Your college, even if it’s not your top choice, is still the right choice. Senior Editor of business coverage at TheAtlantic.com, Derek Thompson, occasionally notes the correlation between unemployment rates and level of educational attainment. In his February first article, “A Case for College: The Unemployment Rate for Bachelor’s-Degree Holders Is 3.7 Percent”, he makes a brief statistical case for four-year college. Many of you already know college is a wise investment, but it’s still nice to see the numbers. If you don’t feel like visiting his article to check out the info graphics, you can take this away: “Those who graduate from college are more likely to have a job, more likely to earn a higher wage, and more likely to have the skills and experience that employers go to the labor market to buy.” Nevertheless, some college degrees are financially safer bets than others.
Precluding the questions of college choice, and public/private, your most significant financial consideration during the college process might be declaring a major. Some majors, unsurprisingly, have worse average returns on investment than others. In a 2012 Salary.com article, “8 College Degrees with the Worst Return on Investment”, Dawn Dugan profiles majors in terms of their likely job placements in order to provide us with a list of eight poor ROI majors. Regardless of her questionably simple math (more on that below), her pairing of majors with average careers seems pretty accurate. So the worst of the best are: Sociology; Fine Arts; Education; Religious Studies/Theology; Hospitality/Tourism; Nutrition; Psychology; Communications. As you might imagine, this list set off a comment bomb that is still active as of Monday. People from all walks of life offered ranging sentiments. Here are a few of the most popular:
“Would it not be a shame if people decided not to become teachers, artists and writers, and career counselors and social workers and therapists…” – Barbara Hampton-Barclay, Manager Workplace learning at American University
Barbara’s full comment topped the list with over 200 “likes”. Many of the commenters fell into the same, ‘money isn’t everything’ category. Without a doubt, people gain a sense of meaning when they pursue careers that they love. Personal testaments disputing the rationale of Dugan’s argument abounded from those whose majors fell on her list. Those who silently agreed with the ROI argument may have found a voice in this other very popular comment:
“I do think we need far more engineers and scientists. We are losing our technological edge to countries like China and India.” – Michael Mann, Massachusetts Institute of Technology (MIT)
Market pressures determine salaries, and rates of unemployment. Agreeing with this line of reasoning does not devalue the social contributions of teachers and therapists. Our current economy, however, depends on some professions more than others. Moreover, individuals with ability and self-efficacy may meet with success no matter their choice of major. In other words:
“The biggest error in the survey methodology is assuming that the degree you earn defines the job you will get. A degree is an “intellectual toolkit,” a set of thinking skills your education has equipped you with.” – Bruce Castor, Business & Economics at Utica College
Was your heart aflame with dreams of a transcendent life and a Fine Arts degree? Are you dead set on helping those who most need it? Dare I say it…do you want to become a Social Worker? Well, it is fairly obvious that you will not be earning Financial Banking returns as a servant of the destitute. However, as long as you’re willing to look the other way when it comes to opportunity costs, consider this slightly better ROI calculation. (Special thanks to Matt Kindy, Researcher at Rice University, who offered this comment on Dugan’s article.)
“First off, the actual VALUE of the degree is the amount it increases your projected earnings over the 30 years. Not only this, but you must subtract the amount you didn’t earn during the period when you were going to college.
Secondly, the number you got when you used your methodology isn’t in the correct format. The amount returned on food scientist, for example, isn’t 100%, it’s 100-fold, i.e. 10000%. You didn’t just earn 100% on your investment of ~$37,000 if you went to public school; that would only be another $37,000.
So the correct formula would be:
ROI = (30 year earnings with degree – 30 year earnings without degree – Lost pay during college – Cost of degree) / (Cost of Degree + Lost pay during college) * 100.
You have to add on the lost pay during college into the divisor to account for the value of the time invested as well as the actual money invested.
Let’s go over some numbers:
-The median pay for a worker with a high school diploma is in the neighbourhood of $25,000 per annum.
-Public liberal arts degrees were assigned a cost of $37,343.
-Private college costs for a degree were assigned as $121,930.
Let’s take the social worker example (assuming no promotions or whatnot for anybody):
To make this easy, we’ll just multiply the median pay by 4 to get the opportunity cost of the degree (no inflation except for the 30-year, so this is a rough estimate).
ROI_public = ($2,779,195 – $1,474,499 – $100,000 – $37,343) / ($37,343 + $100,000) *100 = 850%.
ROI_private = ($2,779,195 – $1,474,499 – $100,000 – $121,930) / ($121,930 + $100,000) *100 = 488%.
[Rice University – Majors in Computational Physics and Political Science – Minor in Computational and Applied Mathematics].
In addition to the numbers, the ability to choose a career that brings meaning into your life is of no small value. I can testify to this. As someone working with non-traditional students who hope to complete a degree after spending time in the workforce, I have heard that the alternative to college is not a bright one. Does everyone understand this? Maybe not. Derek Thompson also noted, “Bachelor’s degrees correlate with more, better-paid jobs, and three out of five workers today don’t have one.”1