Barry Dahl dot com

In case you missed it, I recently published a rant about measuring ROI in higher ed, titled: ROI on Tuition Paid – Another Bunch of Hooey. Lo and behold, another of the innumerable infographics crossed my email path and got me going again. It’s titled “How Higher Education Helps the Economy.” The infographic was prepared using data from Bloomberg/ Business Week and an organization called PayScale. The data can be examined along the lines of the question “Does it pay off to go to college?”

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The Payscale data used here is suspect (no sampling, unequal numbers and %’s of students from each school, self-reported income figures, etc.), but their methods of using that data seem to be pretty sound up to a point. The problem is that they stop short of making the important calculations – so I’ll make them here. They calculate a 30-year return on investment  for bachelors degree students (one number for grads, different one for all students who attend regardless of graduation) based on the extra earnings that the average student/graduate has earned after attending each college after factoring in the total out-of-pocket costs of attendance (both before and after grants) and the average number of years to graduate from each school. They are looking at a 30-year time period, starting after the 4 to 6 years that they spent in college. They look at students from various colleges and factor in that school’s average years to graduation (but don’t share what those numbers are). The base income is the amount that the “average” high school graduate would earn over a 34-36 year period and comparing that to what the average bachelor degree graduate earns over the 30 year period, after spending 4-6 years in school prior to graduation.

So let’s see what Payscale came up with. They rank the schools based on “ROI.” Yep, here comes some more ROI Hooey!! But what the heck, let’s just go with it and see where it leads.

Here are their top 5 schools.

1. Cal. Tech – ROI: $2,033,000  –  Cost (after grant aid): $91,250
2. Harvey Mudd College – ROI: $1,868,000  –  Cost: $117,500
3. MIT – ROI: $1,797,000   –  Cost: $72,560
4. Dartmouth – ROI: $1,701,000  –  Cost: $72,850
5. Stanford – ROI: $1,691,000  –  Cost: $75,710

Many people will look at this data and say “what a great deal!!” Spending $75,710 to go to Stanford provides a return of $1,691,000 over 30 years. “That’s fantastic!”

Ummmm, no, it’s really not all that special. Here’s the deal. If you took the money spent to attend Stanford over a four year period and invested it in the stock market, and then let it ride for 30 more years after that (same 30-yr time frame used in the study for the college grad to earn more than a high school grad), you would come up with an expected value of $1,655,755 – which is only $35,245 less than the benefit of going to Stanford. And don’t forget that you would have a pot of money sitting there equal to $1,655,755, which is very unlikely to happen for the Stanford grad who made (and probably spent much of) the extra income.

Those numbers apply only if we are talking about getting out of Stanford in 4 years. What if Stanford is a five year proposition? That changes things substantially. Now the high school grad has the advantage over the college grad by $53,471. Yikes. Giving the lowly high school grad that extra year of stock market gains makes about an $89K difference.

Crazy talk, right? I’m not so sure. What’s so crazy about it?

Let’s recap.

• A student who graduates from Stanford pays a total of 75,710 out-of-pocket, including loans that have to be paid back. Grants received are free money and are not considered to be an out-of-pocket cost.
• Let’s assume that they make eight equal payments over the four years (one payment every six months). In financial circles, making a payment at the beginning of each time period is known as an annuity due. For Stanford, those 8 equal payments would be $9,464 ($75,710 / 8) per payment. Sure, they’re not really going to be equal payments, but close enough.
• The long-term rate of return for the stock market is approximately 10%, although it’s somewhere within the 9-11% range depending which 30 year time period you choose. We’ll use 10%.
• The future value of an annuity due for 8 periods at a 5% interest rate (10% annual / 2 payments per year) equals $94,889 at the end of the four years.
• The high school grad has been working for those four years instead of going to college. At this point the high school grad leaves his investment nest egg (the $94,889) alone for the next 30 years while the Stanford grad goes to work for the next 30 years.
• The Stanford grad earns a salary over those 30 years that exceeds the salary of the high school grad by $1,691,000.
• During those 30 years, the Stanford grad presumably saves for retirement and invests her riches along the way. How much she will accumulate after 30 years is anybody’s guess (go ahead, take a guess).
• The high school grad has an investment portfolio of $1,655,755 – and that’s assuming that he hasn’t added a penny to it (nor taken one out) over the past 30 years.

I can hear some of the objections you’re raising, such as “sure, but these are averages, and my kid (or whoever) is way above average and will do much better than that.” Maybe so, but the same can be said for those above-average high school grads who will do real well for themselves without the college degree.

Another objection: “but going to college is much more than just maximizing your earning potential. It’s about the people you meet and the connections you make.” I always love that one. It makes it sound like a person who doesn’t go to college is doomed to a life in solitary confinement and cannot possibly live a fulfilling life or expand their mind or any of the other things that people tend to think can only be achieved through a college experience.

Another objection: “you have no way of knowing that the stock market is going to return 10% again over the next 30 years.” Yep, that’s right. We also have no way of knowing whether college grads will continue to earn this much more than high school grads over the next 30 years, nor do we know whether the jobs that your degree qualifies you for will even exist over the next 30 years. It’s definitely a series of dice rolls and we could crap out at any time on any one of them.

Another objection: “it’s completely unrealistic to think that non-college-goers could get their hands on that kind of money, and even if they did, they’d spend it rather than invest it.” That might be true, and it might not be true. It would probably be tougher for people coming from low-income families. But the math still works for those coming from high-income families. It still begs the question of whether they are better off investing their money rather than spending it on a college degree.

Another objection: “maybe that’s what the numbers say right now, but ‘past performance is not necessarily indicative of future results.’ All the experts say that a college education will be more important in the future than in the past. They also say that high school grads without college will find fewer and fewer job openings in the future.” How sure are you that those “experts” are right? Other experts are taking a different approach, such as the Thiel Foundation project that encourages entrepreneurship over college attendance.

It’s certainly not an exact science – which is exactly one of my major objections with the whole “ROI” malarkey in the first place. For the most part, they’re just making it up (and so am I).

Some of the things that Payscale doesn’t take into account, but probably should include:

1. the average amount of debt incurred by grads at the different schools
2. the amount of interest paid on that debt over the years
3. the number of defaults on the debt at the different schools

Which leads me to the following adjustments:

• Graduates who have a substantial amount of debt to repay will likely end up on the lower end of the cost/benefit calculation due to their increased costs and inability to save during the years when they are paying back loans.
• Graduates who actually default on their loans are probably in a world of hurt and will have credit problems for much of their lives, and might have been much better off taking the low road of the high school grad.

Just a couple of other tidbits. I looked at a few schools of special interest to me.

• I know someone who recently graduated from Western Michigan. He was an out-of-state student. The average cost of attending Western (after grant aid) is $113,000 for out-of-state students. His extra earnings over 30 years are projected to be $546,700. If he had just invested his college money he would have been better off by $1,931,136 (for 4-yr grad) or by $2,064,305 (5-yd grads). Ouch!!
• How about Wisconsin-Green Bay? Low costs (relatively low) of only $39,050 (in state). But also low salary differential of only $285,600 over 30 years. Investing that money rather than spending it on college pays off to the tune of $568,412 (4-yr) or $614,309 (5-yr).
• How about a school that stands out in a positive way? Take the Ramblin’ Wreck from Georgia Tech. Cost of $39,390 (in state) with a whopping salary differential of $1,467,000. The GT bachelor degree is a much better use of the money by about $605,553 (4-yr.) or $559,255 (5-yr.). Very few of them look like this.

In closing, let me make it clear that I am not an anti-college guy. I’m a pro-college guy. However, I think we need a dose of sanity when looking at the financial value of a college degree. High-achieving students need to go to college to be our professionals of the future. That includes the future doctors, lawyers, engineers, accountants, nurses, college professors, etc. etc.

However, I think this really begs the question of whether the lower-achieving students or less-prepared students who go to college would be better off going to work and investing their college funds. Looks like that’s a definite possibility, IMO.

Resources:

• Payscale 2011 ROI Data Package methodolgy
• Bloomberg article: College: Big Investment, Paltry Return
• Sortable table: What’s Your College Degree Worth?

Filed under: Higher Ed | 1 Comment »

This conversation came up many times over the years when I was working on the inside of higher ed. It would usually have a prompt like one of these:

“Are students customers?” or “What shall we call our students?” or “Should we treat our students as customers or as _______ (fill in blank)?”

Recently I engaged in a discussion forum on Linked In where the thread was started with this question: “Why is it that Higher Education … Universities … continually fail to acknowledge that students are customers?” Sorry, no link to share since that forum is locked unless you’re a member of the Inside Higher Ed group.

I know that what I’m about to say is an incredibly wacky, totally nutty, and mostly bizarre suggestion, but how about this …

wait for it …

How about we call them “students?”

Crazy talk, I know. Apparently (for most people), that word just isn’t descriptive enough. We MUST call them something else. But why is that, exactly?

• Doctors have their patients (but they should call them customers, right?).
• Consultants have their clients (but they should call them customers).
• I.T. staffs and drug dealers have their users (and they could call them customers).
• Football teams have their fans (most certainly they are customers, right?).
• Libraries have their patrons (except, of course, college libraries, who should call them customers).
• Governments have their taxpayers (you certainly wouldn’t want to be a customer of the govt, would you?).
• Restaurants and hotels have their guests (never mind that their “guests” have to pay).
• Publishers have their subscribers (people willing to commit to being long-term customers).
• Co-ops have their members (who might never actually cooperate except by buying stuff).
• Landlords have renters or tenants (but we really should start calling them customers).
• Taxis and airlines and such have passengers (who are clearly customers).
• and of course I could keep going with this (see dead horse here).

Is there something not fulfilling enough about the word “students?” Does it confuse people and thus we need a new word? Does it not allow us to compare our students with the “customers/clients/patients/fill in the blank” that people deal with in other walks of life?  How would that be important?

Even more importantly, if the whole world decided to call students something other than students, would that really change the relationship between those of us who work in education and those (students) who come to us for an education?

I certainly hope not. In fact, by calling them students, then we (all of us, collectively) get to decide what it means to provide “student service” rather than “customer service.”  The key points are related to how educators interact with students during the educational process – not what we call them.

I would say this:

• When people are sitting in our classrooms, they are students.
• When they are shopping in the campus bookstore, they are customers.
• When they are visiting with the prof during office hours, they are students.
• When they are talking with the college counselor about a personal problem, they are clients.
• When they are registering for classes for the next term, they are students.
• When they are screaming at the college football (I mean hockey) game, they are fans.
• When they are borrowing a book from the college library, they are patrons.
• When they are writing a term paper, they are students.
• and of course I could keep going with this (see dead horse here).

Seriously, what the hell is wrong with the word “STUDENTS?”

Filed under: Higher Ed | Comments Off on Why can’t students just be students?

One of the greatest lies ever told: “Come to our college and you’ll get a 16% (or whatever) return on investment for your dollars spent on tuition.”

A company called EMSI gets lots of work in this arena, and I’m sure they’re a fine company. Here is an example of their work: Quantifying the Economic Contribution of Washburn University.

I have no quarrel with what is probably the major part of this study – their attempt at measuring the economic impact of WU (or any college or university) on the surrounding area. A college’s economic impact is usually very significant on the local area. No big surprise there. Nothing wrong with that either, unless the pundits make it out to be something more special than it is – large employers always make a big economic impact on the area – that’s not news. It’s also not news that some WU grads stay in the area and add to the economic vitality of the region. It WOULD be news if most the grads left and took their economic power with them. It would ALSO be news if the surrounding area started to attract large numbers of imported residents who were educated elsewhere (using someone else’s money) and added to the vitality of the region. The fact that the WU service region benefits from WU is exactly the same story that most of the other 4000+ institutions of higher learning can tell. Having said that, I’m really not bothered by that part of the article.

The part I take great exception to is the individual student impact that they tout in these studies. For example: “Students see a 15.9% average rate of return on their investment in WU and an increase of $5.60 in discounted lifetime income for every dollar invested in the four-year school…”

First off, the average rube (pretty much all of us) has no idea what “$5.60 in discounted lifetime income” means, but it sure sounds good. I do know what it means, and I can tell you that it is a worthless figure for anyone to use when deciding whether he/she should go to college. Let’s focus instead on the 15.9% average return on investment.

All the ROI talk in education makes me a bit crazy. It’s a business concept that means something very specific – then we apply it to education in a very different and non-specific way. I taught cost accounting and finance for 17 years , and investment analysis was a big part of the curriculum. Maybe that’s why my ears perk up every time someone utters the letters R-O-I.

In no particular order, here are my beefs:

1. There is no “investment” by students in the way that it is used in “real” ROI analysis. An investment means that there is an identifiable asset on a balance sheet somewhere. College students have neither identifiable educational assets nor balance sheets. So, when someone tells you that students will see a 15.9% ROI, they’re just absolutely making that up.
2. Students are spending, that’s true, but there’s a big difference between spending and investing. It’s more complicated than that though since students are often not spending their own dollars. Should a student apply for grants and scholarships and then SPEND that money on education? Absolutely, especially since that money can’t be spent on anything else (except those who game the grant system to pay their living expenses when they have no intention of actually getting an education – but that’s a whole different conversation). But when students are taking out loans or spending money out of their (parent’s) bank accounts, then it is a question of how much of a benefit they will see in the future on those dollars spent (yes spent, not invested).
   • As an aside. I was once told by a fresh-faced sales person what a great investment it is to buy an aquarium. Sadly, I went with my first reaction which was to LOL in his fresh little face. I went on to explain to him that an investment is something that either produces income in the future or increases in value, or both. If it doesn’t do that, then you’re just spending your money, not investing it. He then asked if I wanted to spend my money on an aquarium. I did not.
3. The biggest problem I have with the student ROI (fantasy) figures is that they are based on the “average” student (apparently). That’s not the way that ROI analysis works in the business world. We don’t say that we should invest in a new product line because on average, when we invest our money in new products, we get a 15.9% ROI. That would be a very poor management strategy. We need to analyze each decision independently and determine if it is a good use of our limited funds. Some products promise higher returns, some promise lower returns.  Same thing with students. The average (fantasy) ROI is a product of extremes. No doubt there are students who lose financially (incur a negative return) by going to college, and others who benefit greatly. Telling an incoming student that they can expect a 15.9% ROI is total bull. The level of future benefits they might reap from their spending on a college education will be influenced by dozens of factors, many of which are out of their control. Some of the factors that will make a difference include a) degree program choice, b) regional employment outlook in that field, c) general economic condition of region/state/nation, d) willingness to relocate, e) high-achiever, low-achiever, or in between, f) destructive vices or hobbies, g) creativity quotient, h) schmooze factor, i) friends in high places, j) well-connected parents or other relatives, k) then add in a whole bunch of other factors. Then you’ll still be wrong.

Makes for great articles though, doesn’t it?

Too bad it’s a bunch of crap.

(NOTE: original CC-BY photo by Flickr user tvol)

Filed under: Higher Ed | 4 Comments »

Loved seeing this article on MPRnews about how Minnesota residents can save big bucks by sending their kids either the UM or UW. Around these parts, that usually means the University of Minnesota or the University of Wisconsin.

Not the case this time. The photo at the left is one of the many beautiful buildings at the University of Manitoba. That’s the UM in this story. Further down is a shot from the University of Winnipeg – that’s the UW.

Turns out that Minnesota residents can attend either of these very fine institutions of higher learning for about half the price of the cost of attending those other UM and UW schools.

The reciprocity agreement between the state of Minnesota and the province of Manitoba has allowed Minnesota residents to pay in-province (or whatever) tuition rates at the Manitoba schools – and that agreement has been in place for over 20 years. That tuition rate is between $3,500 and $4,000 per year at the Manitoba schools. Compare that with about $8K per year at the U of Minnesota. Plus, the Gophers football team sucks out loud. Heck it’s cheaper to go to the Canadian schools than it is to attend one of the Minnesota two-year schools.

I’ve written extensively about the high cost of  college in the U.S. Maybe this is the ultimate “work-around” to get a high-quality education at an affordable rate.

Odd that only about 50 Minnesota students currently attend college in Manitoba. It’ll be even more odd if that number continues to be so low once people start finding out about the opportunity that lies in wait.

There is a catch, of course. American students attending in Canada are not eligible for Pell grants, although they are still eligible for student loans. Of course, if the red legislators gut the Pell program as they would like to do, this may become a moot point.

One additional catch. I currently live 5 minutes on the Wisconsin side of the Minnesota border. Can we work out a similar reciprocity agreement between Manitoba and Wisconsin?

Filed under: Higher Ed | 1 Comment »