Terminal degrees

//Terminal degrees

Terminal degrees

THIS week’s print edition features a big package on the future of higher education. Our cover leader speculates on the changes that will emerge from the intersection of major economic shifts and innovation in online education (which is discussed in a briefing). Meanwhile, the Free exchange column looks at the state of the college wage premium.

The central argument of the leader is that it is a combination of factors that makes major change in the market for higher education an inevitability. The issue is not simply that college costs are rising or that online education is improving, though those things are true. It’s that those trends are occurring as the expected payoff to higher education changes.

As the Free exchange notes, the return to college education is still quite high, working out to a net present value of about $590,000 for men and $370,000 for women. But there is an extraordinary amount of variability behind those figures. According to one estimate, the wage premium for an engineering degree is about three times that for a degree in social work. The wage premium for an advanced degree relative to a bachelor’s degree has risen from basically nothing in the 1960s to almost 30% now. The wage premium is different for men and women, it varies with the institution issuing the degree, and it changes depending on where the graduate lives and works—wage premiums are much higher in the biggest, most skilled cities than they are elsewhere. The return to college is large on average, but it is also contingent and uncertain.

That uncertainty, I suspect, is growing. From 2000 to 2010, the college wage premium was essentially flat, after 30 years of steady growth. Workforce polarisation and rising income inequality mean that career paths are more of an all or nothing gamble; either one earns more than enough to cover education costs or suffers indefinite financial struggles. And the future could involve more difficult labour-market conditions than extrapolation of the past suggests. Technological progress could lead to more separation between the rich and the rest, or it might mean shorter average employment tenures and a need to constantly retrain to find work.

The upshot is that it becomes harder to feel certain that plowing thousands or tens of thousands or hundreds of thousands of dollars into a single, pre-career course of university study is a sensible choice, even if college, on average, pays. Against this backdrop, it is the combination of the low cost and the flexibility of online education that gives it an advantage. Beginning an online course is a very low risk proposition. That is true whether one is interested in starting a bachelor’s or advanced degree or delving into continuing education. It is true in terms of pecuniary costs and opportunity costs. Leaving one’s job to begin a postgraduate course is an expensive proposition long before the first tuition bill comes due.

It is therefore easy to see where demand for online education will come from, and it is easy to see how greater demand for online education will lead to quality improvements and scale economies. Our leader notes that if universities were to face the same conditions over the next 10 to 20 years that daily newspapers faced over the last 10 to 20, then “revenues would fall by more than half, employment in the industry would drop by nearly 30% and more than 700 institutions would shut their doors.” One might respond that higher education is a much more complex, social, and interactive experience than reading the daily news, and should therefore prove more resilient in the face of online competition. That may be true. On the other hand, daily newspapers are cheap, and there is basically zero serious financial risk involved in obtaining and maintaining a subscription. Many people kept subscriptions for a while, even as they increased consumption of free online news. Online education is more clearly a potential substitute for, rather than complement to, traditional education.

It is easy to get caught up in techno-utopian talk about the potential of online education, and similarly easy to dwell on how poor a substitute online learning is for the “traditional” college experience (the value of which graduates seem to inflate the deeper into the past it recedes). And of course, it is far from certain that MOOCs will lay waste to existing institutions over the next generation. But the more one thinks about the difficult decisions marginal university students face, the easier it is to see how the market for online education grows and matures.

And that, we should remember, is a wonderful thing. Investing in education shouldn’t feel like playing roulette. Higher education that is effective and cheap and flexible and accessible from anywhere in the world is as good a good as technology is likely to deliver, outside of miracle cures. And so I’m less interested in hearing about what might be lost as a result of change in higher education than in discussing what can be done to maximise its benefits.

By | 2014-07-03T19:48:14+00:00 July 3rd, 2014|Education|

About the Author: