The Agenda

Megan McArdle on the Value of Credentials

Justin Wolfers claims that Megan McArdle offers no evidence for her (supposed) thesis that “college is a bad deal.” There is a small problem, however. McArdle is very happy to accept that college is a good deal for some students, as you’ll see in the passage below. But while McArdle begins her article with the arresting notion that college is a bad deal, she actually concludes her article by suggesting that many young Americans have been overinvesting in credentials and underinvesting in the attainment of concrete skills. 

College graduates now make 80 percent more than people who have only a high-school diploma, and though there are no precise estimates, the wage premium for an elite school seems to be even higher. But that’s not true of every student. It’s very easy to spend four years majoring in English literature and beer pong and come out no more employable than you were before you went in. Conversely, chemical engineers straight out of school can easily make triple or quadruple the wages of an entry-level high-school graduate.

James Heckman, the Nobel Prize–winning economist, has examined how the returns on education break down for individuals with different backgrounds and levels of ability. “Even with these high prices, you’re still finding a high return for individuals who are bright and motivated,” he says. On the other hand, “if you’re not college ready, then the answer is no, it’s not worth it.” Experts tend to agree that for the average student, college is still worth it today, but they also agree that the rapid increase in price is eating up more and more of the potential return. For borderline students, tuition hikes can push those returns into negative territory.

Effectively, we’ve treated the average wage premium as if it were a guarantee—and then we’ve encouraged college students to borrow against it. The result will be no surprise to anyone who has made the mistake of setting his or her teenager loose in a shopping mall with a credit card and no spending limit. Eighteen-year-olds demand amenities—high-speed Internet, well-upholstered classrooms, world-class fitness facilities—and in order to stay competitive, college administrators happily provide them. Then they raise the tuition for which the 18-year-olds are obediently borrowing the money. [Emphasis added]

McArdle’s article is focused on the interests of the marginal college student, which is why references to aggregate numbers are potentially misleading. Essentially, McArdle is suggesting that students pay closer attention to the “actual price,” which is indeed sensitive to financial aid and public subsidies, as well as to a realistic assessment of the potential labor market returns of a particular course of study and the opportunity cost involved in attending college. Organizations like Lumni USA are working towards giving students the tools they need to make such an assessment, but it remains extremely difficult. Students and parents might also pay closer attention to the debt-to-degree ratios pioneered by Education Sector.

On credentials, McArdle cites evidence to the fact that many U.S. colleges and universities are failing to build the measurable skills of their students, e.g.:

In Academically Adrift, their recent study of undergraduate learning, Richard Arum and Josipa Roksa find that at least a third of students gain no measurable skills during their four years in college. For the remainder who do, the gains are usually minimal. For many students, college is less about providing an education than a credential—a certificate testifying that they are smart enough to get into college, conformist enough to go, and compliant enough to stay there for four years.

We’ve briefly discussed Academically Adrift in this space, and part of the backstory of the book is that colleges and universities are extremely reluctant to release data on the outcomes of Collegiate Learning Assessments. Wolfers condemns McArdle’s article for a lack of evidence, yet colleges and universities have been highly resistant to releasing evidence relevant to what I take to be her actual thesis, which is that a credential doesn’t necessarily represent the acquisition of a particular set of critical thinking and analytical reasoning skills. This raises an important implicit question: is it possible to provide people with the critical thinking and analytical reasoning skills and the job-specific skills that they need to flourish in the labor market in a more cost-effective manner?   

Fortunately, elected officials like Sen. Ron Wyden (D-OR) appreciate that the failure of U.S. colleges and universities to provide students and parents with information on labor market outcomes is a serious issue, and so members of both parties have been working on improving the reporting requirements imposed on colleges and universities that receive federal subsidies. 

I’ll end by noting that when evaluating an article, I find that it is generally helpful to go beyond reading the title (“Is College a Lousy Investment?”) to read and weigh the arguments it makes in the body of the text. It is definitely true that McArdle does not provide detailed information on life outcomes for recent college graduates in her article. She does, however, reference the work of people who’ve studied the issue closely, including James Heckman, who explicitly tells her that while highly motivated students have reason to be largely indifferent to the “actual price” of higher education, students at the margin should be more mindful of how much they are spending relative to what they are getting.

One of the ironies of this discussion is that many higher education observers have been keen to make this point with regards to for-profit higher education. But of course this critique can apply just as well to public programs as well, conditional on cost and the quality of instruction.


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