Some Thoughts on the ROI of College

Typically in news articles about going to college, many writers quote the long term income differential between high school and college graduates. These stats clearly indicate that going to college and graduating leads to higher average incomes over one's working life.

Here is the "normal" picture:
High School graduate average lifetime earnings: $30,627
College Graduate average lifetime earnings: $56,625

But this ignores some really big red flags in deciding whether to attend college, which is that 56% of those who enroll in a four year college will not graduate within 6 years.

Here are the stats from the census on "drop-outs" vs. College Grads, lifetime average earnings:
Drop Out Average Earnings (56% of college entrants): $32,296
College Graduate Average Earnings (44% of college entrants): $56,625
Weighted Average: $43,017

But don't forget, the college graduate just spent $40-80K and owes $25K in student loans on average.

There's more: Of the 44% who do graduated in the last 4-5 years:  "74.4 percent of college graduates under age 25 had jobs. Of this same demographic group, 45.9 percent had jobs that actually required a college degree. " (Source)


So a high school graduate that enrolls in college can expect:
Drop Out: 56% chance
College Graduate with No Job: 11% Chance
College Graduate with a "Non-college": 13% Chance
College Graduate with Legit Job: 20% Chance

You can run the numbers and throw in estimations for the 24% who don't get good jobs right out of graduating college, but in the end you have 80% of not making a "college salary", and you'l probably be closer to the $40K range + an initial 4-5 year time period where you burn around $80K.

Other factors to consider:
- These numbers take into account the past college graduates, not the future influx of graduates flooding the market today (the college enrollment rate is up to 70% of high school graduates now). So the $56K number skews higher, taking into account graduates from 70's and 80's.
- No one knows the long term effect on wages of these factors, but the long term effects of graduating in a recession supposedly lower lifetime earnings by 17.5% (Lisa Kahn, Yale)

New Grade Inflation Report

Lots of good data on grade inflation in this report (Where A Is Ordinary: The Evolution of American College and University Grading, 1940–2009 by Stuart Rojstaczer & Christopher Healy)

In 1940, 15% of grades given in college were A's and the majority of the grades given were C's, now the number tops 40%. 

How far are we from a "grade inflation adjusted average"

Roland Fryer: Culture over Resources in K-12 Education

Roland Fryer (MacArthur genius grant recipient and education scholar) recently crunched the numbers at 35 charter schools and came up with the following results:


Things that don't make a difference to math and reading results: class size, per-pupil spending, and the number of teachers with certifications or advanced degrees 


Things that do make a difference to math and reading results: teacher development, data-driven instruction, creating a culture focused on student achievement, and setting high academic expectations 


It seems like we are tracking and rating teaching, results and ranking schools on things that we can track easily and is scalable, but that does not always translate into the best data. Hopefully, someone can create an index or something to put his model to good use.

Higher Education's Next Big Move: No More Bachelor's Degrees

A lot has been written about the state of higher education - the ROI, costs, quality and over all allocation of resources in the typical four year university leaves a lot of room for improvement. I could link to a bunch of articles, but really there has been so much it's tough to par down a representative sample.

A lot of the people who really dig deep into the system come to the same conclusion: the top 5/10% of Universities will be able to maintain their supremacy/high prices, while the other 1,000's of colleges will be consolidated/merged/out of business and move mostly online.

At the same time, people have finally begun to notice that higher education institutions primarily focus their resources and talent in higher level courses: ie Calculus 101 at Harvard is probably taught by a TA, as at Western Louisiana State, with the student experience being pretty much the same. When you hit the "Good Will Hunting" level courses, that's when you get some Nobel laureate teaching the course.

All these trends lead to a similar conclusion: The branded "Higher Education" shouldn't really be about the basics, for anyone.  The basics fundamentals should be the "Associate Degree". Everyone who graduates college goes into this program with the intent on learning the general education requirements, as well as the basics of their own major/chosen field of study. At the end of your chosen path (online, community college, etc...), everyone should take SAT II Subject Tests/AP type tests to get into the next level of college, or join the workforce. 90% of colleges would offer these types of degrees and focus on costs and ROI on learning (ie higher test scores).

The next level of higher education should be a Master's degree. This is where you go to the big dog Universities and research, learn the advanced stuff and specialize. Since you aren't taking other courses (just the one's in your new major), I figure 2 to 2.5 years of intensive study should get you to a current "master's level" knowledge we now know (no summers off or only practical internships for credit as breaks). This includes law, business, etc... So we have a bunch old 22-24 year olds with real, hard skills and the same network as they had in the old our year college system. 2 years should be enough of a fun "residential college experience" to make up for the first few years.


A few firms innovating in the space:

Western Governors University is building out a competency based online university - meaning all the courses are geared towards existing certification exams.

Straighterline has build up a menu of cheap (around $99) courses that automatically transfer to higher education institutions - so you can get a bunch of credits out of the way and save a ton of cash in the process.

Altius is focused on a similar business model (cheap online community college, transfer credits to a four year school).

Good Post on Why Education Startups Do Not Succeed

Avichal Gang, founder of PrepMe, drops some knowledge in a post about Education and Start-ups. I found the post articulated a lot of lessons I have learned over the past year researching and running an education start-up.

When you look at the education tech space, a lot of chatter is about cool features, how awesome the software is and why it improves learning outcomes/solves problems. You rarely see a start-up in the space that claims, "this is the same thing, but we do it cheaper," because the eventual buyers are schools, colleges - not consumers.

The sales process does not jive with the "normal" seed stage value prop/advise of get traction, then start charging. It's a weird nebulous market, you get people (students or teachers) using the product, maybe even charge a few, then spend years trying to sell it to 1,000's of massive segmented bureaucratic entities (schools, districts and colleges) with unmotivated buyers. In the places where people do pay out of pocket (textbooks, test prep, tutoring) - you do see that value proposition, but those are actually pretty segmented and hard to crack markets.

But here's the problem, according to Avichal:

Most entrepreneurs in education build the wrong type of business, because entrepreneurs think of education as a quality problem. The average person thinks of it as a cost problem.

The VC view: Almost always what they are really saying is “consumer, Internet, online education in the Western world is ready for disruption. Everyone is online now and everyone gets an education, so clearly there are massive businesses to be built.” They probably aren’t talking about education in Asia because the companies in that space are started on the ground in Asia. They most likely aren’t selling to schools, districts, the government, or universities. VCs usually don’t like to invest in businesses that sell to the government until those businesses are big (at which point it’s really a private equity deal, not a venture capital deal).

He really digs deep, but that top sentence says it all. Only 15% of students will buy a prep course for the SATs - even though everyone knows it really matters what college you go to for better job opportunities (in actual, real life, not "theoretical college does not matter" terms).

For every new feature, cool piece of software and educational product - you better be ready to answer the question: "how do I sell this and am I ready for that process to take years while I give it away for free and all the competition catches up - for both K-12 and Higher Education." If you have a consumer product you actually want to sell direct, be realistic about your market size and value prop, it's not everyone in the world.

Great Commentary on STEM vs. Liberal Arts

There's a ton written about the movement to increase STEM majors and graduates in the country - but not much takes into account the incentives that college kids actually face.

Since the ROI of being a rock star engineer is pretty high (right out of college and otherwise), general economics suggest that there would be a rush on these majors - but there still is not. Smart kids are still taking liberal arts type majors like history, English, etc...

Kenneth Anderson at the Volokh Conspiracy has probably the best explanation I've read:

...if you are a smart but not brilliant student in STEM, you might tell yourself until you are blue in the face that you must study STEM to be employable and have real skills. But the reality is that you will flunk out or come close to it, or be lucky to get by with Cs. Moreover, at that level of performance, it is not clear that you are actually acquiring STEM skills, just at a C level compared to an A level. Pedagogically, it doesn’t work that way. The bottom end students wind up not really learning anything, because the class moves at a pace and in a way that they can’t keep up with, even to get a lesser grounding in it.

From the standpoint of a student who says, I don’t want to be an engineer or research chemist or computer scientist — I want to get a strong grounding in those fields, in a genuinely technical way — but I want to be a manager or someone with a non-technical job that requires interaction with the technical fields — how do I do that? At the top range of universities, the STEM departments simply don’t have a place for you.

The top universities have many reasons for grade inflation in liberal arts, but this fact counts among them. Undergraduates who realize that they cannot compete with global specialists in STEM, particularly at the top universities, opt for liberal arts subjects. They and the universities realize that GPA is all that matters, and unsurprisingly, GPAs rise.

So in other words - if I'm of average intelligence and better in verbal or math grade-wise, the ROI of me dipping my toe in organic chemistry just for kicks is really low - it would create problems when I apply to law or business school. I'm better off taking "History of Plants" for my science credit and getting an A vs. learning some hard science and getting a C-.