“A college degree is one of the best investments you can make. If you want to succeed financially in life, go to college.” High school students hear this conventional wisdom from everyone from education policy wonks to high school guidance counselors to parents. Statistics back this up: people with bachelor’s degrees can expect to earn hundreds of thousands of dollars more over the course of their careers than high school graduates.
Economist Beth Akers says this is true, but it’s only half the story. In finance, investors know that they can’t only look at the average return of a stock or bond. They also have to consider the risk that the asset won’t pay off. But somehow this bit of common sense is largely left out of the conversation on higher education. College has a high return, but it can be a risky proposition as well.
“Making College Pay,” Akers’ new book, is written as a how-to guide for prospective college students to navigate risk-return tradeoffs as they pursue education beyond high school. Akers calls it the advice she wished she had received as an 18-year-old. But the book should also prompt the rest of us to reconsider how we talk about higher education.
Akers shares the story of buying her first home. The process involved wading through a mountain of paperwork and jumping through a series of bureaucratic hoops before she could close the deal. There were income and credit checks, building inspections, and insurance contracts to complete. The process could be maddening, but it was all aimed at eliminating sources of risk. Buying a house is usually a good investment, but not so much if it happens to be built on top of an active volcano.
Higher education is different. “The road to college is lined with cheerleaders telling aspiring students that a college degree will be a golden ticket to success,” Akers writes. Guidance counselors treat college as the natural next step for most high school students. The federal government offers students tens of thousands of dollars in grants and subsidized loans, with minimal quality safeguards. We expect teenagers to make some of the most economically consequential decisions of their lives before they are legally allowed to drink alcohol.
Often, they make those decisions with minimal knowledge of the risks associated with every turn in the road. One of the largest sources of risk is not graduating. People who drop out of college don’t get the financial returns of the degree, but are stuck with student debt anyways. Taking longer than four years to finish college is also a major source of risk: extra years in school mean less time in the labor force, with commensurately lower lifetime earnings. Another problem: some majors don’t have the payoff students may expect.
There are also sources of risk completely outside the student’s…
Read More: How Do You Make College Pay? Consider Risk