From health care to major league baseball, entire industries are being shaped by the evolving use of data to drive results. One sector that remains largely untouched by the effective use of data is higher education. Fortunately, a recent regulation from the Department of Education offers a potential new tool that could begin driving critical income data into conversations about higher education programs and policies.
Last year, the Department of Education put forward a regulation called gainful employment. It was designed to crack down on bad actors in investor-funded higher education (sometimes called for-profit higher education). It set standards for student loan repayment and debt-to-income ratios that institutions must meet in order for students attending a specific institution to remain eligible for federal funds.
In order to implement the debt-to-income metric, the Obama administration created a system by which schools submitted social security data for a cohort of graduates from specific programs. As long as the program had over 30 graduates, the Department of Education could then work with the Social Security Administration to produce an aggregated income for the cohort. Department officials used this to determine a program-level debt-to-income metric against which institutions would be assessed. This summer, the income data was released publicly along with the rest of the gainful employment metrics.
Unfortunately, the future of the gainful employment regulation is unclear. A federal court judge has effectively invalidated it. We, at Capella University, welcome being held accountable for whether our graduates can use their degree to earn a living and pay back their loans. While we think that standard should be applied to all of higher education, we also believe there is an opportunity for department officials to take the lemons of the federal court’s ruling and make lemonade.
They have already created a system by which any institution can submit a program-level cohort of graduates (as long as it has a minimum number of graduates in order to ensure privacy) and receive aggregate income data. Rather than letting this system sit on the shelf and gather dust while the gainful employment regulations wind their way through the courts, they should put it to good use. The Department of Education could open this system up and make it available to any institution that wants to receive hard income data on their graduates.
I’m not proposing a new regulation or a requirement that institutions use this system. It could be completely voluntary. Ultimately, it is hard to believe that any institution, whether for-profit or traditional, would seek to ignore this important data if it were available to them. Just as importantly, it is hard to believe that students wouldn’t expect an institution to provide this information if they knew it was available.
Historically, the only tool for an institution to understand the earnings of its graduates has been self-reported alumni surveys. While we at Capella did the best we could with surveys, they are at best educated guesswork. Now, thanks to gainful employment, any potential student who wants to get an M.B.A. in finance from Capella can know exactly what graduates from that program earned on average in the 2010 tax year, which in this case is $95,459. Prospective students can also compare this and other programs, which may not see similar incomes, against competitors.
For those programs where graduates are earning strong incomes, the data can validate the value of the program and drive important conversations about best practices and employer alignment. For those programs whose graduates are not receiving the kinds of incomes expected, it can drive the right conversations about what needs to be done to increase the economic value of a degree. Perhaps most importantly, hard data about graduate incomes can lead to productive public policy conversations about student debt and student financing across all higher education.
That said, the value of higher education is not only measured by the economic return it provides. For example, some career paths that are critical to our society do not necessarily lead to high-paying jobs. All of higher education needs to come up with better ways to measure a wide spectrum of outcomes, but just because we don’t yet have all those measurements doesn’t mean we shouldn’t seize an a good opportunity to use at least one important data point. The Department of Education has created a potentially powerful tool to increase the amount of data around a degree’s return on investment. They should put this tool to work for institutions and students so that everyone can drive toward informed decisions and improved outcomes.
It should become standard practice for incoming college students or adults looking to further their education to have an answer to this simple question: What do graduates from this program earn annually? We welcome that conversation.
Our problem with the new reportThe College Advantage: Weathering the Economic Storm, on the employment of university graduates since the start of the Great Recession, begins even before the first word of text. In the first paragraph of the acknowledgments, speaking of those who financed the study, the Lumina and Gates Foundations, the authors -- Anthony Carnevale and associates at Georgetown University -- observe, "We are honored to be partners in the mission of promoting postsecondary access and completion for all Americans."
Thus this report is about promoting a mission, a policy position, not about achieving a dispassionate, objective and complete analysis of the evidence. It is thus better viewed as a piece of PR, agitprop musings as it were, not a serious academic study. Certainly, we doubt any peer-reviewed reputable academic journal in economics would touch this study in its current form.
This brings up a bigger problem: isn't there an inherent, huge conflict of interest in university researchers issuing reports favoring positions that are in their own self-interest? Is it not true that Georgetown and other universities gain marketing advantages (and maybe higher tuition fees) by promoting the idea that “it pays to go to college”? The subjective bias is further revealed as the authors at the very beginning decry "attacks" by higher education "cost-cutters,” as if trying to improve efficiency in a low productivity industry is somehow bad.
Getting to the evidence, the Georgetown team is probably correct, that, on average, college graduates fared better in labor markets in the Great Recession and its slow recovery than did those with lesser degrees or diplomas. But where are the control variables accounting for the fact that college graduates are, on average, brighter, more disciplined, and more ambitious than those with less education? A typical high school graduate is a less desirable employee than a typical college graduate for reasons independent of the formal postsecondary education acquired.
Moreover, while the members of the Carnevale team agree that those working only part-time jobs are not truly “employed,” they draw no such distinction with those trained for relatively highly skilled work now doing menial labor. College biology graduates driving taxi cabs are considered fully employed by the definitions that are used. Yet in a real economic sense, they are underemployed or mal-employed, and their human capital utilization is well below what the expectations of both the worker and arguably society as a whole.
“Employment” is not in any meaningful economic context a simple binary variable like pregnancy (you are, or you are not), but a continuum reflecting variations in both hours worked and the meaningfulness of the labor performed. Our guess, based on looking at other labor market data, is that “human capital utilization” among college graduates has fallen a fair amount more than “employment” in recent years, as college graduates increasingly take low-paying (reflecting low productivity) jobs. According to the most recent report by a Northeastern University professor for the Associated Press, using Current Population Survey data, roughly 53 percent of recent college graduates are underemployed, instead of the 8 percent reported in the Carnevale report.
All of this suggests that data are subject to an altogether different interpretation than used by the Georgetown team. Consider, for example, the argument advanced by the Georgetown group that "Even in traditionally blue-collar industries, better educated workers fared better." To us, that basically says overqualified people with college degrees appear to be crowding out others in the market for low-skilled jobs, showing that the "underemployment" problem amongst college graduates is considerable.
Similarly, the authors are lumping together those with a high school diploma and those with less than a high school diploma in the statistical comparisons -- so the analysis differs from the traditional comparisons of high school- and college-educated individuals.
Those who did not graduate from high school make up 24 percent of the sample for the “High school or less” category and 33 percent of the unemployed according to the May 2012 Bureau of Labor Statistics data. Those who attained only a high school diploma are much more likely to still have a job (8 percent unemployment) than are those with less than a high school education (13 percent unemployment).
But what is worse, the authors fail to seriously do what even undergraduate economics students writing papers would be expected to do -- relate costs to benefits. Suppose, even after controlling for everything under the sun, college graduates have a clear employment security advantage during turbulent economic times -- a conclusion that we acknowledge is plausible, maybe even expected, if colleges do what they claim to do.
Is the value of that job security advantage big enough to offset the costs of college attendance, where "costs" include not only cash outlays by students, and the income foregone while studying rather than working, but also the total cost to society from the various government subsidies associated with a college education, and the high risks related to the fact that a majority of college students either do not graduate at all, or fail to do so in the advertised (four-year) time needed to complete the degree?
All of that aside, however -- a huge "aside" -- there are hints in the data that the college advantage is becoming frayed. Look, for example, at Figure 2 in the executive summary, which seems to show that the college degree earnings advantage (to us a vastly overused and flawed statistic) peaked around 2005 or so and has declined modestly since. From 2008 and 2010, Census Bureau data show real earnings fell a good deal for full-time male college-educated workers, unlike, for example, those with less than a high school education. On September 7 the Census Bureau will release 2011 data which will give further indication whether the most recent data are the beginning of a longer-term trend.
Our reading of the evidence is that truly dispassionate examination of the data by those without any vested interest in the conclusions, controlling for other factors involved in determining unemployment and earnings, might well yield a radically different conclusion than found in this public relations effort of Tony Carnevale and his team at Georgetown. The assumptions of this report – that those with little education dramatically improve their job security by deciding to go to college -- are certainly not adequately demonstrated.
Richard Vedder directs the Center for College Affordability and Productivity, teaches economics at Ohio University, and is an adjunct scholar at the American Enterprise Institute. Daniel Garrett is an honors undergraduate economics major at Ohio University.