Is College Worth It? | Peter Cappelli

When Is a College Degree Worth It?

Dan Loney: Conventional wisdom says that if you want a great career, you probably need to go to college. But that may not always be the case. In fact, the decision of whether or not to spend the money for a college education is drawing more attention than ever before. That’s an area studied by our next guest. Peter Cappelli is a professor of management here at the Wharton School and director of the Center for Human Resources. He wrote about this topic in his book, Will College Pay Off? A Guide to the Most Important Financial Decision You’ll Ever Make.

Peter, would you agree that the decision of whether or not to spend the money has taken on a much higher level of importance?

Peter Cappelli: I think that’s right. It’s been an issue for a while. But I think particularly when the economy went down during the Great Recession and afterwards, and a lot of college graduates weren’t getting jobs, it didn’t seem like necessarily such an obvious thing to do anymore.

Loney: What are the factors that people have to bring into play when they’re making that decision now?

Cappelli: I think you need to be serious about whether you care about the financial return on this. Lots of maybe upper middle-class people don’t care so much. They believe this is part of the process of their kid learning and developing, and they think they’re going to go to graduate school at some point anyway. They’re not particularly concerned about the market value of the degree.

If you care about it, then one of the first things you have to think about is, will my kid graduate from college? Now, this sounds like an obvious thing. Everybody I know said, before their kids went to college, “Well, my kid will certainly graduate, and they’ll do it in four years.” I can tell you that neither of my kids graduated in four years. So, if you go to college and you don’t graduate, it is not worth going in terms of the financial return from it. People have long known this, they call it the sheepskin effect, and that means that if you go to college and don’t graduate, you don’t make very much more money. If you hang around and actually graduate, then you get a bigger bag.

There is a difference between going to college and being a college graduate. One of the things you have to be clear-eyed about is, do I think my kid will actually graduate? If so, are they ready to go to college? And if so, how long do I think it will take? There are little calculators that will help you decide this, based on the experience of generations of prior kids. I’d say that’s the first big thing to think about.

Loney: Does the risk in this process fall on the shoulders of the parents or the child?

Cappelli: Well, I guess it depends how guilty the kids are going to feel about this. The parents are usually the ones bearing the financial risk. But the kids often feel a lot of pressure to get a good job afterwards. They know their parents sometimes were struggling to send them to college, so they feel a lot of psychological pressure. I think the question is, what kinds of things could they do to make sure that they can get maybe a better return, or at the very least not get a lousy or no return from their college degree, yet not give up working on the kinds of topics and majors that really suit them?

Which College Degrees Lead to a Good Career?

Loney: Now, you bring up an important component: the major an individual studies if they do go to college. That becomes very important in making the right investment in the right major. To a degree, it’s also the right college that you’re selecting with that major.

Cappelli: I think on the majors front, we have spent an awful lot of time trying to persuade people that everybody should get a STEM degree. But it turns out that a rather large proportion of STEM graduates ended up not working in STEM jobs. It is huge. I think it was close to a majority, or maybe it was a third, I’ve forgotten. But it’s a really big number of people who get STEM degrees end up never working in those fields.

So, the idea that if I get a STEM degree, I’ll obviously get a job. First of all, that’s not so true. It’s true that if you’re an engineer, you probably will. It’s true that if you’re in health care, you probably will. If you’re a biology major, or a science major, even a math major, not so clear you will get a job in that field. It is no guarantee.

I would say the thing we don’t give enough attention to, thinking of the return, is how complicated are the majors that I am thinking about pursuing in the college I’m going to, or think I’m going to. What does that mean? That means if a kid gets frustrated with a major that they chose, can they easily transfer to a different major, or is it going to be prohibitively difficult? There’s a great advantage in going to a school where if you don’t like the major you thought you were in, you don’t have to change schools, you can just transfer into another major or another department.

But the other thing you can look at pretty quickly is to see how complicated the major requirements are, particularly in a smaller school, often in state universities as well. If you look at the major, you can see that you have to take courses in a particular sequence. You can’t do this one until you have that one, and this one is not offered very often, and it’s always the same person offering it. And if that person goes on sabbatical or something, you can’t complete your major, right?

This happened to one of my kids, and he ended up having to take another year. So, how easy is it to switch majors if my kid has a different view? And they often do. They rarely end up doing what they thought they were going to do. And if I’m in a major, how clear is it that I can finish on time? How many likely roadblocks are there to that? The more complicated the major is, the more roadblocks.

Loney: Are there majors that are better aligned to matriculate through the four years and find a job right now?

Cappelli: Just cut to the end, what’s the best advice on this? The best advice is to be able, in the last year or so of your degree, see what is hot right then and take a couple of courses in that field if you can get them. The problem with timing the labor market is that if I am going to start college right now, it’ll be four years before I graduate. What is hot in four years is unlikely to be hot right now.

The classic story of this is that a few years ago, the hottest job in the U.S. for kids graduating was petroleum engineers. Then it completely cratered when oil prices sunk. Then oil prices rise back up, suddenly it’s a hot thing again, then it craters. It could be you strike it lucky. But part of the problem is that so many kids go into those fields when they’re freshmen because they see what the job market is like then, and then they kind of oversupply it. It’s like a cobweb problem in microeconomics.

It’s really, really difficult to time that, and it’s hard to know. If you get into engineering, it has been safer. But even there, if you get into like computer science stuff, computer programming degrees, not so hot right now, right? If you’re working on something in AI, super hot. But you would never have known that three or four years ago, right? The ability to adjust at the very end matters a lot. Smart employers are not so concerned about what your major is. They want to know what courses have you taken. And some of that could be certifications that you get, not even in your college, right? If you’re a philosophy major and you have the right kind of certifications, and you’ve taken some very practical courses that are marketable, you’ll probably do fine.

Loney: On the other side of this, if you don’t go to college, there are still careers out there where you can do very well without spending the large sum of money on a college education.

Cappelli: Yeah, I think that’s true. It is still the case, despite all this talk about skills-based hiring. You know, skills-based hiring means basically let’s forget about the degrees and things and just see, can you do the job? You would think employers were always doing, but they were not. And the reason, despite the talk about this, is that testing to see whether people actually have the skills takes a lot of time and effort, and they’re not willing to do it.

If, on the other hand, you can demonstrate that you have these skills, that’s super valuable. In some fields where you could be an apprentice, like in craft trades — electricians, carpentry, plumbing, that stuff — those are pretty well-paid jobs now. They don’t suit everybody. If you really think that you’re a big thinker and want to work in conceptual stuff, don’t become a plumbing apprentice just because the job is going to be good for you in terms of market. There are, particularly on the tech side, and particularly in health care, jobs that are pretty good that you can get without a college degree.

But having said that, there are still a lot of jobs where they make that a hurdle. Certain nursing positions, for example, like to be an RN, you have to have a college degree. So, it’s not perfectly easy to bypass the college route. But breaking your neck to try to get a college degree when it doesn’t suit you and you don’t have the money, just because you think it’s necessary, is probably not fair either.