Education

“Does College Still Pay Off?” asks  Pat Regnier  over at CNN Money. Of course it does assures the president of Arizona State University.

Our calculations and those of economists say the return on investment for a college education, in terms of additional earnings, is about 12% per year over your lifetime. The answer is unequivocally yes.

Honestly…that doesn’t sound like much, but I thought there was a very interesting statistic about halfway through the article…after 6 years, only 57% of ASU students have managed to graduate. I’m quite curious…are those remaining 43% included in the population included in the calculation? I seriously doubt it.

So a better way of looking at this is…If I take a random 18 year old high school graduate and send her to ASU, there are a handful of potential outcomes.  In scenario 1, the student makes it through the program and earns a degree. Lets just say it takes an investment…five years of her life, plus $60k. For this…she goes on and earns 12% more than she otherwise would have. This is the outcome a little over half… 57% ….of the time. Hooray!!

Now…Scenario 2 is not as pretty. 43% of the time…the student will invest at least a couple of years, and lets just say $30k….and end up with no degree. In the oil business, we call that a dry hole, and while it sure does make your performance numbers look better if you can ignore them and focus on the home runs, odds are, your CEO is going to call BS if he sees you trying to pull that in your annual performance review.

But then…this isn’t the real world…it’s education, where you get to make up whatever statistics you want in order to perpetuate the myth that keeps the money rolling in. More or less, the myth goes like this. Send us your 18 year old kid, and $50-100k…or more….and in 4-6 years we’ll send him back…he will no longer be a dumbass.

Of course..it is just a myth. If you send them your lazy dumbass 18 year old, and $100k…odds are, in 4 years, they keep the $100k and send lil’ dumbass home to live with you (and drink your beer).

So…here is my answer. College does pay off….if the kid already has the right combination of raw intelligence and ambition. Raw intelligence…by itself, is of little use….you need the complete package. It’s the complete package that matters most. A lot of ambition and hard work, plus moderate intelligence could very well be a more successful combination than a lot of raw intelligence and a little bit of ambition.

Furthermore…for these students, perhaps 30% of the population…Whatever success they achieve after college can be 99% attributed to their natural talents…not their education. Employers hire people with college degrees not because of what they think they may have learned in school, but because of the credential. If you have a college degree in engineering from a state university, it tells potential employers something about you they didn’t know before. It tells them you probably have above average intelligence. It tells them you have the ability to set and achieve short, medium, and long term goals. It tells them you have the ability to be taught, and more importantly to teach yourself. And since you have demonstrated these skills….there is a much better chance you will be successful in their organization than some random 18 year old kid….even the same kid 4 years prior.

The college degree itself proves only that you may have potential. The company knows damn well that the 22 year old petroleum engineering graduate knows almost nothing about the real world of petroleum engineering or the oil business. That kind of  valuable knowledge will never be attainable in a classroom. However…they are willing to hire the 22 year old because of what they will be able to do after a decade of training.

Now…it is by no means a fool proof selection system. Plenty of sub par candidates manage to get a college degree and into an entry level  position. If they never had the right stuff in the first place…they are not going to make it in the workplace…regardless of the degree. So…say Ivy League Jr. Gets into Harvard because of Mommy and Daddy’s contacts, but unfortunately for lil’ Johnny…he’s just not college material. When he gets out of Harvard 5 years later thanks to a few hundred k of Daddy’s money and a lot of “tutoring”…he very well may get that first job….but odds are…he’s going to get fired sooner or later. The employer hired Johnny because statistically…hiring a Harvard grad gets you a lot of intelligence and a lot of potential. As soon as they figure out Johnny can’t hack it without a tutor holding his hand…he’s done. So in this case…even though Johnny got the highest “quality” education possible…in the end it didn’t make one bit of difference.

I am quite confident that the inverse is also true. Take a kid who grew up in poverty, but blessed with incredible intelligence and a hard work ethic and send him anywhere…community college…or maybe even ASU 🙂 Ten years after college….this kid is going to be working side by side with the Harvard grads of equal skillset.

So…bottom line, as I discussed here, college is not about education at all, it is about credentialing. Basically, College is a 4(-6) year comprehensive IQ test employers use to identify candidates who have the potential to perform complicated, and thus high $ tasks. So…if you have a smart kid, who is highly motivated to succeed…by all means…send them to college (any college) to get a degree in math, science, engineering, medicine, education…or maybe even accounting 🙂 For them, if they are successful, the degree will get their foot in the door and allow them to prove (or disprove) to the world they have the right stuff.  For these kids…the payoff for a college degree  is huge. However…if the kid just doesn’t have it….you can send them to Harvard for that Liberal arts degree…and in 5 years they will be back at home working at JC Penny or if they are lucky…Starbucks, and they will have essentially wasted 5 years of their lives, and a whole lot of your money.

**Just a quick clarification…obviously we are discussing the monetary return of going to college. It has been my experience in life that intelligence and  certainly income have absolutely zero correlation with character. So, let me be perfectly clear…An individual’s intelligence…be it 80 or 120, is simply a measurement of a physical characteristic..no different than height, weight, shoe size, or beauty. None of these tell us anything about the quality of the character or value as a human being. However…it is naïve to think that our physical characteristics do not influence our earning capability. At 5’8″, and 170#…my odds of ever playing in the NBA, or becoming an offensive lineman in the NFL were infinitesimally small from the moment I was conceived….I simply lack the genetic profile to exceed at these high paying professions. Same goes for countless other professions. Forget the arts…I can’t sing and my six year old son makes fun of the stick figures I draw. Construction…not a chance. About 10 years ago I bought a $10 book with plans for building a shed…and about $1000 of materials to complete the job. A few months later, I had the ugliest most poorly constructed shed in town. As it turns out…about the only thing I am professionally competent to do…is accounting and finance. Fortunately for me, this seems to be a rare talent that happens to pay well enough to keep a roof over my head and a protector in my pocket. Let’s just get it out there…the whole system is screwed up and beyond repair. Companies are to blame, government is to blame, colleges are to blame, and parents are to blame. Sending a kid in the bottom quartile of his class to college to get a degree in liberal arts benefits nobody but liberal arts professors and the colleges that employ them. Not everybody can grow up and become a rocket scientist….We need to start being honest with our 18 year olds about their prospects before we let them become slaves to their student loan debt. There are plenty of paths to financial and nonfinancial success in life that do not require a college degree.

We have all seen hundreds of stories over the last 5 years or so….college students graduating with tens, or hundreds of thousands in debt, only to be unable to find a job….ultimately settling for jobs in retail, coffee shops, and restuarants.

So…what is going on? Let’s start with the myth we’ve been telling high school kids and their parents for 3 or 4 decades now. All you have to do is go to college (and graduate) and the world is your oyster. You will walk off of campus, get a good job, and go on to make millions more than you would have if you had skipped college and learned how to weld, fix cars, or be a plumber. It’s all a huge lie….taking advantage of the confusion between correlation and causation.

You see…it is completely factual that if you compare the income of college graduates to high school drop outs, college graduates will have a commanding lead. However, that income gap has absolutely nothing to do with the fact that one group went to college. The truth is…and as a society, we are far from being able to accept this, but the truth is…the college degree or not, people who make more money…do so because they are simply more talented. They were talented before they ever stepped foot on a college campus…and whether or not they ever went….it is their natural talent that will ultimately be responsible for their success….not the fact that they got the “education”…or the supposed quality of that education.

So…if this is true…that 18 year old kid with let’s just say talent in whatever field happens to be in the top 10% or so of the population(in that field)…is going to go on and be successful regardless of what “education” he gets along the way. On the other side….the kid who is not particularly talented….is unlikely to attain classically defined (aka monetary) success….regardless of what kind of educational opportunities he is given. This is perhaps the part of the myth we want to believe the most…that we can take any kid…regardless of his natural intelligence and aptitude….educate him (throw public money at him) and end up with an above average result.

So…the real problem is….parents have bought into this myth, and instead of only sending say the top 25% or so of the most academically gifted…we end up sending a full 60%. So…when these lower tier students do manage to graduate…either with a degree in history, liberal arts, or basket weaving from the University of Pheonix…it really shouldn’t surprise anyone that they end up working at McDonalds….for a 21 year old manager who wasn’t foolish enough to waste 4+ years of his life and tens of thousands of dollars on college.

So…confession time… I have a bachelors degree in accounting and an MBA, and while I have no regrets, the truth is…I learned very few real life skills in the pursuit of either degree that have been instrumental to my professional success. I learned more in my first 3 months on the job as a 21 year old accountant than I learned in all the classes combined in my undergraduate studies. My MBA…well, I learned more reading “The Economist” and The Oil And Gas Journal” in the library between classes than I did in class. You see….college is not about learning at all…it’s about credentialing.

So…say I am an employer…looking for, let’s just say an intro level accountant. Obviously…I’m going to seek out and hire somebody with a bachelors degree in accounting. However…not because I believe that the new graduate has learned much of anything…it’s for something quite different. See..I already know that any fresh accounting grad…whether they are from State U or an Ivy League…are going to be fairly clueless. But…the fact that they have a college degree does tell me something about them. It tells me first and foremost…that they probably have an above average IQ. Second, it tells me that this young individual has more than just raw intelligence…they have the ability to set, and achieve short medium and long goals. It also tells me there is a good chance they have an acceptable level of interpersonal skills to work well in a corporate environment. Now…I am fully aware that many people without degrees also have these exact same characteristics, but statistically, my odds of finding a good fit for my company are much higher if I just pick a random person out of the population of accounting graduates than picking a random person from the general population. It just makes sense for me to take advantage of the admittedly flawed credentialing process in place.

You see…It isn’t important to me what you learned in your advanced accounting class senior year….truth be told….the odds of me personally passing that exam on any given day are slim to none. What is important to me…is that you were able to demonstrate you have the ability to master a complicated subject…even if you proceeded to forget it all after your finals were complete.

So let’s take this full circle….There isn’t a doubt in my mind that the large oil and gas company that hired me out of college…could have hired me right out of high school, and taught me, within 4-5 months’s or so…how to do my first job. With good mentors, and maybe some occasional book lernin…I see no reason that I could not have proceeded on the same career path that led me to where I am today…just with a four year head start.

Obviously…they didn’t do that, and it’s not hard to understand why. Even though I may have been perfectly capable of performing at that point….they had no good way to differentiate potential high performers from the rest. SAT scores??? maybe…but that’s more of a measure of raw intelligence…a good thing, but in itself, not nescesarily indicative of the “total package”. Class rank…..perhaps a broader metric….showing not only raw intelligence, but also motivation, hard work and persistence. But…how a kid performs with mommy over their shoulder…constantly nagging, and who knows…maybe writing those essays herself….it’s still a crapshoot. Finally…perhaps most importantly, the truth is…a substantial majority of all 18 year olds…including myself at that age… regardless of their natural talents…are just straight up dumbasses, and few of them are mature enough at that age to seriously start pursuing a career.

Colleges provide the answer for both parents and corporations. For a fee….they will babysit your kids for 4-6 years. After that…for the half of them that manage to pass the not so rigorous criteria, perhaps 30% of the total population will emerge with a degree… From there, businesses can just eliminate all the liberal arts and other useless degrees, to get down to the true top 15% or so of the population they really want to hire. Is it perfect?….of course not….no system ever will be.

There will always be those individuals (probably millions) with the “right stuff” who never had the opportunity to go to college, and were therefore eliminated from potential career tracks they may have otherwise found great success. However…before we get too sad about these poor souls…don’t. I personally know a lot of very intelligent people without college degrees, and the vast majority of them have done quite well…further evidence in my mind that college, while not useless (the credential itself clearly has some value) is not quite the indicator of success.

This is already quite long…so let me just wrap it up with a summary. First, talented individuals at 18 are likely to go on to be successful…regardless of what education they do or do not get. Likewise…individuals who are not so fortunate…having an inherently lower natural talent….will likely go on to achieve lower levels of success….regardless of the whether they get an Ivy League education…or none at all. Next, college serves not as a system for learning, but rather as a system for credentialing. By age 22-23 or so… ~15% or so of the population has a degree in a useful field (engineering, math, science, medicine…and of course accounting 🙂 ) This population isn’t perfect…it likely includes a lot of people who aren’t bona fide top 15%…and conversely excludes a lot who are. But…for all it’s flaws….it is a far better tool for corporate America than random selection, and better yet…it doesn’t cost them a penny. It’s like Angie’s list for young employees…sure, there are no guarantees, but it’s better than randomly picking a contractor out of the phone book.

Colleges, over the last 30-40 years, in my opinion have taken advantage of parents and students by perpetuating the myth…that it is college itself that is responsible for the relative success of the population of college graduates, rather than their inherent natural talents. The truth is, no college could ever take a lazy kid with an 85IQ, and turn him into a successful engineer, physicist, or accountant….yet, this is what they promise parents. Just send us your kid, and say $20k per year, and your lazy stupid kid will turn out just fine. It’s all a complete lie, and the statistics prove this out. In four years….that lazy stupid kid is going to be living at home with his parents, working at McDonalds, probably without a degree at all, but almost certainly with $80k of student loan debt. The college, of course has the $80k, and absolutely no accountability.

Bottom line…the College Education system in this country is completely broken, and there is plently of blame to go around, starting with the colleges themselves, our government, corporations, and last but not least, parents and students who bought the myth hook line and sinker without ever asking any critical questions. Fixing it all..well, that’s going to take a whole new essay…maybe next time 🙂