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Our Guest today is Peter Capelli director of the center for human resources here at Wharton and we're
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going to speak with Peter about his book will College pay off a guide to the most
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important financial decision you will ever make Peter thanks for joining us at knowledge at Wharton thank you before we
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talk about the book itself I wonder if I I could ask you a quick question about the title because normally when people
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talk about the most important Financial decision of their lives I've heard people talking about buying a house why
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is college uh number one in your mind well for many families they're making this decision more than once so you know
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their home could be more certainly more expensive than what they spend on college but you got a few kids it's
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begins to mount up it's probably fair to say that my view on this is it's one of
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the most important decisions you could make because there's a lot of risk involved and the information's not very
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good and the outcomes could really vary much more so even than U most housing markets which except for the recent past
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have not been quite so bumpy right uh and and we'll come back to the risks in
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a bit but uh I I want to quote something that you write in the book which is that
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you wrote this book because of the proliferation of unqualified statements about the big payoff to a college degree
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that are pushing many students and their families who can't afford to do so to
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jump into the deep end of college expenses taking on debt that they cannot afford for experiences that are unlikely
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to pay off what is your basic counterargument to these claims well I think the uh the concern
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just maybe to rephrase it a little bit the concern for many families is not whether your kids are going to go to
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college it's a bit of an entitlement in the middle class and upper middle class
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and for for those folks I think we can offer some advice about how to think about the economics associated with it
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but for lots of people now increasingly over time a much larger percentage of the US population is going to to college
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and for a lot of those folks it really is a challenging uh decision to make and so I think the
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alternative you know counterargument to everybody should go is to say well if you want to say that are you offering to
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pay uh for the education of all these kids you're pushing them to how they're
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going to pay for it and then it becomes quite a different question right if it's
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free of course you should go be wonderful experience for most people uh but if you got to pay for it then it's
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quite different and the way we pay for college has changed a lot over time loans are up 150% over the last 10 years
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and uh the typical costs of college have risen by about four times the rate of inflation over the last generation so
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it's much more expensive in a period where incomes are more or less flat so the kind of advice that many of us sort
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of grew up with college is a great thing you all should go would be wonderful um
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might not be completely right in the current environment given the costs and given the realities too of the job
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market we might talk about in a minute so I'm coming to the job market I mean
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what are some of the most common myths that you found in your research about the link between a college degree and
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well-paying jobs because that's the the the normal argument you always hear that
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if you want to get a well-paying job you need a college degree because the wage differential yeah between those who have
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a college education and those who don't is so high yeah well let's talk about
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that because that is the one piece of information that you hear over and over and the average college graduate in the
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US does make 60% more than the average high school graduate of course the average worker in the US economy is
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about 46 47 so they've been out of school for 20 20 years or so so it's a
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kind of historical effect that premium that wage difference is something that's
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bounced around a lot so in the 1960s and 70s it was almost zero Believe It or Not
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college graduates didn't make more than high school graduates so there's nothing
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that guarantees that it's going to be at a particular level and is now kind of at
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record all-time high so you know if you're thinking this will persist you know it bounces around a lot that's the
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first thing to think about the second thing though is that it's a mistake to
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assume as a lot of people do that the college graduates are identical to the high school graduates except for the
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college degree so what you often hear is the kind of therefore that's unspoken
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after that 60% figure is therefore you should go to college because you'll make
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a ton more money well the kids who go to college are systematically different than the kids who don't go to college
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they have a lot more things going for them typically more supportive parents more family wealth uh all kinds of
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differences in maybe their abilities and motivation so they're different even
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before they go to college and they're quite likely to do better even if they
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didn't go to college than the average high school kid would do so the assumption that a high school graduate
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would do as well as the average college graduate is a big big leap and it requires assumptions that we know are
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just not true so just to make sure I understood you correctly uh is is it uh is it correct to say that uh if people
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who have gone to college make more money than those who didn't there are factors
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that uh existed even before they went to college that are responsible for it rather than going to college itself well
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they're responsible for some of it for sure and I think this is a really interesting problem you know the basic
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question which is a good place to start is why do college graduates make more money than high school graduates and you
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know you know some of it seems obvious you can take on jobs that maybe require a college degree and that sort of seems
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sensible it's just a requirement but we know there are other differences as well
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and one is this big difference that the kids who can make it to College uh and complete College which is one of the
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biggest issues the most kids actually who go to college don't seem to get through college so getting to college
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you got to be different you got to have more support just to get to college to finish it
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uh suggests a lot of achievement just to get out of college so the kids who come
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to college are different than the kids go to high school that makes a big difference the other thing is that the
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kids who finish college have signaled something to potential employers about their abilities that is valuable we know
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this pretty clearly from the high school level so for example high schools we have a graduate equivalency diploma the
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GED and than you have regular High School degrees well most people think that the test to get a GED degree is
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reasonably hard um at least would be hard for the average kid who is not going on to college uh particularly you
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know the sort of lower part of the distribution but people who get GED degrees make nowhere near as much money
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and do much worse than kids who have high school diplomas why is that it's because the employers see the high
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school diploma and they know that at least you have been able to sit in a classroom and get along with people and
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persist enough to finish with a GED degree you kind of know that that's probably not true so it's not the
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cognitive ability or it's not the classroom knowledge that seems to matter so much and when we look at surveys of
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employers who are hiring college graduates what they say is most important to them has nothing to do with
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the academic experience it has to do with experiences that are work like on the college campus it has to do with
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internships and summer jobs and extracurricular activities that's what they care more about actually than the
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academic uh material so we don't know for sure uh exactly why um kids who graduate from college do better but I
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think the point for us is you shouldn't assume that the average kid who doesn't
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go to college will just do as well as the average kid who made it through college
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uh your book also notes that you know schools especially the for-profit ones uh in their efforts to show that a
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college degree leads to a good job very often end up offering courses that almost sound as you say like job titles
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yeah uh does your did your research show that any direct link between uh a four-year college degree
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and very direct job related training I mean does does that actually work yeah do they do they do better if you've got
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this very specific job training well no one has actually looked at that carefully and it turns out that it's
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quite difficult to get some of that data so here's a uh an unfortunate thing for
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parents if you're trying to figure out whether a particular College will get
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your kid a job there's no standard data to look at colleges are not required to
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report that information uh when they report it they report it in different ways they're not always very honest in
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the ways they report the data you know somebody could employed as a barista uh and maybe they count them as employed
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they sort of are right so it's pretty difficult to know whether or not uh particular colleges are actually getting
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your kid a job and you probably can't trust the marketing information which for the most part doesn't give you data
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anyway they just kind of hint that this is the career and here's the education
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that will help you with the career right I think one of the things I worry about
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with that very specific job focused U Majors is what do you do if you don't get a job in that major right so you're
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an international tourism major which is a real major by the way and the international tourist agencies are not
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hiring the year you graduate what are you going to do right you would have been better off with a liberal arts
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degree so you're taking a huge risk when you pursue these very focused degrees
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and it's not free in the sense that there are a bunch of other courses that you could have been taking and a bunch
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of other things that you could have been learning Beyond say memorizing International tourism laws and
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Taxation you know relationships and things like that right so there's an opportunity that you're losing that
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might have broadened you in ways that would allow you to do better after just your first job which is the other point
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about these programs they're just focusing on the first job out of school and what happens after that right that's
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very interesting you know when it comes to trying to decide what people should study uh stem or so-called uh you know
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science technology engineering math uh programs seem to be all the rage these days and there's a very common belief
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that if you want to move into high-paying jobs those are the kind of courses to focus on did your research
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show if that's true or not well if you look at the evidence on stem um the uh
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first thing I guess to note about it is it's a bunch of different Majors that
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actually don't have an awful lot to do with each other and what the evidence
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seems to show is that people with math degrees and Science degrees don't do very well there's an interesting study
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in Texas that shows that um students with sociology degrees make more money than students with Biology degrees you
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know so it's not true that in the Sciences or in math there are even very many jobs for these folks and they don't
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pay very well it is true that if you look for the best paying jobs in the US right out of
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college uh those jobs are almost entirely engineering jobs but the thing about them is they're not the same job
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every year and being an engineer uh is not a general um qualification right if you're a petroleum engineer you can't
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switch and become an electronics engineer a computer science engineer you know at the point of graduation they're
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quite different and they're not um substitutable across so the thing about these very top jobs is that they change
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a lot year by year based on what's going on in the economy and uh to give you an
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illustration of this the hottest job in the US for the last three years or so and pays about 50% more than the second
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highest paid job has been petroleum engineers and that was a field that a generation ago or even 10 years ago
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those folks were waiting tables there was no work for them right and what happened was completely unpredictable
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and that was the discovery of fracking uh which suddenly Unleashed a bunch of exploration and these folks were just
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really in demand but the thing that we know as soon as something like that really becomes hot is students pour into
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those majors and Fields and that's what happened in the last couple of years
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they're pouring in and what has happened now is that oil prices have collapsed
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the interest in oil exploration is also beginning to collapse and will shortly and the demand for these folks is
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clearly going to collapse as well because demand's falling and the supply of new graduates is going to pile into
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the market so one of the things about pursuing these jobs which are at the top of the list is that you're taking a lot
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of risk with those jobs because they may not be hot it's not all engineering jobs
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that are always hot and the second thing to think about with a lot of these jobs
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particularly the IT jobs is they don't seem to last very long people don't stay
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in those jobs very long so you get a great paying job out of college three years later what are you going to do you
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can do another programming job and you could be a programmer forever but they don't lead anywhere in the long term and
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so a lot of people give up on them alog together so what would be a a rational choice for a student to make who's
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considering a career uh Choice uh would it be to sort of ignore uh where the demand is at the present moment and just
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focus on their own interests or or or should they look at other factors as well yeah I think uh we way overplay the
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job market in terms of pushing kids in particular directions and partly because we can't predict it very well if you
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think about it the kid going to school now applying for college this year um they won't graduate from college until 5
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years if they're lucky because here's the shocking statistic for parents is
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that only 40% of full-time students in four-year colleges graduate on time and only 60% graduate in six years uh and I
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know people are saying well not my kid well you know sometimes you can't control that stuff right uh neither of
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my kids graduated in in four years and it had nothing to do with the fact that I wasn't telling them to graduate in
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four years so it's a long time away and the job market is surely going to be
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different by the time they get out so uh that's the first thing to consider the
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second is kids don't do very well in fields where they don't feel they're
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very good at them if you got somebody who really wants to be a history major and you're leaning on them to be an
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engineer it's a very good chance they're not going to be a very good engineer
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even if they get through the program so I think we shouldn't Focus too much on
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it particularly at the entry level you should try to go to a school where you can change your mind kids change Majors
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all the time and the second part of that is you should go to a place where it is not
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just easy to change Majors but the majors are not that complicated so one of the main factors that causes kids to
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delay graduation and one that is completely preventable is that it is difficult to get the courses required to
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complete your major unless you take them absolutely in lock step so if you move into a major you're suddenly in some
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trouble and here are things I would look out for if you want a short list if you're applying to a small
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college and they offer as many small colleges do 70 Majors or something like that you have to ask yourself what's
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their ability to actually deliver these majors and typically what they're doing
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is they're bringing a lot of adjunct professors people from outside practitioners sometime to teach those as
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well which should give you a little pause what are you paying for right if it's not regular faculty but it also uh
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means that it might be a little difficult because you don't have you know a regular track record in a major
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of people teaching these courses on a regular schedule over and over to get them delivered the second thing to look
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at is the actual requirements of the major and of course a major that has many requirements is a little
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problematic but the biggest problem is if the major requires that you take courses in particular sequence and the
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reason that a problem is if the professor who teaches this course is on sabatical that year maybe you can't get
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it until the the spring in which case you're already behind and you can't take
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the other courses so I think you know majors are quite complicated uh it is completely preventable we've basically
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designed them with the faculty in mind rather than the students and this is also uh um an issue where public and
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private differ a lot that the state universities which have really been squeezed by budget constraints the last
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few years are having more trouble completing getting kids to complete Majors because they're having trouble
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keeping getting lines faculty lines filling positions so it's an it's an
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issue when you're thinking about which college to go to it's very very interesting it's very useful information
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Peter thanks for that uh you know I I sometimes feel looking at the educational options
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and the high cost of college that this is almost like the golden age for the autodidact
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where you can you know anyone who wants to create their own bundle of educational experiences say from the ivy
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league institutions can just sign up for muks from corera or edex or Udacity and
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and get credentials of some sort from uh you know ivy league universities and courses that they want and create their
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own personal educational portfolio and since many muks are offered for free they they could probably also gain these
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credentials without piling up huge debt do you think this could be a viable option uh for people who uh might either
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be thinking of an alternative to Conventional education or someone who just can't afford it well I think you
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would get something very different with a moo and by the way as you know they're
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actually not doing that well the initial Bloom is off the rose you know hundreds
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of thousands of kids sign up for these or adults to and four complete them right so um it's something that actually
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was always available you know in the form of a textbook you could completely portable you could take it anywhere it
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had the best ideas of the faculty laid out in a sequence you could stop and repeat things you know it's just as or
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maybe better than a moo and I've never heard of anybody that learned organic
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chemistry in a dark room by themselves with a textbook right so the thing that universities provide is a context that
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forces people to learn and muks don't have that so access to the information
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has never really been the issue I think the other part of that is it's not clear
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employers care very much about that so having a a moo being able to pass a test like the GED degree out of high school
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they don't seem to care much about that what they care about is the college experience in in the US the more
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traditional college experience where you are working in a community you're getting a Ong with other people you're
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learning from the context as well as just the academic material that's what they seem to care about and muks don't
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give you that but if you were to look at the conventional US schools uh how do you think they compare to international
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schools in preparing uh students for jobs well I think they're very different
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in the way they compare you know the prototypical US college experience at least the way we thought about it was
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four years on a leafy campus someplace where you're walking in the quad and bump into your professor kind of thing
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you know and that's almost never been the case in excuse me in uh colleges elsewhere that um much more common
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particularly in Europe is you are living at home and going to the local University during the day you're riding
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the bus you're not walking across the quad you're in a big lecture hall you're
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taking giant standardized uh exams with other people it was a little more Muk like than the US experience I think the
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US uh students are getting something quite different on the traditional us campus than you're getting abroad and
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employers seem to like that you know you have to talk more you have to get along
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with people those are life skills that seem to matter if you talk to people in other countries which I do quite
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frequently about these issues they're complaining about their own uh camp their own education not just
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at college but high school as well that they don't do the kinds of things that
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we do in the US on the other hand in the US we pay a heck of a lot for it so the
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average American parent pays seven times as much for a college education is the average parent in the rest of the
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industrial world so we're paying an awful lot for it and we've got the second worst graduation rate too so not
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that many people are getting through this college program in the US which is you know something we might want to
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think a little bit about so uh an answer to the question uh does college pay off uh you
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you say in the book it depends yeah what does it depend on well I think uh it depends on the cost side and of course
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that's just you know how much you have to pay and that's where you have to be
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quite careful uh but I think the focus that we've heard a lot about out which
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is about trying to game the system for financial aid and things like that I think is really kind of a waste of time
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for one thing it's quite likely going to be illegal if you're trying to you know
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game the system um in order to get more financial aid that's probably not the
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smart thing to do uh but paying attention to simple things like the graduation rate right so will my kid get
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out on time so uh there are very big differences between colleges with respect to that and there's a big State
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University private university difference of about 10 percentage points in the typical graduation rate between State
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and private institutions so for example in the state of Pennsylvania uh the flagship state university is Penn State
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and its graduation rate is 65% the University of Pennsylvania we think the most elite
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private school in the state uh the graduation rate here is 98% well if you're thinking about
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probabilities uh you know is it worth it to pay more to get the kind of support and systems and major design and
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everything that gets kids out in four years yeah probably absolutely is so the first thing to think about are things
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like will my kid graduate on time financial aid matters a lot uh state universities private universities now
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the average difference in tuition between private and state for kids getting financial aid is only $9,000
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so you know public institutions tuition has gone up 50% faster than private and financial aid and lots of places has
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gone up pretty high so you know thinking that public institutions will be cheaper
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is not necessarily true so you know cost side matters a lot graduation rates matter a lot uh being able to get the
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first job matters but I think uh getting the first job may not be quite so dependent on your major as we used to
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think because we know employers care a lot about internships more than they seem to care about the college
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curriculum that you're taking work experience on campus and maybe U some of these certificates that you can get
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online in fields that where those count like computer science maybe that matters
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so I think for example a kid who can delay picking their major until late in the program and get a sense of where the
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job Market's going to be when they graduate can take very practical courses that seem to be hot at
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the last minute you know the year before they graduate they take big data classes
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in Python software and things like that um get some work experience outside they might do just as well as
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somebody who actually had a major in one of those fields and they could have a philosophy major and they might do just
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as well interesting uh one last question a few uh are the parent of a child that is
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about to start looking for college what's the most important piece of advice that you can offer them well I
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guess this the single most important fact that I would look at is the graduation rates across colleges they
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have to report that that information is pretty reliable it varies like crazy um I think the uh single most
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important uh thing to think about is maybe on the parents side a little bit and that is um maybe to not worry quite
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so much about the job market side uh one of the things we know about kids is they
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don't do particularly well in colleges where they don't want to be so trying to
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force them into a particular major and they may not be good at it anyway probably isn't the best thing to do and
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you can become preoccupied with the job market early on beone in your college career in ways that distort what you're
00:27:02
doing you know one of the interesting statistics about college students in the US now is that the amount of time spent
00:27:09
studying seems to have declined quite sharply in the last generation and what has gone up fortunately is not beer pong
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time uh but uh uh time spent in extracurricular activities maybe that's useful you know maybe that's useful but
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um it's worth thinking about that as well depending on the colleges you want to go to you know what are the
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kids what is the culture of the place like is this a place where kids are serious about studying in academics is
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it a place where they're spending all their time early on just worrying about
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the job market right change is the kind of place that you're going to be Peter
00:27:48
thanks so much for speaking with knowledge at Wharton thank you [Music]