Freakonomics Radio - 88. Freakonomics Goes to College, Part 2

Episode Date: August 15, 2012

College tends to make people happier, healthier, and wealthier. But how?

My name is Allison. This is my last semester at Duke University. We are at Minneapolis Technical and Community College. We are at Metro State University and St. Paul. First year at Ledger University. I'm at University of North Carolina. Sophomore, go to Morehouse College. I'm Jasmine. I'm a freshman and I'm at Harvard University. I'm Jasmine. I'm a freshman and I'm at Harvard University.

You guys are both Jasmine? Yeah. Can I ask y'all some questions? This is for a show called Freakonomics Radio. What? Of course. I'm an economics major and philosophy minor. Bring it.

Oh, good. Jeffrey Williams from East Atlanta, Georgia. Do you think college is worth it? I feel like if a bunch of people from the community just sat in a park every day for three months straight and just exchanged books and had lectures, we'd learn much more than we had in three years here. I guess when I came here, I was expecting, you know, I put a lot of time and effort and money into this, and, like, I want to get that out, and it and it's not like looking that way right away. I always worry because of what the economy is like and everything if I'm going to have a job,

if there's going to be a job out there for me. So in today's day, a college degree is what a high school diploma was, you know, decades ago. You didn't really think about why you were going to college, just that you were going to. Society forces you to think that because you go to college, you're going to be successful, and that's not true. You don't need college. 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 Dubner. This is the second of two episodes about the value of a college education. In part one, we heard Alan Ezell, a former FBI agent, talk about the huge market for fake degrees. Pretty much any diploma that you can imagine, even an M.D MD can be bought online. 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. But mostly, we talked about real degrees. Steve Levitt, my Freakonomics friend and co-author, assured us that going to college definitely pays off in the long run. 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. But let's acknowledge the obvious. Buying all that education has gotten a lot more expensive. So if you're thinking about this as an investor... That's David Card. He's an economist at the University of California, Berkeley. You know, you've got a kid and you're thinking of sending them to college or not. You have to pay a lot of money up front and then reap those returns later on.

And several features of that are difficult. One is the cost that you have to pay up front has gone up quite a bit. And the second is the uncertainty involved in whether the kid will actually successfully complete the degree. It's a pretty risky investment. Hey, Beret, say hello. Hi. So Beret Lam works here at Freakonomics Central.

She is the editor of the Freakonomics blog, among other things. And you are a fairly recent college graduate, yes? Yes. I graduated in 2007 from the University of Chicago. Good school. And you studied economics at Chicago, yes? Yes, I did. So economists always talk about the returns to education. That is, that a college degree hugely increases your chances of making a good living. So you must know these numbers by heart? Of course. All of us know these numbers are, as college graduates, that they're on our side and that statistically college grads will make a lot more money over a lifetime

than those who don't go to college. And you take great comfort in knowing these numbers, I assume, yes? More comfort when I was in college than now. So what's the problem? Why do they offer less comfort now? Well, these are numbers on average. And after graduation, a lot of my friends were struggling and many of them were unemployed or underemployed and they weren't doing what they wanted to be doing. It was hard to look at those numbers. Right. So the numbers in the aggregate paint this pretty great picture.

But if you're not living that life, then it's not so pretty. Right. I called up one of my friends to talk about this. His name is Luke Annable. And we graduated together from the University of Chicago. Did Luke study economics as well? No, he studied English. OK.

And what's Luke doing for a job now? Luke's a bartender in Tucson, Arizona. All right. So let's hear what Luke had to say, yeah? Has anybody asked you, what are you doing with your degree because of what you're doing? I think so. I think my parents finally stopped asking that question, which is nice. Yeah, I guess, you know, in the media and in general, there's this conversation about whether college is worth it. I know you don't have second thoughts about that. You're glad you went.

Yeah, definitely. What that next step is, is kind of blurry for all of us. I think so. And I think for how sort of positive and confident and proud I am of the institution, I always felt like the career programming was kind of farcical. You know, it was like the college would hire the people who couldn't get jobs to teach you about how to get a job so they could boost the numbers of graduates that had jobs. Yeah. It was just kind of silly. And then I think when you say, is it worth it? You have to ask, like, worth what?

Financially, was it worth $160,000? I mean, I don't know. I probably haven't made $160,000 in the past four years. It's okay. I haven't know. I probably haven't made $160,000 in the past four years. It's okay. I haven't either. 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. That's Betsy Stevenson. I'm actually reading about the Fed right now.

And that is Justin Wolfers. The committee's members concurred that the date given in the statement would be subject to revision in response to significant changes. Justin's obviously heard that sketch where the whole point of NPR is to bore people into submission. Stevenson and Wolfers may sound a bit familiar. We've had them on our program before And they write for the Freakonomics blog

They also happen to live together We start with co-authors Then we move on to having offices next to each other But yes, we also share a home, a life, and a child They are both college professors Both economists And both of them in the neighborhood of 40 years old And over the neighborhood of 40 years old.

And over the course of their careers, they have seen the cost of college climb and climb. I mean, it is true that the prices have just gone up a lot more than the prices of food, the prices of other sort of goods. Maybe not gold, but I can't think of any other things that have kept pace with tuition inflation. I think a key distinction people need to make is between sticker price and actual prices being paid. And all of our alarm is about the rising sticker prices. And I have no doubt that the prices that people are actually paying, which is, you know, after scholarships and financial aid and all these different ways we can help. I have no doubt that's going up, but it's not going up at anywhere near the rate that the sticker price is going up. And it's not surprising that a bunch, particularly of the private schools, have increased the

generosity of their aid program. So it's not surprising that their top end prices would go up to help make that balance. So let's think about the school I know best, which is Harvard, my alma mater. The cost of going to Harvard for a working class kid has never been lower. It's zero. So that's a case where the sticker price is enormously high. The actual price being paid for a working class kid is enormously much lower. And what's the incentive for the institution to make public a sticker price that's so out

of whack with the actual price for a certain kind of student? I actually think it's wonderful that Harvard has raised a sticker price that's so out of whack with the actual price for a certain kind of student? I actually think it's wonderful that Harvard has raised its sticker price. Very few people pay the sticker price, only the kids of the super rich, the people who get none of this financial aid and assistance and so on. So the highest sticker price is essentially increasing price discrimination. We're charging the rich more for college. The question we really need to ask ourselves, are we charging the working and the middle class more or less? That's a much, much harder question, though, and the sticker price tells you very little about that. So this is a great and important point you're making, but I just want to know,

where do we find that number? You call real education economists, not me. I'm Ronald Ehrenberg. I'm a professor at Cornell University, where I also direct the Cornell Higher Education Research Institute. Ronald Ehrenberg is a real education economist. the posted price that students are supposed to pay, and the net tuition, which is the price that they pay once you take account of grant aid from the federal government and state governments, institutional aid, and also tax credits that are provided by the federal government. And although the sticker price has gone up at very, very rapid rates, the rates of increase in the net tuition,

which students actually pay on average, has been somewhat more modest. OK, but still, in most cases, net tuition prices have gone up, too, a lot. So we asked Ehrenberg, where is all that money going? The answer is really that there's no such thing as a free lunch. Economists are very fond of saying that, that education currently is a highly labor-intensive industry, and there has not been great productivity growth. Allow me to translate from economist speak. College is a labor-intensive industry because it involves real human beings, professors in this case, doing a real task in real time.

Which means you can't just flip a switch and churn out more students. Unless, of course, you're talking about online education, which is starting to change the college landscape. But let's not get into that for now. So if you want more productivity, you have to hire more people or pay the same people more money. So this money all comes in,

and the major thing that it pays for are faculty and staff salaries. And don't forget health care, which is a huge part of anybody's salary. So it's a complex situation, and there are lots of nuances, like the difference between private and public schools. In private higher education, when tuitions go up, it's usually because the private institutions are spending more on their students. But in public higher education, when tuitions go up, expenditures per student often go down because in the public sector, tuition increases are often efforts to try to make up for cutbacks in state support. So that's the supply side. What do we know about the demand side, the students? Here are some numbers. Roughly two-thirds of students attending college today receive some kind of financial aid, grants, loans, scholarships, education, tax credits, and so on.

And how much does that aid help? Well, about two-thirds of the students who graduate do so with debt, and their average debt is about $23,000. Now, that's not a trivial amount, but if the returns to education are as big as economists say they are, well, the math can still work. So for a family thinking about sending a kid to college but struggling with the cost, it might help to think a bit like an economist, to think about stretching your dollars. Here,

once again, is David Card. You don't have to live in the dorm. You can live with your parents, which is what they do in all of Europe. You don't have to go to the elite private school. You can go to the best public school. You can go to, you know, the best public school you can get into. And, you know, it's the reality today is the majority of kids going to college are working part time. So for the most part, this seems like good news. The returns to education are huge. And college, despite some serious tuition inflation, doesn't cost as much as it may seem, at least relative to its value. So does that mean that everyone should go to college?

I think that people often make the mistake of not thinking through the problem as systematically and thoroughly as an economist would advise. So first of all, there are two major costs of college. Everybody thinks about tuition. But there's another equally important cost, and that's the opportunity cost of not working. So when you go to college, you're going to forego working a job that's going to pay you some kind of salary. And while lots of students have part-time jobs

or try to fit some kind of work on while they're in college, they're obviously not doing the kind of salary. And while lots of students have part-time jobs or try to fit some kind of work on while they're in college, they're obviously not doing the kind of work that they would be doing if they didn't go to college. Because, right, as you describe it, I mean, let's just imagine this mythical 18-year-old kid who thinks about it and says, okay, I'm going to go spend four years and probably a whole lot of someone's money and to produce an outcome that is not quite clear to me versus I'm going to start tomorrow doing this thing that I am already pretty good at and I think I could be great at. That strikes me as a harder dilemma, a tougher dilemma than I think most of us think about. So how do you go around thinking through that model? So, Stephen, I'm going to surprise you. I was that guy. I finished high school in Australia and my

great passion in life at the time was horse racing. I wanted to either become a professional gambler or a bookie when I grew up. And so when I finished school, I was not going to go to college. I thought exactly what am I going to learn in four years at college that I couldn't learn being on the first rung of what I saw as a career path. I had a bookmaker who was going to mentor me, and I thought that this was going to be a career I would really enjoy. And we should say it's – and the legality of bookmaking privately in Australia versus here is what? So in Australia, bookmaking is legal. So this would have been a legal career path. Very good.

And I was one of those natural experiments. I was very lucky. I got fired two and a half weeks. Actually, it was one and a half weeks into my first job. And at that point, I shrugged my shoulders and thought, what the heck? I'll just go to college now.

I've got something to do. So when you see these numbers, when you see such low, relatively low unemployment, the more education you have, when you see relatively more money, earning more money, the more education you have. Do you ever wonder how could there possibly be a debate about the value of college? Well, the debate is about is it worth it for the marginal kid? And if it is, what should they be doing? What should they be studying? Why is it going to matter for them? And so if you're trying to figure out

for an individual kid, what's going to be the return for them? I think it's a lot harder. Yeah, so if you had to grade some of the exams I've had to grade, the worst kid in my class is the marginal kid. And that kid, most of my students are outstanding, spectacular. They learn a lot. Their exams are brilliant. But the students right at the bottom, it's not clear they understood a word I said. And so I think, you know, if the alternative is casual work, retail jobs, dead-end jobs, going nowhere jobs, then I would say I'd look any 18-year-old kid in the eye and say four more years of this isn't taking you anywhere.

Four more years of college may well take you somewhere. For kids who are going to start a trade, apprentices and the like, for whom four years in the workforce is going to be an investment in their future, there I think it's a lot harder. I think if I had a kid who was good with their hands and not academically inclined, and they could find a good apprenticeship, sure, I'd encourage them to follow that. So, Wolfers and Stevenson aren't arguing that college is right for every kid. But what about their kid? Their daughter, Matilda, is three years old.

And what happens if 15 years from now she has a different idea? Well, this is a great question because while I like her to think about there being choices in the world. She has no choice in this matter. I do not want her to grow up thinking about whether college is a choice. And in fact, when you said you were going to ask me that question, it made me a little nervous. I was like, I don't want her to listen to a radio interview where she hears this disgust as an option.

I would be very disappointed if she chose not to go that path. Your question also comes a little late. Matilda actually reassured me the other day just before bath time. Daddy, I'm going to college. Coming up, Steve Levitt tries to explain the magic that happens in a college classroom. Or maybe it's not in the classroom. And it's kind of hard when you watch it to figure out where it is that the value is added. Thank you. From WNYC and APM American Public Media, this is Freakonomics Radio. Here's your host, Stephen Dubner.

Economists tell us that college is good for us and not just in terms of higher pay. People who go to college tend to be healthier, happier. They tend to live longer. So we know that college works somehow. But how? What exactly does college do to produce all those gains? Here's Justin Wolfers again. It's clear to me that college is a good choice for many. It's much less clear to me why. I do the best I can when I teach, but it's not clear that anything I teach the kids

is going to make them better business people or better members of the economy or more productive. It's not obvious it wouldn't. And then I think about my own experience. Well, I went to college with a bunch of really smart people, so maybe it's all peer effects, in which case we can just get the professors out. And then I think about my own experience. Well, I went to college with a bunch of really smart people, so maybe it's all peer effects, in which case we could just get the professors out.

And maybe that's a big part of it. Maybe it's expectations. So maybe the important thing that I demonstrate for my students is not that demand curves slope down and supply curves slope up, but I expect them to go on and do great things. I'm not really sure what it is. I just know there are effects. Steve Levitt has spent the past quarter century on college campuses, either as a student or a professor. And since he specializes in solving economic mysteries, I went to him with the question. Personally, I have to say I don't know with the question.

Personally, I have to say I don't know anything about that. And I watched the college production function. I watched us produce college students here at the University of Chicago. I was a college student being produced. And it's kind of hard when you watch it to figure out where it is that the value is added. Obviously, 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, the typical student. So I'm curious, I mean, you teach, you teach one, at least one really big class each year, right? The economics of crime is a pretty big class? A hundred students, not huge. And then occasionally smaller classes, yeah? Yeah, mostly for the graduate students. I teach small classes, 15 or 20 students. Okay. So over your years of – you've been teaching college for how long?

More than like 12, 15 years? 15 years. Okay. So you've seen a couple thousand people come through and obviously you can't know much about too many of them. But if you think about your role as a professor trying to teach people how to think, how to learn to think about things, problem solving and so on, what's just your personal observation of when you've been successful at that or how often you think you may have been successful at helping that? I think it's, I would say about five of those students have later written me and said, hey, you really helped me learn how to think. So that's the only direct evidence I have. I give them exams, and my exams are really, a lot of my exams are about how to think.

A counterargument to what I'm saying about teaching kids how to think is that the returns that students get from other kinds of education, so real actual skills Chicago public schools, and it turned out that the single biggest impact of school choice in the Chicago schools was giving kids who are not doing well in the traditional kinds of schools the opportunity to go to trade culinary school or schools that actually taught them real skills. So clearly you can see how going to school to learn real skills like nursing or something like that could have huge returns. The tougher question is this general liberal arts education. What are you learning? And it's something economists haven't even tried to really think about very much. I'm Biddy Martin. I'm president of Amherst College. Biddy Martin is not an economist.

Before becoming an administrator, she was a professor of German and women's studies. But as a college president, she's thought a lot about the power of education and what happens to people during those four years. Martin herself grew up in rural Virginia. Her family expected her to go to high school and do well, but college was another issue. The family was skeptical of education. They worried about the impact of a college education, especially on girls. They made it clear to me that it was more important for boys to be educated than for me. They grew up in a time and a place when the bias against what they would have called eggheads and overly educated people included, among other things, I think a fear that people with a lot of education think they're better than those who don't have an education.

So they had a fear about being looked down on, I think. They had a fear of loss, that is the loss of children who go off to college and begin to think differently and, as they used to say to me, talk differently. We didn't raise you to talk like that. Who actually move geographically to other parts of the country. They became afraid in the late 60s and early 70s of the impact that college might have on political, my political views. In high school, Martin had a guidance counselor who encouraged her to apply to college.

And over time, her family came around to the idea, even supported her. But their fear that she would change never really went away. And in retrospect, they were kind of right. I left home and I didn't return to live in that area. I made choices about my life, the kind of work I wanted to do, the people I wanted to be with that were hard for them, and they never ceased being hard for them.

It's impossible to learn a completely different way of thinking about things without unlearning what one has already learned. And I think it's important to learn a completely different way of thinking about things without unlearning what one has already learned. And I think it's important to realize that because it's often the case now people think about education as the acquisition of new things, as if it were an unproblematic and promising process simply of adding to what one already knows or thinks. And the truth is, it is transformative. And that means upending a whole set of assumptions about how to see things, what's possible, what's real. I recently visited my undergraduate alma mater, Appalachian State University, and I caught up with a few of my favorite professors, including Joe Murphy, who taught

and still teaches documentary filmmaking. If you asked me whether I learned a lot from Joe Murphy, I'd say that absolutely I did. If you asked me what I learned, that's a lot harder to say. So I asked Joe to describe from his perspective what happens to a kid who goes to college. Well, I think the best thing people can learn in college is to not be afraid of the new or the different. You know, that these people come to the college is to not be afraid of the new or the different. These people come to college, or most people come to college, with a fairly walled-off background of experience. They come from a high school in a small town, even a high school in a city. They don't know many people.

They haven't met many different kinds of racial, ethnic groups. They haven't been exposed to ideas that are radically different from their parents' ideas. And so what I hope they take away from college, and I think the better ones do, is an openness to other people, other ideas, you know, diversity, the great diversity that's in life. Yeah. That's, I mean, I'll tell you, that's what happened to me. Even a place like Appalachian State University in Boone, North Carolina, which you would think would be pretty homogenous. Some of the best friends I made here happened to be guys on the soccer team. There were the Nigerians and Keith Lane from Ghana and my good friend Greg Cuddy from Ireland who unfortunately has passed away. I mean it was a UN in the middle of the North Carolina – it was bizarre. No expectation of that.

So to me, coming down, all these people were these wildly worldly, worldly people. I guess the negative part for me is people who come to college to accumulate credit hours and all they're really interested in doing is getting a degree. Because you can definitely get a degree here and know nothing, unfortunately, as I think you can anywhere. And it's sad to see young people who are so, who set such a low standard for themselves. That's, to me, crushing. Somebody that's 18, 19,

20 years old, because chances are good that they're going to live that way the rest of their lives. I was a major in economics. The reason I majored in economics, I thought it was interesting. Isn't that a strange reason to major in something? You think that happens less these days? Absolutely. I mean, people major in what they think will get them a job. They major in business because they think it will get them a job. Do you blame them for that? No, I don't. College is very expensive and people are insisting on some measure to prove to them that their $100,000 investment or $40,000 investment is worth it.

And I can understand that. I mean, that's a lot of money. But in reality, I don't think there is a way to quantify the value of college. I mean, I know you can look at statistics about people that have a college education or better paid. And I think you have to look at quality of life issues. You know, people, to me, ignorance breeds hatred. And if you can get people knowledgeable, there'll be less hatred, more understanding.

That's my theory. It's a question I've been asking myself a lot lately, if it's worth it or not to go to college. College is definitely worth it. Without an education, no one can go far. It doesn't matter what you decide to do. Just being able to socialize and become a mature person, so when you hit the workforce, you're not as immature as you are when you came out of high school. Higher education like is the best thing and I think like a human being is nothing without like education. I choose to go to college because I want to advance myself. I need a good family.

I need a good job. I need a well-paid job so if I'm educated gradually those things will come my way. I'm not going to college to make more money interestingly enough. I'm actually here because this stuff interests me. When I really look back at what I've done, I'm about to graduate, and I really didn't do a thing. I really just want to be happy. Whatever that means. I mean, if that means $30,000 a year or $300,000 a year, I just want to be happy.

If I could redo the past four years, I maybe wouldn't go to college right away, if at all. Is college worth it? Of course, man. Without knowledge, there's no progress. We're all students in the end, you know. No one's bigger than nobody. If you can find a way to do it big without going to school, then props to you, but we haven't done that yet.

We're here. We're here for the long haul, so it's good. Thank you. 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, a blog, the books, and more. Coming up on our next podcast, you know you've dreamed about it, working from home. But would you actually get any work done or would you just watch cat videos all day? We'll tell you about an interesting work-at-home experiment and the evidence may surprise you. That's next time on Freakonomics Radio. radio.