Freakonomics Radio - 86. Freakonomics Goes to College, Part 1

Episode Date: July 29, 2012

What's a college degree really worth these days?

Hello, Mr. Azell. Yes. Hi, Stephen Dubner. Nice to meet you. Stephen, nice to meet you. And you won't believe what I'm holding in my hand. Let me guess, because I just got a degree in psychic work, so I'm going to say... I'm impressed. Over the internet? Of course. Where else? I'm going to say that you have in your hand a diploma, maybe from Appalachian State University? Yes. Founded in the year 1899. And I like their logo down at the bottom.

And what did I get my degree in? Oh, I have no idea. This is a blank. Oh, so it can be whatever I... Sure. You know, I've always wanted to be a vet. Well, if that turns you on, then that's fine. And I'm sure that the animals would have fun with your children. And do you maybe also have a graduate degree from Columbia University as well? The trustees of Columbia University in the city of

New York to all persons to whom these represents may come greeting, be it known that having completed the studies and satisfied the requirements for the degree of, and it's a blank also. Ah, hot diggity, you know, because I did get a degree in writing there, but I really thought I should have become a doctor instead. Hey, you can be whatever you want to be. Remember, I've got two MDs. From WNYC and APM American Public Media, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dupner.

On today's show, we're talking about the value of a college degree. Now, for the record, I really did go to college. I got my undergraduate degree in broadcast journalism, actually, at Appalachian State University. And I got an MFA in writing from Columbia, which is why Alan Ezell brought those particular diplomas to the radio studio. Now, you may be asking, who is Alan Ezell? And how did he get hold of these blank diplomas to the radio studio. Now, you may be asking, who is Alan Izzo? And how did he get hold of these blank diplomas? Well, he used to work for the FBI. I retired in late 1991. And for 12 years, I handled what was called Operation Dip Scam, Diploma Scam. And it was a series of investigations on degree mills, diploma mills throughout the United States and somewhere abroad. Now, it should be said you say that you handled this investigation, but you're being a little modest here.

You created this investigation, didn't you? Well, that's true, too. Here's how it started. One day in 1980, an informant came into Ezell's FBI office in Charlotte, North Carolina, and laid a couple of fake college diplomas on his desk. He told Ezell about a man in Greenville, South Carolina, who was selling them. So Ezell made a phone call. He didn't say he was with the FBI. He said he was an accountant hoping to get a promotion. That first day when you got on the phone with the president of the university in Greenville, South Carolina, what was the name of that university?

Southeastern. Southeastern. And was it a real college at all? That word real. Yes, it was. Well, it's a relative term. There was a point in time, probably 11 years before that, that it did have a building. There later came a point in time when it had a fire or something, when it stopped being real in that sense. And then the proprietor started operating the school out of three rooms of his house. What was this fellow's name? Dr. Alfred Jarrett.

Okay, so you called him up that day. You called up Dr. Jarrett at Southeastern University, and what did you say to him? We negotiated the price for my bachelor's, master's, and doctorate with no work whatsoever. Wait, you bought a bachelor's, master's, and a doctorate all at once? Sure, triple combo, have it backdated, you know, with transcript. During that conversation, Ezell made it sound as if he and a colleague might be helpful to Jarrett in growing his diploma business. So Jarrett invited them for a visit. He took us on a tour of his house and the three rooms involved.

He showed us the school filing cabinet. He showed us our student files and the other student files. He showed us blank diplomas, transcripts, seals, ribbons, all the trappings that it would take. Now, all of this information we use in our affidavit for the federal search warrant. Izzell and some other FBI agents put together their case and then went back to see Jarrett, this time with a search warrant. I tried to explain to him that life is not over, that this is just a search warrant. So we spent two or three hours there. We did what we were supposed to.

And then we left town and went back to Charlotte. But we later learned the following day when the phone rang that after we had gone, Dr. Jarrett went out with a lady friend of his for dinner, started giving away some of his possessions, and then went into the bathroom and took a.38 and put it up to his head and committed suicide. We did not see that coming. I did not see that coming at all. We had not even read all the boxes of stuff that we had. When we did read it, we saw that he had approximately 600 plus graduates over 11 years. We had federal, state, and county employees. We had law enforcement. You name the profession, we had it. And that was Alan Nizel's introduction to the world of fake diplomas.

Over the next decade, he helped uncover a huge counterfeit market. Companies all over the country doing millions of dollars worth of business. We bought 40 degrees. We had 16 federal search warrants, 19 federal grand jury indictments, about 21 convictions. We dismantled 40 schools and or counterfeit operations. The highest gross revenue that I saw then, and this is pre-Intern came about, $2 million that I was seeing for a gross revenue is not even pocket change. We're now seeing $36 million, $7 million, $5 million, and the Lollapalooza, the biggest one that we have ever seen, called University Degree Program. And they operated from 98 through about 03. By our calculations, they grossed $453 million. And the paper that they sold will pollute the market for years to come.

And what makes it even worse, they sold degrees in anesthesiology, cardiology, dermatology, endocrinology, gastroenterology, neurology, obstetrics, oncology, ophthalmology, pediatrics, psychiatry, radiology, surgery, urology. And I would ask you, where do you think the people are employed that bought degrees in those majors? Well, that's what I want to know, Alan, because if you're saying this one firm grossed 450-some million dollars over, what, a five-year period, The average price, let's say, was $1,000, let's say. No, it was more. More than.

It was about $2,400 and you had a $500 discount. So let's go in at $2,000. Even so, that's more than 200,000 totally fake degrees. I told you they were the Lollapalooza. And that's one firm. So I have two questions for you. One is where the hell are all these fake doctors and how do I stay away from them? And two is if there are 200,000 roughly from one firm, how many fakes are we talking about in total?

We have no idea. Let me put it this way. The United States, all the colleges and universities in our country award about 1.3 million degrees a year. Approximately 1 percent of that, we believe, is the amount of phony degrees that are sold in our country each year. As to where these people are that bought those degrees, we don't have a clue. And I say that because no one in law enforcement, federal law enforcement, chased them. We don't know who they are. We don't know where they're employed. Only occasionally will a graduate flush up.

He could be practicing in a hospital. He could have something go awry in a medical procedure, and then they start looking at his credentials and then find out he's a phony. You would be shocked at the number of people that buy this garbage and then put it on their resume and then post this online. When Ezell retired in 1991, Operation Dip Scam ended. And he says the FBI pretty much stopped investigating fake degrees. The industry has exploded since then. Today, you can buy just about any kind of degree online.

There are two basic kinds of operations. One is simply a counterfeiting company, which sells fake versions of real degrees from the university of your choice. The other is a diploma mill, essentially a fake university that issues its own degree, like Southeastern University, Dr. Jarrett. Sometimes a diploma mill will ask you for a resume and award course credits based on your work history. Occasionally, you'll have to do some actual work. I mean, the most I've ever done is five pages on a master's, okay? But a lot of the time, you just pay the fee. Smash and grab. Here's my check. Give me my degree. So imagine you've got a low level job and you want a promotion that requires additional schooling, but you don't want to go back to school. So you tell your boss you're working on a degree at night and then a year or

two later, you give your boss your new fake diploma. Hey, thanks, Diploma Mill. As of today, there's no federal criminal legislation regarding using Diploma Mill paper in this regard. You sound as though you're not happy that there is no law against that. Oh, no, I've never been happy. The way you get somebody's attention is with some handcuffs, okay? The threat of a civil fine or embarrassment will not do it. We need a federal law that forbids the diploma mills, non-accredited institutions, institutions that don't have regional or national acceptable accreditation. It should not be this easy. Does it still burn you after all these years of pursuing these guys to know that people are cheating so baldly? Oh, it always has.

I mean I have two daughters, one that graduated from the University of North Carolina at Chapel Hill, one that graduated from the University of Florida. I have bought counterfeits of both of their school diplomas with transcripts. And I probably paid less than $800 for both. And you can imagine the thousands of dollars to send them to school. No, I cannot take away their level of learning that they had by going to school. But by buying a counterfeit, I can devalue the piece of paper that they walked out with at the end. Because it undermines all of our legitimate education. Every one of us that have spent time, money, effort, sweat, all-nighters, it devalues the degrees that we have. If Azel's ballpark guess is true, that roughly 1% of college degrees are fake, just think about that.

If you work in government or health care or maybe in public radio, for every 100 coworkers, one of them is a fraud. You've got to wonder if there's something about how we look at real college degrees that makes a fake one so attractive and so easy to get. You can be whatever you want to be. You can be whatever you want to be. We say that a lot, parents to kids especially. But what we really mean is you can be whatever you want to be. We say that a lot, parents to kids especially. But what we really mean is you can be whatever you want to be, but first you need a college degree. Now, degree mills exploit our collective college anxiety. And they tell people, don't worry about the education. It's the piece of paper that gets you the job. Plus, a real degree is expensive. Not only the money itself, but four years of your life.

And especially when the economy is crummy as it is now, it's unclear if that investment is paying off. Coming up, we'll talk about how much a college degree matters when you work in the White House. I think I was in the last generation that could be stupid enough not to get a college degree. From WNYC and APM American Public Media, this is Freakonomics Radio. Here's your host, Stephen Dubner. Here's the thing. When you look around at a variety of fields, you can find some really, really successful people who did not finish college. And not just in sports and entertainment. I'm talking about people at the top of knowledge fields where smarts are key. So Bill Gates, Mark Zuckerberg, Richard Branson, even in politics, you can find a few.

Hey, Stephen, how are you? That's Karl Rove, former senior advisor and deputy chief of staff for President George W. Bush. Rove is currently a commentator for Fox News and a contributor to The Wall Street Journal. And at first glance, Rove's academic credentials seem to be commensurate with his achievement. So here's what I read from your bio, that you were a Colorado native who attended the University of Utah, the University of Maryland College Park, George Mason University, and the University of Texas at Austin. But what I can't tell from that is if you actually graduated college. So tell me if you did or not. No, I never did. Otherwise, I'd say I was a graduate of one of those colleges.

So I'm curious to the degree to which you were leaving college because you were working. It wasn't you were leaving college to eat Cheetos on the couch, right? Well, yeah. No, I left college because I had a greater economic opportunity. I mean I went to the University of Utah. I only was able to attend college because I had a $1,500-a-year scholarship from the William Randolph Hearst Foundation, and I had to wait tables and run a cash register in a hippie shop that sold patchouli oil and work in an industrial kitchen at a hospital in order to make ends meet. And even then I didn't have very many ends. But I left the University of Utah where I'd been for two years in order to accept a job at the Republican National Committee at the height of the Vietnam War.

Went to the University of Maryland. Lost my student deferment, was almost drafted, went to the George Mason in order to keep trying to get to the college degree. And then same at the University of Texas. And, you know, I was cobbling together courses here and there. But each time the chance to get the college degree was stymied by, you know, having sort of an unusual opportunity. In each case, in each of these universities when you were enrolled, were you a political science major? Yes. Probably the most useless degree that one can see, but I'm sort of stuck.

Rove is widely considered to be a political genius. He was the architect of President Bush's two electoral campaigns, and he had a lot of policy influence in the White House. And he's a guy who left college because, well, because it just wasn't worth it to him. He found he could learn more in the field than in a classroom. Listening to him, you start to think, if you can learn so much by doing, why bother getting a degree? But mine's an atypical experience. I mean, I think I was in the last generation that could be stupid enough not to get a college degree. I live in a society in which credentials matter. I

mean, the Bill Gates of the world who go on to found Microsoft after dropping out of Harvard are few and far between. The Karl Roves who go on to be senior advisor to the president after never completing your degree are few and far between. Rove points out that he did learn a lot in college but not the kind of things you might expect. The best course I ever took in college was in my sophomore year and it was a course in Shakespearean literature. I learned more about political communications in that one semester from a Catholic nun than I learned in any political science course. It made me aware of the power of language and how telling a story, a political campaign is about big issues, but you have to describe a narrative. You have to create a storyline. What is this all about? So as of today, how close are you to getting your undergraduate degree? How many credit hours shy are you? I think I'm about – I'm in my language requirement and about – I think about six hours or nine hours beyond that. Math course, science course, and language is what I think.

Now, the language is going to kill me. And realistically, how old are you now, Carl? 61. Realistically, you think you're ever going to get your college degree? Let's keep it out there as a goal. You know, life is about, you know, upward vision, about moving towards the ever higher plateaus and mountain peaks. So let's keep it out there. We don't really know why different people choose different levels of education. That's David Card. He's an economist at the University of California, Berkeley. Some people think it's all parental background. Some people think it's other attributes. If you ask an economist like David Card a simple question about college, like, is it worth it?

He'll tend to focus on the most tangible outcome, what economists call the returns to education, which pretty much boils down to how much more money you'll make if you go to college. In my family, we have all five possible levels of education. We have somebody who didn't finish high school, someone who just finished high school, somebody who has kind of three years of college, vocational college, somebody who has a bachelor's degree with a teaching certificate, and then me who has a PhD. And if you just were to look at our family, every step of the way, the returns to education are enormous. I mean totally enormous. So the one who did not finish high school does what for a living?

Basically cleans houses. Yeah. And is the level of educational attainment kind of a conversation in the family or is it something that is just known, acknowledged and that's the way it is? Well, I think like many families, the next generations, people say, well, should we try and convince this kid to go to college or not? And it's easy to say, well, look, if you go to college, you're going to have a little bit easier choices to make. Once you get through that, things are going to be a lot easier for you.

If you don't have – going forward, I think anybody who has kids who can possibly make it through a bachelor's degree should really think of some way to get them through. Because I don't see much of a future 20 years from now for the anomalies, the billionaire who dropped out of college or, on the other hand, the Ph.D. who's driving a taxi. But let's not get distracted by the anomalies. If you want to measure the value of education, you have to think in the aggregate. And that's what economists like to do. Here's my Freakonomics friend and co-author Steve Levitt, an economist at the University of Chicago. The best way I think an economist thinks about the value of education is tries to figure out how the market rewards it and what other benefits come with. And one thing is clear.

It's that the market puts a tremendous reward on education. So the best estimates that economists have are that each extra year of education that you get is worth about maybe an 8% increment to your earnings each year for the rest of your life. So it turns out for most people, buying a lot of education is, or at least for the average person, let me say, buying a lot of education is a really good deal. And here's David Card again. In addition to that, the one who went to college will probably work four or five years longer at the end of their life. They'll probably have less months of unemployment. They'll probably have longer hours of work while they're working.

So all in all, their total earnings will be even higher than their kind of standard wage. Aaron Powell, Jr.: I mean we're talking about – economically at least, we're talking about black and white. I mean that's – over the course of a lifetime, massive, massive. How does this shake out historically? In other words, was this advantage – what did that advantage look like 20 years ago, 30 years ago? Do we know? It looks like where we are today is as high as it's ever been in the US. The low point was about 1975 to too many people were going to college.

Now, if anybody followed that advice, it would have been the worst possible choice they could have made because starting around 1978, 79, their return has just marched up steadily. But what about now? I mean we've had a few years of pretty crappy economy employment-wise. Is it time to start thinking about the overeducated American problem? I would say the returns are even higher now because of the recession. The people aren't thinking about it right.

So they notice that somebody who graduates from college is having a bit of a hard time getting a job or they notice that the unemployment rate for college grads has gone up a little bit. But if you do the right counterfactual and say, well, what if I didn't have a college degree? It's much worse. The rise in unemployment was much higher for people with just a high school diploma. As has always been true in every recession, the recession is always worse for less educated people. So is it safe to say then that returns to college education in the United States are

historically at a high? Yes. Okay. So if that's the case, I guess that's great news for colleges. It's great news for college professors like yourself. It's great news for people who plan to go to college. Well, there is a problem. That's kind of the benefit side of the calculation.

Yeah. And we haven't really talked about the cost. Ah, yes. The cost. As former FBI man Alan Eazell told us, you can get a fake diploma for a few hundred dollars, but the real deal? Much, much more expensive.

On our next episode, we'll try to figure out why does college cost so much? I went to Wellesley College. I think it's a great place. And I saw the other day their tuition for the incoming class and almost spit out my drink. And what exactly happens in the college classroom to give graduates such an advantage later in life? I teach my students. I teach them

very specific things. But I know that when I talk to them years later, they don't remember anything that I taught them. I mean, I can ask them the most simple questions about the material we covered, and they have no recollection whatsoever of the typical students. That's all coming up next time on Freakonomics Goes to College, Part 2. Yeah, come on in. Hey, Catherine. Hey, can I come in for a second?

Sure, what did we do wrong? This is Catherine Wells, everybody. She produced this program. Sorry to interrupt here, but this has just made me wonder. I'm curious. Is there anything you wish you could do, but you just don't have the education for it? I'd like to do surgery, just casually. Right, casual surgery.

Yeah, but I don't really have the appetite to get that much education. No, I'd like to be able to operate on people, animals. I was thinking because when you talked to Alan Eazell, you said you'd always wanted to be a vet. Yeah, a vet, yeah. And so the radio staff and I were thinking, and we don't want you to be held back anymore. So we have a little present for you here. This is too good to be true. So it's a brown envelope, mailing envelope, that says,

Congrats, handwritten, non-official stamp, no wax seal. Appalachian State University, the Board of Regents for the University. Upon the recommendation of the faculty, it is conferred on Stephen J. Dubner the degree of Doctor of Philosophy in Animal Health. Congratulations. Oh, my God. Thank you so much. This, to my untrained eye, looks like a legit diploma. Yeah, it's very professional.

Where'd you get it? Online. The company, I think, was called DiplomaMakers.com. Nice, DiplomaMakers.com. $190 any degree you want. Now that I think about it, I don't think I'm one of those people that have my diplomas hanging on a wall somewhere. I have no idea where my diplomas are. But my Ph.D PhD in animal health is definitely

going on the wall. Thank you very much. Anyway, congratulations. Freakonomics Radio is produced by WNYC, APM, American Public Media, and Dubner Productions. This episode was produced by Catherine Wells. Our staff includes Susie Lechtenberg, David Herman, Beret Lamb, and Chris Bannon. Jake Smith is our intern. Colin Campbell is our executive producer. If you want more Freakonomics Radio, you can subscribe to our podcast on iTunes or go to Freakonomics.com, where you'll find lots of radio,

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