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Our Guest today is Peter Capelli
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director of the center for human
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resources here at Wharton and we're
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going to speak with Peter about his book
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will College pay off a guide to the most
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important financial decision you will
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ever make Peter thanks for joining us at
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knowledge at Wharton thank you before we
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talk about the book itself I wonder if I
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I could ask you a quick question about
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the title because normally when people
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talk about the most important Financial
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decision of their lives I've heard
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people talking about buying a house why
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is college uh number one in your mind
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well for many families they're making
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this decision more than once so you know
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their home could be more certainly more
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expensive than what they spend on
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college but you got a few kids it's
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begins to mount up it's probably fair to
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say that my view on this is it's one of
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the most important decisions you could
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make because there's a lot of risk
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involved and the information's not very
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good and the outcomes could really vary
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much more so even than U most housing
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markets which except for the recent past
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have not been quite so bumpy right uh
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and and we'll come back to the risks in
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a bit but uh I I want to quote something
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that you write in the book which is that
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you wrote this book because of the
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proliferation of unqualified statements
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about the big payoff to a college degree
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that are pushing many students and their
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families who can't afford to do so to
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jump into the deep end of college
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expenses taking on debt that they cannot
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afford for experiences that are unlikely
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to pay off what is your basic
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counterargument to these
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claims well I think the uh the concern
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just maybe to rephrase it a little bit
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the concern for many families is not
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whether your kids are going to go to
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college it's a bit of an entitlement in
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the middle class and upper middle class
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and for for those folks I think we can
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offer some advice about how to think
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about the economics associated with it
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but for lots of people now increasingly
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over time a much larger percentage of
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the US population is going to to college
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and for a lot of those folks it really
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is a challenging uh decision to make and
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so I think the
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alternative you know counterargument to
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everybody should go is to say well if
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you want to say that are you offering to
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pay uh for the education of all these
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kids you're pushing them to how they're
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going to pay for it and then it becomes
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quite a different question right if it's
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free of course you should go be
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wonderful experience for most people uh
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but if you got to pay for it then it's
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quite different and the way we pay for
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college has changed a lot over time
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loans are up 150% over the last 10 years
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and uh the typical costs of college have
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risen by about four times the rate of
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inflation over the last generation so
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it's much more expensive in a period
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where incomes are more or less flat so
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the kind of advice that many of us sort
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of grew up with college is a great thing
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you all should go would be wonderful um
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might not be completely right in the
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current environment given the costs and
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given the realities too of the job
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market we might talk about in a minute
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so I'm coming to the job market I mean
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what are some of the most common myths
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that you found in your research about
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the link between a college degree and
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well-paying jobs because that's the the
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the normal argument you always hear that
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if you want to get a well-paying job you
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need a college degree because the wage
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differential yeah between those who have
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a college education and those who don't
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is so high yeah well let's talk about
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that because that is the one piece of
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information that you hear over and over
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and the average college graduate in the
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US does make 60% more than the average
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high school graduate of course the
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average worker in the US economy is
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about 46 47 so they've been out of
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school for 20 20 years or so so it's a
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kind of historical effect that premium
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that wage difference is something that's
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bounced around a lot so in the 1960s and
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70s it was almost zero Believe It or Not
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college graduates didn't make more than
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high school graduates so there's nothing
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that guarantees that it's going to be at
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a particular level and is now kind of at
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record all-time high so you know if
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you're thinking this will persist you
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know it bounces around a lot that's the
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first thing to think about the second
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thing though is that it's a mistake to
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assume as a lot of people do that the
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college graduates are identical to the
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high school graduates except for the
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college degree so what you often hear is
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the kind of therefore that's unspoken
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after that 60% figure is therefore you
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should go to college because you'll make
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a ton more money well the kids who go to
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college are systematically different
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than the kids who don't go to college
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they have a lot more things going for
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them typically more supportive parents
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more family wealth uh all kinds of
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differences in maybe their abilities and
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motivation so they're different even
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before they go to college and they're
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quite likely to do better even if they
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didn't go to college than the average
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high school kid would do so the
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assumption that a high school graduate
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would do as well as the average college
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graduate is a big big leap and it
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requires assumptions that we know are
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just not true so just to make sure I
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understood you correctly uh is is it uh
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is it correct to say that uh if people
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who have gone to college make more money
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than those who didn't there are factors
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that uh existed even before they went to
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college that are responsible for it
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rather than going to college itself well
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they're responsible for some of it for
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sure and I think this is a really
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interesting problem you know the basic
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question which is a good place to start
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is why do college graduates make more
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money than high school graduates and you
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know you know some of it seems obvious
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you can take on jobs that maybe require
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a college degree and that sort of seems
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sensible it's just a requirement but we
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know there are other differences as well
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and one is this big difference that the
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kids who can make it to College uh and
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complete College which is one of the
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biggest issues the most kids actually
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who go to college don't seem to get
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through college so getting to college
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you got to be different you got to have
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more support just to get to college to
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finish it
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uh suggests a lot of achievement just to
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get out of college so the kids who come
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to college are different than the kids
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go to high school that makes a big
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difference the other thing is that the
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kids who finish college have signaled
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something to potential employers about
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their abilities that is valuable we know
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this pretty clearly from the high school
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level so for example high schools we
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have a graduate equivalency diploma the
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GED and than you have regular High
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School degrees well most people think
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that the test to get a GED degree is
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reasonably hard um at least would be
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hard for the average kid who is not
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going on to college uh particularly you
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know the sort of lower part of the
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distribution but people who get GED
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degrees make nowhere near as much money
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and do much worse than kids who have
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high school diplomas why is that it's
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because the employers see the high
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school diploma and they know that at
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least you have been able to sit in a
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classroom and get along with people and
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persist enough to finish with a GED
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degree you kind of know that that's
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probably not true so it's not the
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cognitive ability or it's not the
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classroom knowledge that seems to matter
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so much and when we look at surveys of
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employers who are hiring college
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graduates what they say is most
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important to them has nothing to do with
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the academic experience it has to do
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with experiences that are work like on
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the college campus it has to do with
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internships and summer jobs and
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extracurricular activities that's what
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they care more about actually than the
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academic uh material so we don't know
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for sure uh exactly why um kids who
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graduate from college do better but I
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think the point for us is you shouldn't
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assume that the average kid who doesn't
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go to college will just do as well as
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the average kid who made it through
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college
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uh your book also notes that you know
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schools especially the for-profit ones
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uh in their efforts to show that a
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college degree leads to a good job very
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often end up offering courses that
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almost sound as you say like job titles
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yeah uh does your did your research show
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that any direct link
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between uh a four-year college degree
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and very direct job related training I
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mean does does that actually work yeah
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do they do they do better if you've got
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this very specific job training well no
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one has actually looked at that
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carefully and it turns out that it's
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quite difficult to get some of that data
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so here's a uh an unfortunate thing for
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parents if you're trying to figure out
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whether a particular College will get
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your kid a job there's no standard data
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to look at colleges are not required to
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report that information uh when they
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report it they report it in different
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ways they're not always very honest in
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the ways they report the data you know
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somebody could employed as a barista uh
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and maybe they count them as employed
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they sort of are right so it's pretty
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difficult to know whether or not uh
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particular colleges are actually getting
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your kid a job and you probably can't
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trust the marketing information which
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for the most part doesn't give you data
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anyway they just kind of hint that this
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is the career and here's the education
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that will help you with the career right
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I think one of the things I worry about
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with that very specific job focused U
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Majors is what do you do if you don't
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get a job in that major right so you're
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an international tourism major which is
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a real major by the way and the
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international tourist agencies are not
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hiring the year you graduate what are
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you going to do right you would have
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been better off with a liberal arts
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degree so you're taking a huge risk when
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you pursue these very focused degrees
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and it's not free in the sense that
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there are a bunch of other courses that
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you could have been taking and a bunch
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of other things that you could have been
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learning Beyond say memorizing
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International tourism laws and
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Taxation you know relationships and
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things like that right so there's an
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opportunity that you're losing that
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might have broadened you in ways that
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would allow you to do better after just
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your first job which is the other point
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about these programs they're just
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focusing on the first job out of school
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and what happens after that right that's
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very interesting you know when it comes
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to trying to decide what people should
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study uh stem or so-called uh you know
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science technology engineering math uh
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programs seem to be all the rage these
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days and there's a very common belief
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that if you want to move into
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high-paying jobs those are the kind of
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courses to focus on did your research
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show if that's true or not well if you
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look at the evidence on stem um the uh
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first thing I guess to note about it is
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it's a bunch of different Majors that
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actually don't have an awful lot to do
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with each other and what the evidence
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seems to show is that people with math
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degrees and Science degrees don't do
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very well there's an interesting study
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in Texas that shows that um students
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with sociology degrees make more money
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than students with Biology degrees you
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know so it's not true that in the
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Sciences or in math there are even very
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many jobs for these folks and they don't
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pay very well it is true that if you
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look for the best paying jobs in the US
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right out of
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college uh those jobs are almost
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entirely engineering jobs but the thing
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about them is they're not the same job
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every year and being an engineer uh is
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not a general um qualification right if
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you're a petroleum engineer you can't
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switch and become an electronics
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engineer a computer science engineer you
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know at the point of graduation they're
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quite different and they're not um
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substitutable across so the thing about
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these very top jobs is that they change
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a lot year by year based on what's going
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on in the economy and uh to give you an
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illustration of this the hottest job in
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the US for the last three years or so
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and pays about 50% more than the second
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highest paid job has been petroleum
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engineers and that was a field that a
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generation ago or even 10 years ago
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those folks were waiting tables there
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was no work for them right and what
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happened was completely unpredictable
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and that was the discovery of fracking
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uh which suddenly Unleashed a bunch of
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exploration and these folks were just
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really in demand but the thing that we
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know as soon as something like that
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really becomes hot is students pour into
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those majors and Fields and that's what
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happened in the last couple of years
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they're pouring in and what has happened
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now is that oil prices have collapsed
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the interest in oil exploration is also
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beginning to collapse and will shortly
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and the demand for these folks is
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clearly going to collapse as well
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because demand's falling and the supply
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of new graduates is going to pile into
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the market so one of the things about
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pursuing these jobs which are at the top
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of the list is that you're taking a lot
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of risk with those jobs because they may
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not be hot it's not all engineering jobs
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that are always hot and the second thing
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to think about with a lot of these jobs
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particularly the IT jobs is they don't
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seem to last very long people don't stay
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in those jobs very long so you get a
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great paying job out of college three
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years later what are you going to do you
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can do another programming job and you
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could be a programmer forever but they
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don't lead anywhere in the long term and
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so a lot of people give up on them alog
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together so what would be a a rational
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choice for a student to make who's
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considering a career uh Choice uh would
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it be to sort of ignore uh where the
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demand is at the present moment and just
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focus on their own interests or or or
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should they look at other factors as
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well yeah I think uh we way overplay the
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job market in terms of pushing kids in
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particular directions and partly because
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we can't predict it very well if you
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think about it the kid going to school
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now applying for college this year um
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they won't graduate from college until 5
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years if they're lucky because here's
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the shocking statistic for parents is
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that only 40% of full-time students in
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four-year colleges graduate on time and
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only 60% graduate in six years uh and I
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know people are saying well not my kid
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well you know sometimes you can't
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control that stuff right uh neither of
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my kids graduated in in four years and
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it had nothing to do with the fact that
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I wasn't telling them to graduate in
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four years so it's a long time away and
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the job market is surely going to be
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different by the time they get out so uh
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that's the first thing to consider the
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second is kids don't do very well in
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fields where they don't feel they're
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very good at them if you got somebody
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who really wants to be a history major
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and you're leaning on them to be an
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engineer it's a very good chance they're
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not going to be a very good engineer
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even if they get through the program so
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I think we shouldn't Focus too much on
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it particularly at the entry level you
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should try to go to a school where you
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can change your mind kids change Majors
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all the time
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and the second part of that is you
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should go to a place where it is not
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just easy to change Majors but the
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majors are not that complicated so one
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of the main factors that causes kids to
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delay graduation and one that is
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completely preventable is that it is
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difficult to get the courses required to
00:16:21
complete your major unless you take them
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absolutely in lock step so if you move
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into a major you're suddenly in some
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trouble and here are things I would look
00:16:32
out for if you want a short list if
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you're applying to a small
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college and they offer as many small
00:16:39
colleges do 70 Majors or something like
00:16:42
that you have to ask yourself what's
00:16:44
their ability to actually deliver these
00:16:46
majors and typically what they're doing
00:16:48
is they're bringing a lot of adjunct
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professors people from outside
00:16:52
practitioners sometime to teach those as
00:16:54
well which should give you a little
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pause what are you paying for right if
00:16:57
it's not regular faculty but it also uh
00:17:01
means that it might be a little
00:17:03
difficult because you don't have you
00:17:05
know a regular track record in a major
00:17:08
of people teaching these courses on a
00:17:10
regular schedule over and over to get
00:17:12
them delivered the second thing to look
00:17:14
at is the actual requirements of the
00:17:16
major and of course a major that has
00:17:18
many requirements is a little
00:17:20
problematic but the biggest problem is
00:17:22
if the major requires that you take
00:17:24
courses in particular sequence and the
00:17:28
reason that a problem is if the
00:17:30
professor who teaches this course is on
00:17:32
sabatical that year maybe you can't get
00:17:34
it until the the spring in which case
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you're already behind and you can't take
00:17:38
the other courses so I think you know
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majors are quite complicated uh it is
00:17:43
completely preventable we've basically
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designed them with the faculty in mind
00:17:47
rather than the students and this is
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also uh um an issue where public and
00:17:53
private differ a lot that the state
00:17:56
universities which have really been
00:17:58
squeezed by budget constraints the last
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few years are having more trouble
00:18:03
completing getting kids to complete
00:18:04
Majors because they're having trouble
00:18:06
keeping getting lines faculty lines
00:18:09
filling positions so it's an it's an
00:18:11
issue when you're thinking about which
00:18:13
college to go to it's very very
00:18:16
interesting it's very useful information
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Peter thanks for that uh you know I I
00:18:20
sometimes
00:18:21
feel looking at the educational options
00:18:23
and the high cost of college that this
00:18:26
is almost like the golden age for the
00:18:28
autodidact
00:18:29
where you can you know anyone who wants
00:18:32
to create their own bundle of
00:18:35
educational experiences say from the ivy
00:18:37
league institutions can just sign up for
00:18:40
muks from corera or edex or Udacity and
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and get credentials of some sort from uh
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you know ivy league universities and
00:18:50
courses that they want and create their
00:18:52
own personal educational portfolio and
00:18:54
since many muks are offered for free
00:18:57
they they could probably also gain these
00:18:59
credentials without piling up huge debt
00:19:02
do you think this could be a viable
00:19:04
option uh for people who uh might either
00:19:08
be thinking of an alternative to
00:19:10
Conventional education or someone who
00:19:13
just can't afford it well I think you
00:19:16
would get something very different with
00:19:19
a moo and by the way as you know they're
00:19:22
actually not doing that well the initial
00:19:24
Bloom is off the rose you know hundreds
00:19:28
of thousands of kids sign up for these
00:19:30
or adults to and four complete them
00:19:33
right so um it's something that actually
00:19:36
was always available you know in the
00:19:38
form of a textbook you could completely
00:19:40
portable you could take it anywhere it
00:19:42
had the best ideas of the faculty laid
00:19:44
out in a sequence you could stop and
00:19:46
repeat things you know it's just as or
00:19:48
maybe better than a moo and I've never
00:19:50
heard of anybody that learned organic
00:19:52
chemistry in a dark room by themselves
00:19:54
with a textbook right so the thing that
00:19:56
universities provide is a context that
00:19:59
forces people to learn and muks don't
00:20:01
have that so access to the information
00:20:04
has never really been the issue I think
00:20:06
the other part of that is it's not clear
00:20:08
employers care very much about that so
00:20:11
having a a moo being able to pass a test
00:20:13
like the GED degree out of high school
00:20:16
they don't seem to care much about that
00:20:18
what they care about is the college
00:20:21
experience in in the US the more
00:20:23
traditional college experience where you
00:20:25
are working in a community you're
00:20:28
getting a Ong with other people you're
00:20:30
learning from the context as well as
00:20:32
just the academic material that's what
00:20:34
they seem to care about and muks don't
00:20:35
give you that but if you were to look at
00:20:38
the conventional US schools uh how do
00:20:41
you think they compare to international
00:20:43
schools in preparing uh students for
00:20:46
jobs well I think they're very different
00:20:49
in the way they compare you know the
00:20:52
prototypical US college experience at
00:20:55
least the way we thought about it was
00:20:58
four years on a leafy campus someplace
00:21:01
where you're walking in the quad and
00:21:02
bump into your professor kind of thing
00:21:04
you know and that's almost never been
00:21:06
the case in excuse me in uh colleges
00:21:11
elsewhere that um much more common
00:21:14
particularly in Europe is you are living
00:21:17
at home and going to the local
00:21:20
University during the day you're riding
00:21:22
the bus you're not walking across the
00:21:24
quad you're in a big lecture hall you're
00:21:26
taking giant standardized uh exams with
00:21:29
other people it was a little more Muk
00:21:31
like than the US experience I think the
00:21:34
US uh students are getting something
00:21:37
quite different on the traditional us
00:21:39
campus than you're getting abroad and
00:21:42
employers seem to like that you know you
00:21:44
have to talk more you have to get along
00:21:45
with people those are life skills that
00:21:47
seem to matter if you talk to people in
00:21:50
other countries which I do quite
00:21:52
frequently about these issues they're
00:21:54
complaining about their
00:21:56
own uh camp their own education not just
00:22:00
at college but high school as well that
00:22:03
they don't do the kinds of things that
00:22:05
we do in the US on the other hand in the
00:22:08
US we pay a heck of a lot for it so the
00:22:10
average American parent pays seven times
00:22:13
as much for a college education is the
00:22:16
average parent in the rest of the
00:22:18
industrial world so we're paying an
00:22:20
awful lot for it and we've got the
00:22:22
second worst graduation rate too so not
00:22:25
that many people are getting through
00:22:28
this college program in the US which is
00:22:30
you know something we might want to
00:22:32
think a little bit
00:22:33
about so uh an answer to the
00:22:37
question uh does college pay off uh you
00:22:42
you say in the book it depends yeah what
00:22:44
does it depend on well I think uh it
00:22:47
depends on the cost side and of course
00:22:50
that's just you know how much you have
00:22:51
to pay and that's where you have to be
00:22:53
quite careful uh but I think the focus
00:22:57
that we've heard a lot about out which
00:22:58
is about trying to game the system for
00:23:01
financial aid and things like that I
00:23:03
think is really kind of a waste of time
00:23:04
for one thing it's quite likely going to
00:23:07
be illegal if you're trying to you know
00:23:09
game the system um in order to get more
00:23:12
financial aid that's probably not the
00:23:14
smart thing to do uh but paying
00:23:16
attention to simple things like the
00:23:18
graduation rate right so will my kid get
00:23:21
out on time so uh there are very big
00:23:24
differences between colleges with
00:23:26
respect to that and there's a big State
00:23:29
University private university difference
00:23:31
of about 10 percentage points in the
00:23:34
typical graduation rate between State
00:23:37
and private institutions so for example
00:23:39
in the state of Pennsylvania uh the
00:23:42
flagship state university is Penn State
00:23:44
and its graduation rate is
00:23:47
65% the University of
00:23:50
Pennsylvania we think the most elite
00:23:52
private school in the state uh the
00:23:54
graduation rate here is
00:23:57
98% well if you're thinking about
00:23:59
probabilities uh you know is it worth it
00:24:02
to pay more to get the kind of support
00:24:04
and systems and major design and
00:24:07
everything that gets kids out in four
00:24:08
years yeah probably absolutely is so the
00:24:11
first thing to think about are things
00:24:13
like will my kid graduate on time
00:24:15
financial aid matters a lot uh state
00:24:18
universities private universities now
00:24:21
the average difference in tuition
00:24:23
between private and state for kids
00:24:26
getting financial aid is only $9,000
00:24:29
so you know public institutions tuition
00:24:32
has gone up 50% faster than private and
00:24:35
financial aid and lots of places has
00:24:37
gone up pretty high so you know thinking
00:24:40
that public institutions will be cheaper
00:24:42
is not necessarily true so you know cost
00:24:46
side matters a lot graduation rates
00:24:48
matter a lot uh being able to get the
00:24:52
first job matters but I think uh getting
00:24:55
the first job may not be quite so
00:24:57
dependent on your major as we used to
00:25:00
think because we know employers care a
00:25:02
lot about internships more than they
00:25:04
seem to care about the college
00:25:07
curriculum that you're taking work
00:25:09
experience on campus and maybe U some of
00:25:12
these certificates that you can get
00:25:14
online in fields that where those count
00:25:17
like computer science maybe that matters
00:25:19
so I think for example a kid who can
00:25:22
delay picking their major until late in
00:25:25
the program and get a sense of where the
00:25:27
job Market's going to be
00:25:28
when they graduate can take very
00:25:31
practical courses that seem to be hot at
00:25:34
the last minute you know the year before
00:25:36
they graduate they take big data classes
00:25:39
in Python software and things like that
00:25:41
um get some work experience
00:25:44
outside they might do just as well as
00:25:47
somebody who actually had a major in one
00:25:49
of those fields and they could have a
00:25:52
philosophy major and they might do just
00:25:54
as well interesting uh one last question
00:25:57
a few
00:25:59
uh are the parent of a child that is
00:26:01
about to start looking for college
00:26:03
what's the most important piece of
00:26:05
advice that you can offer them well I
00:26:08
guess this the single most important
00:26:10
fact that I would look at is the
00:26:12
graduation rates across colleges they
00:26:14
have to report that that information is
00:26:16
pretty reliable it varies like crazy um
00:26:20
I think the uh single most
00:26:23
important uh thing to think about is
00:26:27
maybe on the parents side a little bit
00:26:29
and that is um maybe to not worry quite
00:26:34
so much about the job market side uh one
00:26:38
of the things we know about kids is they
00:26:41
don't do particularly well in colleges
00:26:43
where they don't want to be so trying to
00:26:46
force them into a particular major and
00:26:48
they may not be good at it anyway
00:26:50
probably isn't the best thing to do and
00:26:53
you can become preoccupied with the job
00:26:56
market early on beone in your college
00:26:59
career in ways that distort what you're
00:27:02
doing you know one of the interesting
00:27:04
statistics about college students in the
00:27:06
US now is that the amount of time spent
00:27:09
studying seems to have declined quite
00:27:12
sharply in the last generation and what
00:27:15
has gone up fortunately is not beer pong
00:27:17
time uh but uh uh time spent in
00:27:21
extracurricular activities maybe that's
00:27:24
useful you know maybe that's useful but
00:27:26
um it's worth thinking about
00:27:29
that as well depending on the colleges
00:27:31
you want to go to you know what are the
00:27:32
kids what is the culture of the place
00:27:34
like is this a place where kids are
00:27:36
serious about studying in academics is
00:27:39
it a place where they're spending all
00:27:41
their time early on just worrying about
00:27:42
the job market right change is the kind
00:27:45
of place that you're going to be Peter
00:27:48
thanks so much for speaking with
00:27:49
knowledge at Wharton thank you
00:27:58
[Music]
