The Costs and Benefits of Going to College – Is It Worth It?

Bryan Caplan, Arnold Kling, and Will Wilkinson have been discussing why people go to college, and whether it’s actually worth the exorbitant cost (for private colleges at least).

The conversation started with Gary Becker‘s and Kevin Murphy’s article in The American which argues that we shouldn’t be too concerned with rising income inequality since it reflects the "rising payoff for a college education and other skills".

Cato’s Will Wilkinson, who writes wonderfully and critically about happiness research, guest blogs on The Economist site and says:

Becker and Murphy go on to argue that "policymakers and the pub­lic should focus attention on how to raise the fraction of American youth who complete high school and then go on for a college education." OK. But I know my friend Bryan Caplan, who is working on a book about why " there is too much education going on," would disagree. Bryan argues that university diplomas mostly function to signal prior competence, and that time and money spent in school is largely wasted. If he’s right, Becker and Murphy’s emphasis may be misguided, and I suspect Bryan may in fact be right, despite the fact that he’s never won a Nobel or Clark prize and wears shorts in the winter. In which case it strikes me that there is a huge entrepreneurial opportunity for whomever can come up with an alternative scheme of credible human capital certification. Who cares if people develop their skills by attending classes at their local college, listening to free lectures from MIT, learning on the job, or by sitting in their mom’s basement gaining mad hacking skilz? I don’t. But employers do.

Arnold Kling doesn’t buy the signalling story — that the main value of going to college is to signal prior competence:

If it costs $200,000 for a person to go to an elite private school, and this does nothing other than provide a signal of the individual’s ability, then there is a whale of an unexploited profit opportunity sitting out there.

My current view of college is that it is a bundle of services that is fairly difficult to unbundle. Some of it is education. Some of it is selection/signalling. A lot of it is social–people aged 18-22 clustering together.

Mostly, though, I think of going to college as a cultural ritual, like a Bar Mitzvah, a confirmation, or a wedding. These rituals allow parents to impart tribal values and tribal loyalty to their children. Participating in the ritual reinforces your membership in the upper and/or upper-middle class tribe. With all of these rituals, including college, it is the parents, even more than the children, who are focused on conformity to peer expectations.

Bryan Caplan then poses this interesting question:

If you think that entrepreneurs can easily find a cheaper way to certify worker quality, why can’t entrepreneurs easily find a cheaper way to reinforce membership in the "upper and/or upper-middle class tribe"?

I suspect over time — by the time I’m supposed to be a parent — there will be new and cheaper social rituals we will put our kids through.

All the above is fascinating discussion. What made me decide to ditch the idea of "Real Life University" and enroll in a four-year, private institution? Mainly this: the socialization of 18-22 year olds clustering together. I think this is valuable from an emotional development perspective and from a business networking perspective down the road. Is it worth the cost? For some, maybe. For me, I’m hopeful but less sure, since the opportunity cost of being chained down in one place for four years is so great.

Actual education wasn’t a factor for me. I think most people agree that there are many ways you can acquire knowledge and be intellectually stimulated. The cost of a private college is not close to commensurate with the actual knowledge it dispenses…Notwithstanding the cognitive dissonance all college grads endure ("All that money had to result in something").


Signalling wasn’t a huge factor, either. My personal brand already signals basic competence and intelligence. And I have no interest in signalling conscientiousness and conformity, because I’m an entrepreneur, though I agree with Bryan’s point there.

Summation: I believe that going to college will increasingly be seen as a poor investment as self-education becomes more viable (thus eliminating the knowledge a college dispenses), personally signalling intelligence and character is made easier through new web-enabled modes of self-expression (thus diminishing the signalling benefit of a degree), and entrepreneurs invent new ways for young people to socialize and upper-class parents to satisfy their status hungers.

We’ll see if I last all four years.

22 comments on “The Costs and Benefits of Going to College – Is It Worth It?
  • Great post, Ben.

    I’m just about to wrap up my first year at a four-year university (having transferred from community college)and I’ve been in a reflective mood about the experience.

    There’s certainly been ups (meeting new people, exploring the new city) as well as downs (dorms are shit and frankly an outright rip-off) but thus far I’d rate my university experience as a positive one.

    I’ve learned plenty of applicable skills; from writing to design, I feel that I’m more well-versed in many areas of my field, and that I’m certainly better off because of it. Hopefully this will continue.

    That being said, the social aspects definitely outweigh anything academic related. Be it exploring South Beach with friends or striking up a conversation with people already working the field of PR/advertising, social interaction will always beat classroom learning for me.

    Seeing how my life’s ambitions go beyond simply working for someone else until retirement, I’m interested to see how I will ultimately feel of my college experience — especially student loans.

    Perhaps that’s the reason I always investigate things outside the classroom for my own benefit, or type away at my computer each night on short stories (and most recently a novel-in-progress). I still feel that at the end of the day, I have to keep my best interests in mind, and having side-projects is a way to do so.

    I’m not sure if this could be categorized as “entrepreneurial” by any means, but it’s something I do for possible profit; a hobby I’ve taken up on my own that helps me think I’m diversifying my options in terms of life/career/etc.

  • Gary Becker et al:`Which argues that we shouldn’t be too concerned with rising income inequality since it reflects the “rising payoff for a college education and other skills”.`

    Oh Lawd! This is an insane simplification. The last thing America needs to be doing is disregarding the social inEquity. It’s a travesty that the minimum wage isn’t at least pegged to CPI (or some other cost of living measure), and that the poverty cycle is allowed to go unchecked generation after generation. (this quote probably was not meant as the focus of this post, but I can’t stand that kind of thinking)

    But on topic. I see university as a universally trusted credentialing system that allows people -HR people- to make ‘better’ decisions about the suitability and committment of the candidate for a job. You have a nice stratification of organisation, and a nice stratification of students within those organisations. Nice and easy.

    I might add Ben: I dont believe self-study will replace the structured university environment because most people lack the discipline and knowledge to be able to structure their learning environment. This skill is something moreso required at a Phd level. There would also need to be a credentialing ‘agency’ of some kind that has the credibility that universities currently have, which I believe would be very hard to replicate because of how entrenched the university system is.

    That being said, I am proponent of replacing the entire education system from scratch. It’s just terrible to see so much of potential thrown in the bin as a result of the education system.

  • Ben,

    Would the aggregate cost of college education if invested in your business yielded an average IRR of 25% plus – then think twice. By the time they graduate, you can hire a few.

    You will be richer by the experience too.

  • Ben et al.,

    I am a bit tired of discussions like this, i.e. whether a college/university education “pays off”. Certainly, the current educational system needs lots of improvement, but it also provides you with a (somewhat) structured approach of acquiring highly sophisticated knowledge in an environment that fosters such acquisition of knowledge. Also, I don’t think there are many that would be able to acquire such knowledge by pure self-study, since the group/team experience of exchanging/sharing knowledge/experiences is an important part of this model. This is particularly true for engineering disciplines (disclaimer: I am an engineer) and might be different for other, non-engineering disciplines. Often used examples for how it could turn out without completing college are Gates and Jobs, but these are true exceptions, not the norm. Do I feel bad about “lost time” (disclaimer: acquired MS, PhD, and MBA)? No, I actually don’t!

    Finally, I think a sound college/university education cannot be replaced by any other experience despite an obviously not-so-perfect educational system.

  • Greg — We shouldn’t strive for equality, we should strive for equal opportunity. And pegging the minimum wage seems like a bad idea. We shouldn’t interfere with labor markets like that.

    Andreas – The reason it’s important to think about whether it pays is because higher education (at least in America) is so darned expensive.

  • I think it also depends on how the schools teach. Liberal arts educations may not impart essential knowledge. However, it’s extremely difficult to learn math and science by self studying. Sure, some concepts will come easily, but the school system provides a structure to help students.

    My professor believes colleges mainly exist to grant degrees (signalling) and to provide a stepping stone (hanging out with 18-22 year olds) between childhood and “real life.” I agree with her, to an extent.

  • Ben, I think you’re right that a college education is far more replaceable today than it was even 10 or 20 years ago, just by virtue of the vast wealth of (largely) free/cheap information that is available to those with access to technology. But a degree does give you legitamacy that most of us haven’t found a substitute for and I think you’re way overestimating the independence/self-discipline of the average student. “Real Life University” is very cool and appealing in concept, but I think that it’s a very rare person who could provide themselves with the equivalent of a college education through self-directed learning. There’s a lot that a very disciplined learner (and I’m of the opinion that most of us aren’t that disciplined, by virtue of how widespread procrastination is) can teach himself, but don’t think you can create a substitute for classroom discussion.

    I also agree with the other sentiments echoed about social life of college being the sort of unquantifyable gem of the whole thing.

  • Andreas,

    Agreed, the structured model compels you to go the whole hog and allows you to acquire a comprehensive (if not complete) body of knowledge in the chosen field.

    But what proportion of all that you’ve (paid for) studied, you end up using in real life, much less translate into career ? That’s why the debate.

    The flip side of this argument is that the structured model is still good since one has a near complete understanding of several `why’s’ before he proceeds to explore the `why not’s later on in his career.

  • Ben,

    If you look at the way most people treat college, that has to be evidence that it’s almost entirely a signal. People just want to graduate and spend most of their time drinking, socializing, or whatever (which is valuable, but in other senses).

    In my experience, only those going straight to vocations (med school, programming) that required skills studied diligently. Most who go to jobs that require a good ‘skill base’ or ‘ability to learn quickly’ generally don’t learn this at college. However, the college screening process and act of actually graduating may also indicate being socialized, stable, and a good team player. Definitely not about the liberal arts broad spectrum, unfortunately, even though that part is personally important.


  • Ben, true equality is impossible. Thus that is why I used the work Equity, which is equality of opportunity. Maybe equity isn’t a term used widely in America.

    And on labour markets: But you understand that not pegging the minimum wage to CPI effectively means that you gradually decrease the capacity of those on the minimum wage to meet basic cost of living expenses? Therefore eroding the capacity of American society to maintain living standards? Noting that political responses to raises in minimum wages never do enough to cover the gap.

    It’s really interesting that you are for the fixing of minimum wage.

  • I never paid any tuition and studied in three countries (Israel, UK, US) for my three degrees. I learned lots of useful stuff. When I have audited courses I never learned as well as when I was doing courses with grades. Of course over time my self-study skills increased once I learned how to learn. Now I am a professor at a private US university. I think the US liberal arts approach is a waste. High schools should cover that stuff as they do in many countries and then universities should focus much more. I was younger than most fellow students when I was an undergrad (even though I started at age 20) – most had served in the Israeli army and then worked or travelled and they were serious about studying. It might make more sense for people to do a focused degree once they have a little more life experience.

    Don’t buy the signaling model, learn something useful go to the best value for money school.

  • I can’t but completely agree with your article.

    I actually signed up for college after 1 year of wandering around. So far I can tell I learned more valuable things while not in college that in this first year I ended in it. In fact, I signed up with two main ideas on mind: 1) Expand my network of potential entrepreneur partners and/or customers. 2) Entertain myself while working on some other ideas.

    Funny thing is, me coming from a background of excellent notes in high school and before, now I have trouble keeping up over 8 (on a 1/10 scale). I now believe that is because the closer you get to a 10, the more shaped you have been by their ideologies, and with this I don’t mean you should strive for getting a -3. No way.

    I’m sure that if I see a better oportunity in this moment than going the college route, I would take it without thinking it twice, even against my parent’s expectations.

    Again keeping with the ambivalence thing, this does not mean college it’s a waste of time. You can actually learn some useful stuff, but the ratio junk-gems is pretty low. Like a 15:100 or so, against a higher ratio online, for example. Besides, here you choose, unlike college.

    And don’t send this over to my teachers, they would kick me out :p You don’t know them anyway, since I live in a little town in Mexico.

    By the way Ben, congratulations on your achievements so far!

  • Where I work we have four college graduates (out of two dozen employees) earning our state minimum wage.

    So much for the rising returns to education!

  • 18-years-old is a very young age… many kids only have a vague idea of what they want to do in life. College provides a safe buffer for them to “grow up” and experiment. Not everyone has the drive to teach themselves subjects they have no interest in, or to actively go out and find people to socialize with. In college, I was introduced to knowledge I would not have sought out on my own. Making friends was easy and natural.

    Look at the statistics also. People who have degrees earn more. To go out into the job market with a high school education is very difficult–in Seattle, 50% of adults have a B.A. That’s a lot of competition.

  • Ben, my personal brand in my family had been one of the over achiever and first to go to college. It was clear that I was to be the first college graduate.

    However during college I started a business that took off. Classes were getting in the way of that. I’d literally go to Barnes n Noble and research online a topic in two days that took a semester to get through in college.

    Sure I skipped the non essential details but if I didn’t need them then why should I sit through class and pay such a huge amount of money to learn what I don’t need?

    I left school with three classes to graduation. It wasn’t worth it for me to graduate. Since I was already a successful entrepreneur, a college degree did nothing to benefit me.

    My mom and grandma didn’t like the idea but they only didn’t like it because they were looking forward to saying I had the first college degree in the family.

    I was fine with not being able to say that. I chose wisely.

    By 26 I had made it onto the front page of the USA Today Money section. I would say though that the social aspect of college had a role in my develpment, but the classes did not.

  • Ben,
    this is my first visit to your blog, came here from Tim Ferriss’ blog and WOW. This is neat. As a bachelor in his early 30s w/o a college degree, I’ve wondered if I should go back to school. I was even checking to see if our University of Washington had an entreprenuership program. But, between reading about your college selection and this piece, it places some doubt in my head. I just launched my first business with more planned.
    My thought on this piece though, is that the single most valuable thing people seem to get from a college such as you mentioned, is the opportunity to network. Between the other students and the alum, it seems like it can really make a difference.

  • Great post! My nephew is looking into a college in Calgary. I think it would be worth it for him to read this article and even that book. Thanks for the insight!

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