part of a gifted program in elementary school, your IQ was 130 or higher (I say “was” because IQ tends to decline with age). An IQ higher than 145 shows that individual to be in the top 1/10th of 1% in terms of intelligence. This is important because your IQ and your SAT score are highly correlated. For instance, if your children score in the low to mid 1300s (on a 1600 scale) on their SATs (according to iqcomparisonsite.com), that places their IQs in the 134 - 139 range. Furthermore, as forecast by their SAT scores, they will probably do well in their classes in college. Will their time in college improve their critical thinking skills? Maybe a little, but it isn’t all that likely. 

According to Bryan Caplan, PhD of Economics at George Mason University, most of the earnings advantage associated with college isn't the result of things students learn in college. Instead, the intelligence, discipline, ambition, etc. that students already have that they bring to college as freshman are credentialed when they graduate in the form of a diploma. That little white sheet of paper is valuable. If you find that hard to believe, consider this thought experiment: Think about the probable income a student that drops out of college one day before graduation will earn vs. the income from an identical student that stays in college a single extra day to receive his/her degree. The difference is massive, even though the education is the same. It is not knowledge, critical thinking, or skills that students are selling to employers. Instead, the reputation of the educational institution from which they graduate is a "signal" to employers that students from that institution are better potential employees than the people that didn't go there. That is why attending a difficult to get into school is so incredibly important. 

Institutional Errors

Given the truthfulness of the comments above, our society has a fundamental problem in our educational institutions. Elementary school education has created a culture where everyone is expected to go to college. That has led to a tremendous demand in college education. Now, if educational institutions operated like normal businesses, you would expect them to increase enrollment. That hasn’t happened though, because to increase enrollment would mean to lower the relative reputation of their schools. On the other hand, to maintain the same enrollment in an era of rising demand is to INCREASE the relative reputation of a given school. And that is exactly what you’ve seen happen at Harvard, Yale, Princeton, MIT, etc. 

In response, we have had a proliferation of colleges. According to the National Center for Educational Statistics, there were 1,957 4-year colleges in the United States in 1980-1981. At year the end of the 2014-2015 school year, there were 3,011 such institutions. Are those new institutions operating at the super selective end of the educational spectrum? Absolutely not. We have a tremendous number of schools – particularly the for-profit variety – that cater to students on the low-end of high school GPAs and SAT test stores. 

Colleges up and down the selectivity spectrum are allowing their students to earn degrees in subjects completely divorced from economic reality and employer value-added. Per niche.org, there were ~641,000 degrees awarded to Humanities majors as compared to ~430,000 degrees awarded to Business majors. While I like the humanities, I don’t imagine that the employment prospects or the salary expectations for Humanities majors are very high. While it’s a guess, it seems reasonable that many people with those majors might be working at the local coffee shop after college. Frustrated, upset, and in debt. 
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Unfortunately, our business environment supports this frustrating cycle as well. Employers only want to interview people with college degrees, even though they know that many of those college degrees don’t indicate the candidate has the skill to do the job. Nevertheless, the degree does act as an all important “filter” to whittle down the number of applicants. This is why college degrees still matter, but given the large number of bachelor’s degree holders, why they matter less and less every year. Master’s degrees are a differentiator, but they matter less, too. The earnings advantage of a Master’s degree was nearly $21,000/year over a bachelor’s degree in 2005. In 2016, that advantage was reduced to ~$15,000/year.

Closing Thoughts

I am a big believer in education. While I believe the value of college is overstated, I still believe colleges can add value. Frankly, I believe they should be doing much more white-collar skills-based training than they do. The students’ future employers would love it. I also believe technical schools should make a roaring comeback. I’m a pretty good math and finance guy, but I have absolutely no idea how a combustion engine works, and I’m humbled by the minds that invented them. Knowledge and skills are different! Our economic system lets us master those differentiated skills so that we can come together in a society so that each of us does well. But that success is based on skill. Applied skill….based on knowledge….but made real as skill.

It is clear that bad systems can last for a long time. I don’t believe they will last forever though. One day, someone is going to develop a test that candidates take that will assess their skills and aptitudes for certain jobs. Employers are going to love it. When that happens, the educational credentialing system that exists today is going to crash. And it should. 

As always, the steak matters more than the sizzle. 

Author

Bruce Wing is the president of Strategic Wealth, LLC, a fee-based Registered Investment Adviser located on the north side of Atlanta.