Weighing the Value of That College Diploma

From the Wall Street Journal | Dec 16, 2009

As millions of students labor over college applications this month,
they and their parents are pondering just how big a tuition bill they
want to pay.

Students are increasingly skeptical about the value of a college
degree; the proportion who are willing to borrow money for college if
necessary has fallen to 53% from 67% in the past year, based on a
survey of 800 college students by Sallie Mae, Reston, Va.

Christian Hansen Photographer for The Wall Street Journal

Jason
Wotman, who co-founded a tailgate-party service, says his degree in
human and organizational development from Vanderbilt University helped
prepared him for entrepreneurship.

Parents
are thinking harder, too, about why they sign big tuition checks, based
on a steady stream of email I have received since writing about the
college cost-to-value equation a few months ago. Here is a look at a
few perspectives on the issue:

• A path to a better-paying job: College
graduates in general earn at least 60% more than high-school grads on
average, both annually and over their lifetimes, and the income gap has
been growing over time, says a 2007 report by the College Board, New
York.

Beyond that, students who major in science- or math-related fields
tend to earn more right out of college, compared with other majors,
research shows. Phillip Hamilton, a St. Louis stockbroker, values the
earning potential of a degree from a top professional school for his
son, a high-school junior, over any prestige or network a degree from
an elite liberal arts college might confer. "Is a degree in sociology,
English or communications from a 'door-opening' school really going to
help with that landscaping job that awaits you?" he asks rhetorically.
He hopes his son, 17, chooses a college based on the quality of its
engineering, food science or accounting program, and majors in one of
those subjects. "Then if you decide to work at a surf shop after
graduation, you can still snap out of it at 27 and get a real job," he
says.

Christian Hansen for The Wall Street Journal

Tailwaiters provides snacks and a grill for pre-game partiers.

For
parents who want to refine the cost-to-income analysis, a new tool is
available that predicts how much money a student is likely to make
after graduating. The online calculator, HumanCapitalScore.com,
will generate a 10-year range of students' likely postgraduation income
based on their test scores, high school and college attended, grades
and major.

Developed by People Capital, New York, a peer-lending concern, as a
tool to predict students' creditworthiness, the calculator can also be
used to compare the likely outcome of various possible choices of
colleges and majors. It makes projections based on data sets from more
than a half-dozen government and private-sector sources, encompassing
hundreds of thousands of actual grads. Prices start at $19.95 to
compare two scenarios.

I tested the calculator by entering information on six actual
college graduates who voluntarily shared their data, and comparing the
HumanCapitalScore.com projections to the grads' actual earnings. The
grads' pay fell within the range projected by the calculator in five of
six cases. The exception was a young entrepreneur who chalked up a
mediocre record at a little-known college but blossomed later, when
working for himself. The projections are based on what "an individual
with certain attributes can reasonably expect to earn," says Alan
Samuels, People Capital's chief product officer. "Clearly, some will do
better than expected, while others will do worse;" the projections are
likely to be accurate about 80% of the time, he says.

HumanCapitalScore.com's projections can also help a student figure
out how much money to borrow for college. Many experts say total
student loans shouldn't exceed a grad's first-year income after
graduation.

More information on postgraduation pay can be found at Payscale.com/best-colleges, which offers general information on median salaries of actual grads by college, type of college, major and job.

• Preparing for a rich, well-rounded life: To Megan
  DeLamar Schroeder, Texarkana, Texas, planning the college experience
  based entirely on future income demeans its true value. "The intangible
  benefits ... cannot be reduced to some kind of short-term cost
  benefit-analysis, as though one is purchasing a piece of property or an
  expensive sports car," she says.

Journal Community

• discuss

"
A college education and associated degree may be a "door opener" to career opportunities that may not be available otherwise.
"

-William W. Gorman

She
borrowed $40,000 to earn an economics degree from Stanford University
in the 1980s, which landed her only an entry-level job at a bank upon
graduation. She spent 10 years paying off her student loans. But the
experience was worth every penny, she says. The opportunity "to
'marinate' for four years in an amazing environment" served as a
"springboard to lifelong learning and inquisitiveness," she says. She
will encourage her 10-year-old twin daughters to hew to similar values
when they start their college search, she says.

Research supports Ms. Schroeder's viewpoint. College grads generally
show higher rates of civic participation, engaging in volunteer work
and donating blood at more than twice the rate of high-school
graduates, says the College Board study. They are less likely to smoke
and more likely to exercise daily. College grads also have a much
higher likelihood of being happy, says a 2005 survey of 3,014 adults by
the Pew Research Center; 42% of college grads reported being very
happy, compared with 30% of those who only finished high school or less.

• Finding work you love: James Landon, Apache
  Junction, Ariz., says this is a good reason to attend college, and he
  sees big public universities as the best and most cost-effective place
  to conduct such a search. Four of his five children attended big public
  universities. Two of them had no idea as freshmen what they wanted to
  do, Mr. Landon says, and the universities' broad offerings of programs,
  majors and facilities helped them figure it out. One wound up in
  finance and is a successful real-estate broker; the other majored in
  psychology and political science and is now pursuing a foreign-service
  career in graduate school.

College degrees can guide students' career choices in subtler ways.
Jason Wotman, 24, loves his work as a co-founder of Tailwaiters, a
Great Neck, N.Y., startup that runs tailgate parties for clients at
sporting events and concerts. "It's mine, it's my baby. Every step,
every ounce of progress, feels good," he says.

His degree in human and organizational development from Vanderbilt
University helped launch him as an entrepreneur, he says. His courses
in marketing, human-resource management and leadership equipped him
well to size up opportunities and run a startup. "Taking it from an
idea to an actual business, I felt like I had the tools," he says.

• Gaining an influential network: Many graduates of
  elite colleges swear by the value of their network of campus buddies in
  opening doors after graduation, and say striving to gain admission to
  such schools is worth the effort. However, a long-term study of 6,335
  college grads published in 1999 by the National Bureau of Economic
  Research found graduating from a college where entering students have
  higher SAT scores-a sign of exclusivity-didn't pay off in higher
  post-graduation income.

What matters more, it seems, is graduates' personal drive. In a
surprising twist, a stronger predictor of income is the caliber of the
schools that reject you. Researchers found students who applied to
several elite schools but didn't attend them-presumably because many
were rejected-are more likely to earn high incomes later than students
who actually attended elite schools. In a summary of the findings, the
Bureau says that "evidently, students' motivation, ambition and desire
to learn have a much stronger effect on their subsequent success than
average academic ability of their classmates."

-Email sue.shellenbarger@wsj.com