Posts Tagged 'Higher Education'



The Cost of Not Going to College Is Probably Not As High As You Think

Each year, there are a number of studies that show the same thing:  there has never been a time when the salary gap between high school graduates and college graduates has been higher. According to Pew, this salary gap currently averages $17,500. The College Board puts the gap at $21,100.The implication seems clear:  stay in school, go to college, and reap the benefits.

However, there is actually a lot of nuance to this story and the true causes of this wage gap are rarely discussed. First, the fact that an average college graduate makes, say $20,000 more than a high school graduate entering the workforce does not mean that if you coax a high schooler who was not going to go to college to attend, he/she will make that much more. In fact, you should expect that particular student to make a much lower wage premium. Why?

The data both Pew and the College Board cite suffers from what researchers would call a “self-selection bias.” In short, high school graduates who enter the workforce immediately after graduation aren’t a comparable base of individuals to those who choose to go to college. The result is an apples-to-oranges comparison that makes the economic value of going to college versus going straight to the workforce to seem greater than it actually is.

To get a true measure of the “college premium” we’d have to run an experiment. We’d take a large sample of high school seniors and assign them to either “work” or “college” randomly. The difference in the “work” and “college” group would be the true college premium, and would be much less than the $20,000 that is claimed. (Of course this experiment could never actually happen!)

Why? Because the high school senior who chooses to college has higher earning potential than the one who chooses to work and would earn more even if he/she did not go to college. Similarly, the high school senior who chooses to work rather than college would be expected to make less than the average that current college students make if he/she chose to go to college.

Another example of this same concept would be the salary figures colleges promulgate. The median starting salary for a Stanford graduate is $61,300 per year. The average starting salary for a 4-year college graduate is $45,370.

Does this imply a Stanford education is responsible for a $15,930 starting salary premium compared to an “average” 4-year college? Absolutely not. To understand the Stanford premium, we’d have to take all incoming college students and randomly assign them to colleges. Then, in four years we can compare the average starting salary of graduates and make a credible claim that the Stanford premium is the difference. It will be much less than $15,930. Why? Because the incoming Stanford student has a potential earning power that is higher than the typical incoming college student. Much of the current “Stanford premium” would be due to this self-selection of the student and not to the education they receive at Stanford.

The information that is put out there regarding the college premium has unintended, but serious consequences. First, it pushes many students to choose college who will not gain the salary premium they expect. Many of these students will take substantial loans, may drop out, and will left in a financial mess that takes much of their adult lives to recover from. It is a little known fact that just 53% of those who enroll in a 4-year college actually end up graduating.

Second, this thinking drives many strong students to go to more expensive colleges. Many don’t realize that the salary premiums they will command likely have more to do with who they are than where they choose to attend college. It is likely that the key determinants of a young person’s success will not be where he/she went to college but more their own talents, hard work, and ambition.

Finally, our political leaders jump on statistics such as the college premium. They perpetuate a myth that all students should go to college, establish programs to make this possible, etc. This has contributed to unemployment among college graduates, declines in starting salaries among those who do, a crisis in middle skills employment, and a mismatch of labor to available jobs.

This is not to say a college education is not a worthy pursuit. In fact, it is a good idea for most, and jobs should not be the sole goal of college. However, we don’t do right by high school students by overstating this gap and having a singular mindset that college is the only path to success.

Whose Job is it to Close the Gap?

Mind-the-Gap

There have been many studies released, from very credible sources, that indicate that a college education clearly pays back. A May 2014 New York Times article indicates that the pay gap between college graduates and non-graduates is widening, even as more students attend college. The College Board has indicated that both individuals and society as a whole benefit from increased levels of education. Pew Research has shown that although the pay gap is increasing, Americans are beginning to question the value of higher education and its affordability.

Today’s colleges face many challenges in helping prepare students for the workforce. As more students attend college and costs continue to rise, higher education institutions will be under increasing pressure to prepare students for the workforce. Gaps in workforce preparedness contribute negatively to employers’ views of graduates, the reputation of colleges, and the well-being of young adults. There is a sense that college curricula are struggling to keep pace with the changing needs of the workforce.

Crux Research recently conducted a study for Chegg which focused on workforce preparedness. We surveyed large samples of students, college faculty, and employers to explore beliefs around accountability and ownership in creating a hirable, attractive, ready-to-work population from U.S. colleges and universities.

This study sheds new light on issues of workforce preparedness, the unique perspectives of faculty and employers, and the need for a new approach to the way faculty and employers work together.

A summary of results of the project can be found at Chegg’s website here.

What has two eyes, one brain, and costs a quarter million dollars to educate?

education-at-work-college-evolution

Publicly-funded education is perhaps one of America’s greatest triumphs. Education has been part-and-parcel to our democracy and the founding fathers realized early that if government was going to be of the people, for the people, and by the people, then the people better be well-educated.

The idea of compulsory public schools goes back to the founding of the nation but actually took some time to gain traction. This is likely because education was and (despite recent history) remains largely a local responsibility. Throughout the 1800’s States passed laws making education compulsory. It took some time for these laws to create a culture where education of children was largely left up to the State, sort of “outsourced” from parents.

In 1912, 72% of America’s children were in school. By 1930, this percentage had reached virtually 100%. I believe this is the main factor behind the dawning of American dominance in the 20th century. There were other factors, but the US had early success in making education compulsory, which gave us a head start in innovation and business. It led to almost a century of leadership of the world’s economy.

Yet, somehow this educational prominence has slipped, or at least has been perceived to have slipped. International comparisons tend to show that our students are not doing well compared to other developed countries. Although many of the prophesies of “A Nation at Risk” have not come to fruition, the concerns expressed more than 30 years ago are resurfacing.

Complaints about the educational system seem to flow with the business cycle and peak at times of economic uncertainty. And we shouldn’t ignore the economics: the resources we spend to educate our children are considerable. My local school district currently spends $12,684 per student per year. Some quick math implies that it cost about $165,000 to educate my child from grades K-12.  Since I have two children, it has cost about $330,000 to get them to a high school diploma. As a parent, I owe our local taxpayers a thank you.But, as a taxpayer soon to not have children in school, I have to be concerned about this level of public investment.

Take the case of a child in the school district where I live, which is a suburban district in New York State.Most students from this district end up going to a 4-year college. For demonstration sake, I picked the closest State college and closest private university to where I live. The annual tuition, room and board, etc. for these students runs $18,055 at the State college and $45,602 at the private university. I am assuming this captures the full cost of what it takes to educate a student for a year at these institutions. These costs might be paid by parents and students, or loans, or grants. For this example, it doesn’t matter where the money comes from.

Using these figures, the total cost of educating a child in our district from Kindergarten until he/she turns the tassel at college is about $237,000 for the State college and $347,000 for the private university. This is what it costs “society” to educate a child from my area, with society being a mix of tax dollars, parent and child money, scholarships, loans, etc.

This is likely an underestimate of the true costs of education. Costs are higher than this calculation for the State college, as they receive government subsidies that help keep their tuition costs down. And, there is an opportunity cost to not having the student in the workforce and contributing to the economic output of the nation until he/she is 21 or 22 years old.

This example shows that there is an understandable economic underpinning to current criticisms of our education system. At a time when we have pressed an increasing base of students to go to college, the college costs have risen substantially. That in itself is not problematic – more problematic is that the costs of college have been growing at a much faster rate than the benefits.

A recent piece by the Wall Street Journal indicates that since 2006, the cost of a 4-year degree has increased by 16.5%. At the same time, starting salaries have stagnated, and I have even seen calculations suggesting first year salaries for college graduates have fallen for the first time in history, when calculated on a real basis.

So, is this a bubble that will have to pop? I guess the definition of a bubble is that nobody really knows we are in one until it punctures. But, it is predictable that education institutions, both K-12 schools and colleges and universities, are going to be under even more intense pressure in the future.

The Paradox of College Rating Systems

It is the time of year when various magazines and services promote their own versions of college rating systems. For many of these publications, the college rating issue is the single most popular issue of the year. And, it is no wonder… with the growth in the costs of college education has come a greater concern on the part of parents and students that there is an adequate return on this investment.

College admissions officials face an interesting paradox. Privately, they loathe these systems, hate their methodology, and struggle to convince their administration that these systems are irrelevant. Publicly, though, they do everything they can to improve their rankings and broadcast them loudly if they like where they ended up.

These rating systems are fundamentally flawed. That is a strong statement. By fundamentally flawed I mean that they measure things of little relevance to a parent or a child who is evaluating colleges, which presumably, is their raison d’etre. Perhaps of even greater concern is that colleges themselves typically don’t measure what is actually important, in terms of the quality of undergraduate education they are providing.

It is a fairly basic principal in business that the efficiency of a system is measured by its output divided by its input. In other words, it is the difference in quality in what they system yields and what it takes in that indicates its quality. This is termed “value-add” in many contexts.

This was brought to my attention by Ronald Yeaple, my faculty advisor when I was an MBA student (and among the best teachers I’ve ever encountered) many years ago.  He stopped by to re-connect and we discussed a book he had recently written called “Does It Pay to Get an MBA?” One of the arguments he presents in this book is that MBA programs can be evaluated in a fairly straightforward manner. For better or worse, a primary reason people choose to get an MBA is to further their careers and improve their salary prospects. So, starting salaries or salaries a few years out are effective “output” measures for MBA graduates.

Most business school rating systems take this into account and include salary information in their ratings formulas. But, they only include half of what needs to be done to measure the efficiency of a system. It is no surprise that the business schools that come to the top of these lists every year happen to be the ones that cost the most to go to and yield the highest salaries.

But, these programs also attract the best and the brightest. This begs an important question:  is it the program or the student that matters? Yes, Harvard and Stanford have high starting salaries for the graduates of their MBA programs. But, is this because of a high value-add experience at these institutions, or is it driven more by the quality of student they attract?  In other words, would the student Harvard attracts have garnered a similar salary if he/she graduated at other, perhaps less esteemed and less expensive business schools?

It isn’t too much of a stretch to state that a student that gets into a top notch program was likely to do very well regardless of their MBA school choice. The issue is how to measure this. Fortunately, there is an objective measure of the quality of an incoming MBA student. It isn’t perfect (few measures are) but it is widely accepted:  the GMAT scores of the student.

So, the efficiency of an MBA program can be measured by dividing its output (salary information) by its input (GMAT score of the student). This is a measure of the value add of the institution – what it has added to the student beyond what the student brings to the program.

Ron Yeaple did this for MBA programs… in an inventive way.  He took the average GMAT score of a class year of MBA students for all the MBA programs in the country and used it as a predictor (independent) variable in a regression analysis. His dependent variable was the starting salaries of graduates of the program.

As you can imagine, there is a positive relationship between the two. Business schools with higher incoming GMAT scores tend to have higher starting salaries. Those with lower GMAT scores tend to have lower starting salaries.

But, the interesting part is all MBA programs don’t align perfectly on the regression line. Some are above it and some are below. Those above the regression line are those whose students are earning more as graduates than their incoming GMAT scores would predict. Those schools below the line are underperforming – their students are earning less than their GMAT scores would predict. When Ron ranked the schools by their deviation from the regression line, the list did not correspond to any list I have seen. This was a beautiful analysis, and reminds me of why I found Ron to be such an outstanding professor.

It is more challenging to implement this value-added concept to undergraduate education. For one thing, a proper outcome variable is harder to define. How do we measure the output of a college? There is more to a quality institution than the salary of their graduates. But, in today’s world it has to be an important part of the outcome measure.

Outcome measures that don’t somehow correct for the incoming quality of the student base can’t do an adequate job of ranking institutions. If you ranked colleges by the mean SAT scores of their incoming freshman you would have a list that looks a lot like the lists that are published each year. How does that say anything about the quality of the education a college is providing?

Time is Money; Money is Time

The most interesting call I ever received as a result of a poll we conducted was from a college student. We had released a data point demonstrating that college students have an enormous amount of uncommitted, free time — 8.5 hours a day on average to be precise. We defined discretionary time as time students are not sleeping, going to class, studying, working out, commuting, or working at a paid job. What is left is time that is up to the student how to use.

The college student called to tell me how this data point must be wrong, because all the college students she knew were incredibly busy. After mentioning that she must be hanging with a different crowd of people than I hung with in college, I told her to call me back in 10 years when she had a career, a spouse, a couple of kids, and a house to maintain. I suggested it is likely a matter of perspective and how you view your discretionary time, and that perhaps time that she considers “obligations” our researcher’s eyes classify as discretionary.

In the context of many decisions we make, we trade off the concepts of “time” and “money.” In the short-run, both are fixed commodities. In the long run, our financial situation may change for better or worse and our concept of time may change even though each day remains at 24 hours.

Our discretionary income follows a well-known path in our lifetime. It starts at zero when we are born, grows to a modest level as teenagers, tends to level off through the college years, grows considerably in our working years, and then falls off in retirement.

Discretionary time follows a different pattern. It starts out very high, moderates in the school years, grows considerably in the college years, and then pretty much falls off a cliff as individuals are raising their own families and building their careers. Discretionary time then moves upwards during the empty-nester time frame, and then is maximized in retirement. Note that we define discretionary time as “uncommitted” time – time that you get to choose how to spend.

The graph below illustrates how time and money progress over our lifetimes.

Time and Money

The interesting part of this for marketers is that “time” and “money” are often used to “buy” each other. We can buy more discretionary time by outsourcing aspects of our lives. I don’t change my own oil, plow my own driveway, or iron my own shirts. In all these cases, I value the time saved by not having to do these things more than the money it cost to outsource them.

This relationship goes the other way as well. We can use “time” to save “money.” I’ll sometimes spend hours on the Internet to find the best price for a flight or a hotel room. I’ll drive an extra 15 minutes to a grocery store because something I like is on sale there and not at the store closer to my home.

Look again at the graph above. The most interesting life stages are the ones where there is a big gap between the time and money lines. An obvious place where this happens is the college years. This is a time frame when consumers have relatively little discretionary income, but relatively high discretionary time. This concept is why for years we have been saying that college students are pretty much the most savvy consumer group out there. They are smart (hey – they are in college!), highly connected with each other, necessarily frugal with their funds, and have enormous amounts of time to research products and prices. But, they are more than cheap customers who have a lot of time to find the best price. They emerge as adult consumers, and lifelong associations with brands often start in the college years.

Another interesting point on the graph is at mid-career (30’s-40’s). This is the point where there is the largest gap between discretionary income and discretionary time. So, this is the life stage where we most see consumers trading money for time. Price sensitivity tends to be at its lowest during this time frame.

Money is time. With money I buy for cheerful use the hours which otherwise would not in any sense be mine. — George Gissing

2013 re:fuel College Explorer Findings Released!

Follow the link below to learn more about the 2013 re:fuel College Explorer – powered by a poll conducted by Crux Research!

Tech-Savvy College Students Are Gathering Gadgets, Saying Yes to Showrooming and Rejecting Second-Screening

The First Female-Led Generation?

boysdrool

A recent Pew study shows that females are the sole or primary provider (breadwinner) in 40% of households with children. This is an increase from about 11% in 1960. This study has garnered significant attention in the press and in social media.

Is this a trend that will continue? Will it accelerate as Millennials become parents?

Education is the basis of economic opportunity and earning power. To understand if Millennials will become a female-led generation, we need to look at how our educational system has evolved over the past couple of generations.

There has been a silent revolution going on in our educational system. Increasingly, girls have been outnumbering and often outperforming boys. Most educational progress over the past couple of decades has been concentrated on one gender.

Let’s look at some data that make this point. Despite boys having a “numbers” advantage early in the educational process, by the time the population graduates from high school, in terms of sheer numbers the majority shifts to being female. The table below shows that (despite what we were taught in high school Biology) more boys than girls are both conceived and born. But, even though there are more boys than girls enrolled in elementary grades, because boys are more likely to drop out, more girls than boys graduate high school.

table for blog post

The education gap between females and males is even more pronounced most when examining college graduation rates because girls are also more likely to complete a degree once they are there. 4-year college enrollments are currently 57% female. Males are also more likely to drop out of college, and the result is there are just 73 male 4-year college graduates for every 100 female college graduates. The latest projection from the US Department of Education is that in 2020 156 women will graduate college for every 100 men who do so. 61% of our college graduates will be female when the last Millennials enter their college years.

In the early 1990’s I was working mostly in educational research. At that time, (during the Xer to Millennial transition), the book Failing at Fairness came out. The premise was that girls were being treated differently by teachers and schools than boys and were “second class educational citizens.” The book claims to show how gender bias makes it impossible for girls to receive an education equal to that given to boys.

At the time we were doing a lot of market research in schools and had data sets from tens of thousands of children. Our data was coming to a completely opposite conclusion. Girls were reporting being happier and having better relationships with their teachers than boys were. Teachers were reporting to us that their struggles were in reaching boys and not girls. We accused these authors of ascribing their own experiences in the educational system to the current youth generation, when we had very concrete data suggesting their core premise was wrong. What they really did was extrapolate a Gen X trend to Gen Y.

Since that time, the prevailing wisdom has shifted – in the Gen X era the discussion centered on how schools cheat girls. Today, the discussion is about how boys are being left behind. The newfound female domination of the educational system causes concern regarding boys.

When we look at achievement data, we find that in the 70’s and into the 80’s, boys consistently scored, on average, higher than girls on reading and math. When you look today you see that, on average, girls have surpassed boys in reading scores and are pretty much at parity with boys in math. The trends show a lot more progress from females than from males, whose scores are very flat over the past 20 years.

So, is there hope for boys?

It is important to look beyond averages when analyzing any data set. A running joke in market research is that the average American is 50% male and 50% female and that doesn’t really describe anybody.

There is an interesting characteristic you see in just about any data set from young people. It can be test scores, or survey data, and on pretty much any subject you can think of. When you draw out distribution curves, you almost always see that distributions for boys tend to be flatter than distributions of girls.  Boys tend to be more variable than girls. They are more likely to be in the tails of the distributions than girls are.

When researchers report education data they tend to report averages and ignore the distributions. For example, you’ve probably all seen studies that show that U.S. students perform really poorly compared with their international counterparts. That is true – but when you look at the highest achievers, the top 5%, U.S. students look much better.

Similarly, although average academic achievement is often higher for Millennial girls, boys remain well-represented among the highest achievers. Even though the proportion of college-bound students is becoming increasingly female, there is evidence that the highest achieving students remain just as likely to be male as in previous generations.

Although many colleges and universities struggle to achieve gender balance, top-tier colleges and universities do not. These top colleges remain in a seller’s market for their degrees and do not have the same issues as less competitive institutions in shaping their class in terms of gender. These top-tier schools continue to graduate significant numbers of high achieving men as well as women. In 2005, all but two Ivy League schools had more men enrolled than women.

Certainly, the data are clear that females have made great educational strides. That leads us to a central question:  how will these educational gains translate to other areas? Will we someday look back on Millennials and say this was a female-led generation?

I am not so sure. The potential is there for more women to become breadwinners and for more and more cracks to appear in the glass ceiling. However, even though females are more likely to be enrolled most graduate programs there is a glaring exception:  MBA enrollments are still more than 2/3rds male.

The limitations to the generation becoming female-led will not be educational, it will be more about whether women choose to take on this role. Despite tremendous gains in academic achievement and leadership, many Millennial females will not be willing to endure the stress their mothers experienced, and will instead effectively drop out of the career force, either entirely or by choosing to be underemployed. A recent study among Yale co-eds found that 60% said that when they had children, they planned to stop working entirely.

“At the height of the women’s movement and shortly thereafter, women were firm in the expectation that they could combine full-time work with child rearing.  Women today are, in effect, turning realistic.” – Cynthia Russet, Yale History Professor

There are many reasons to believe that Millennial moms will be different than the generations that preceded them. Many of them know firsthand what it is like to have both parents working, and that work is becoming increasingly hectic. Their mothers tried to do it all, yet weren’t always successful in the eyes of their children.

There is a different ethos being displayed by Millennials compared to their boomer mothers. We have conducted a poll of Millennials that shows that women start to turn realistic about family and career as they approach child-bearing age. Their attitudes shift back to more traditional views of the family. What seems new is that while many of their mothers expected to have hard-charging careers and then scaled back their professional plans only after having children, many women of this generation expect their careers to take second place to child rearing.

Millennial women may not agonize over work/family decisions as their mothers have. The tug towards family that Millennial females are feeling may negate the gains made by women in the educational system.

Will the trend towards more female breadwinners continue? Let us know what you think.

The College Scorecard – It is about time!

top_hat

In this year’s State of the Union address, President Obama announced the creation of a “College Scorecard.” This Scorecard allows parents and students to compare colleges and universities based on “a simple criteria: where you can get the most bang for your educational buck.” The Scorecard alloys you to enter a college and see how much students and their families actually pay to attend, how much they borrow and if they end up defaulting on their loans, and if students end up getting degrees and jobs. The underpinnings of Scorecard itself aren’t new, but this does assemble information that the Department of Education has collected for years in one, easy-to-use website.

Almost from the moment it was announced, many colleges and universities have been distancing themselves from it.

Of course, colleges have tried to distance themselves from college ranking systems in the past. College leaders complain about ranking systems, yet trumpet their rankings when they do well on them. Behind the scenes higher education administrators go to great lengths to position their institutions to do well in the rankings.

In 2006, along with LifeCourse Associates, Crux Research conducted a poll of prospective students and parents. In this poll, we asked about decision criteria when considering which colleges to apply to and attend. We purposefully placed in criteria used in college ranking systems (most notably U.S. News & World Report), as well as more outcome-related criteria, such as those covered by the College Scorecard.

Of the top ten decision criteria used by students, just three are currently covered in the U.S. News & World Report’s annual college ranking system. The top four criteria are all covered in the new College Scorecard.

TOP FACTORS FOR STUDENTS

“How important are the following factors when choosing a college?”

% Extremely/ Very Important

Covered in existing rankings?

Final cost of attendance

79%

No

How much college debt you are likely to have

69%

No

Earnings capabilities of graduates

67%

No

Graduation rate

64%

Yes

Educational expenditures per student

61%

Yes

Amount of time full-time faculty spend with students

59%

No

% of graduates who pursue careers in their fields of study

58%

No

Average score on a national college learning evaluation for seniors

53%

No

Selectivity of the college

51%

Yes

Name recognition of the college

49%

No

SOURCE:  Millennials Go to College Poll of Students, (n=500 college bound high school students surveyed online in November 2006

The results of our poll were very clear. When deciding where to attend college, parents and students largely ignore the criteria that current college ranking systems tend to use. Instead, they are more concerned with outcomes measures like how much college will really cost, expected debt, if the degree will pay back, and the odds of graduating.

Yes, our poll from 2006 shows that prospective parents/students were looking for the type of information the College Scorecard provides. Seven years later, it appears they will get it.

We have seen that institutions will position themselves for success along an accepted metric, despite its imperfections. So, look for colleges and universities to become more transparent about their retention rates and debt-loads for students. Look for those who don’t perform well on these criteria to criticize the Scorecard in public, while privately working to improve their performance on it.


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