Will College Pay Off? Takeaways from Peter Cappelli's Book

Professor Peter Cappelli asks the question “Will college pay off?” The honest, but unsatisfying answer is, sometimes.

That college will pays off for everyone is not a given, as many students learn the hard way. A college degree does not set students up for immediate success in the workplace. There is a disconnect between what students believe they will learn, what educators believe is their role to teach, and what employers value.

According to a study by Crux Research in 2014, 73% of students said their reason to go to college was to gain skills employer’s value and are willing to pay for. 71% wanted to gain greater earning potential, and 57% wanted to be ready for the world of work. Less than half of students cited critical thinking skills or a broad education as their reason to go to college.

However, when educators were asked what the primary purpose of a four-year college education was their answers were nearly opposite of what students said they wanted. 80% of educators believe their main goal is to make students strong critical thinking skills. 65% want to expose grads to new ideas, and 55% want to provide students with a broad general education. Fewer than half were concerned with preparing graduates for jobs.

As for employers, 57% state that college should be preparing graduates with skills employers are looking for, 55% stated graduates should have strong critical thinking skills, 54% state colleges should produce job-ready grads.

This is an issue thoughtfully explored in Peter Capelli’s book and he comes to some conclusions that run counter to popular claims.

Is College Good Preparation for Jobs? The Disconnect.

Most students graduate college believing their degree has been satisfactory preparation for an entry level job and that their employer will provide training to get them up to speed on anything else they need to know. However, that is rarely the case in today's economy.  

Fewer and fewer employers are offering training to new hires, and they are less concerned with where a student went to school. They just want someone who can do the work they want them to do right away.

What employers want from college graduates now is the same thing they want from applicants who have been out of school for years, and that is job skills and the ability to contribute now. That change is fundamental, and it is the reason that getting a good job out of college is now such a challenge. (Loc 264)

Do Graduates Make Enough After College to Offset the Costs?

Students assume they will be making high salaries when they graduate college, and colleges frequently cite statistics that show just how much more money graduates are expected to make compared to the average high school graduate. That is true on average, but it does not mean that it is true for the individual. 

Cappelli reminds us that historically speaking, college graduates have not always made as much as high school graduates, and in some countries college graduates are actually less likely to be employed than high school graduates.

In the United States, the growing gap in wages between college grads and high school grads is generally because the average salary of a high school grad has fallen dramatically. Average wages for college graduates have increased only slightly over the past decade.

The real test is whether the higher wages are enough to offset the investment in time and money associated with college. By that standard, college education does not look nearly as good. In fact, the financial return from attending many colleges actually appears to be negative. (Loc 542) 

Does the Major You Pick Make a Difference?

Students are often encouraged to pursue STEM degrees (Science, Technology, Engineering, Math) as it is generally believed that there are not enough qualified applicants for the jobs available in these fields, and that graduates always make higher salaries. But is this true?

Actually, part of the reason some graduates with a specific major do so well is that nobody accurately predicted how much in demand those skills would be when the student entered college. High wages are influenced by supply demand. A low supply of graduates in any one field means higher wages for those graduates. So as soon as a degree starts becoming more popular (petroleum engineering), the supply goes up, demand goes down and so do wages.

While it is true that new graduates in some fields command huge salaries, the only reason those jobs pay off so well is precisely because we couldn’t predict years ago that they would be hot, so the supply is temporarily depressed relative to the demand. It’s supply and demand. In 2014, the highest paid major by far was petroleum engineering, and many observers mention it as an example of how technical skills pay off. What they don’t mention is that petroleum engineering has not always paid off. It has gone boom to bust along with oil prices. It was a bust in the 1980s, when graduates in that field were likely to find themselves waiting tables. (Loc 495)

At the end of the day, rather than analyzing the job market and trying to predict where the jobs will be by the time you graduate, most students are best served by choosing a college major that they actually enjoy and are interested in. There have been other studies that show that students who choose a major closely aligned to their natural strengths and interests tend to get higher grades and are more likely to graduate on time.

If students are concerned about obtaining practical experience their best bet is to pursue internships, volunteer experience and part-time jobs. Employers value internships and other types of experience more highly than additional education. 

Students Need to Rethink Expectations

Here are a few key takeaways from Capelli’s book.

  1. College is not a guarantee to a great job nor a great salary. Nor is it a give-in that college graduates will always be making as much as they do now.
  2. Taking on debt for a college degree can be risky, especially if the amount of debt exceeds what students expect to make in the first year out of college (for most students this would be around $30,000).
  3. It does matter what college you go to, but not for the reason you think it does. Some schools actually have a negative ROI (beware of for-profit). Check graduation rates, average debt levels, and student loan default rates of any school you look into.
  4. Your major does matter, but not for the reason you think it does. Job markets fluctuate and so do demand for specific degrees. Pursue something you’re passionate and interested in that will set you up for long-term success.
  5. More education is not always the answer. There are other ways of getting the experience you need including internships, volunteer experience or part-time jobs.

Have you read Will College Pay Off?: A Guide to the Most Important Financial Decision You'll Ever Make by Peter Cappelli?

What were your takeaways? Let us know in the comments!