Over the next few articles and videos, I will explore college decision-making and provide an effective college decision-making approach. I help you decide what is important to you about college by exploring the perspectives of others - namely, the people who will hire you and the people who look out for your interests. These are the employers' and risk managers'. To this end, a risk management and future employer-informed framework for making the best college decision is provided. After exploring this framework, I show that college costs and academic signaling drive college outcomes. In most cases, college selectiveness is not a significant determinant of college outcomes. The chief aim of this article is to help the reader make the best college decision, by optimizing the cost-benefit tradeoffs. To help implement the framework and make the best college decision, we suggest apps called College Xoice.
About the author: Jeff Hulett is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM. Today, Jeff is an executive with the Definitive Companies. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his new book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions -- at jeffhulett.com.
Please check out Jeff's YouTube channel for the presentation of this article: Our College Hope and making a great college decision!
Today, I start with
Our college hope
There seems to be little doubt that a college education is beneficial. Economists like me call this the “acquisition of human capital.” College is not the only way to acquire human capital, but it is a standard way. The history of this standard includes the landmark 1971 Supreme Court case Griggs v. Duke Power Co. Most relevant to the Griggs decision is that U.S. law encourages the use of the college system to develop talent since the approach companies like Duke Power used was found to be discriminatory.
The torchbearer of this narrative is the U.S. Federal Government’s Bureau of Labor Statistics. Their analysis demonstrates that higher educational attainment delivers both:
A higher average salary – on the left side of the graphic;
A higher probability of attaining that salary – which is the lower unemployment rate on the right side of the graphic
This seems to be commonly accepted by our culture.
Beyond the "is college a good idea?" question, there is the "which college is best to attend?" question. There is a long-held belief that the “better” the college’s reputation, the higher the college’s value. Thus, the message for high school students and their parents or caregivers is, “Attend the ‘best’ college you can, the cost will pay for itself in future earnings.” In this talk and article, we generally refer to the supposedly "best colleges" as selective colleges like the Ivy League, Stanford, MIT, Chicago, and similar. Less selective colleges are generally all the other colleges. For simplicity, we place colleges in these two selectivity groups. In practice, “selectivity” is on a continuum, based on college acceptance rates and other factors. Our culture supports the “attend the ‘best’ college you can” selective college narrative in powerful ways.
Next, we discuss how the
The U.S. Federal loan system and
The college marketing department;
both support the selective colleges.
First - The U.S. Federal Student Loan system supports this narrative by enabling the "best" college education possible as a neutral short-term financing decision. In other words, since repayment does not occur for many federal loans until after college is finished, the student does not need to consider either 1) the impact of higher college costs while they are attending college or 2) the significant retirement value impact caused by differences in long-term debt repayment balances and payments. Our own brains naturally discount longer-term impacts via a naturally occurring cognitive bias called availability bias.
2. Second - This narrative is also supported by the “best” colleges themselves. It is not entirely unexpected that these selective colleges also have massive endowments and marketing organizations to manage branding and the selective reputation. For example, today, Harvard has the highest endowment of U.S. colleges at approximately $50 Billion. In general, the most selective colleges are focused on research. Selective colleges have been increasing procurement of research funding while maintaining modest growth of undergraduate enrollment. This behavior speaks volumes about selective college incentives and self-interest. Chris Paxson, the president of Ivy League member Brown University, said in a 2022 interview: “….where we can really expand knowledge is through our research. And that’s an area where we’ve made a lot of investment.”
The United States, compared to other developed countries is an outlier when it comes to the cost of higher education. Higher Ed in the United States is expensive and has been increasing significantly for decades. In fact, U.S. News & World Report said: “….tuition and fees at four-year National Universities are significantly outpacing inflation.”
Now for our college decision anchoring question -
"What is the purpose of college?"
I outline this anchoring question by describing “Our college hope” in terms of learning and other practical, education-related factors. I will then expand on the anchoring question to address: "What is the most effective approach to achieving this educational purpose?"
The purpose of college is a nuanced and dynamic question. Our purpose of college perspective is generally impacted by our intensely personal and evolving hopes.
1st - Our college hope for learning:
Many students, parents, or caregivers have evolving college hopes. That is, depending on our background and current position in the college decision process, our hopes may vary. Our hopes are generally anchored by the educational objective. This includes the development of significant critical thinking skills, study habits, and otherwise learning to learn. But there is certainly more value to the college experience.
2nd – Our hope for life skills:
Living in the college social community is fun! College helps students develop emotionally. This includes better handling change and managing expectations. They become more emotionally intelligent. They learn to make better, longer-lasting relationships. Many of their good college friends will become lifelong friends or become part of their professional network. They may meet their future spouse. College helps students develop important life skills, like preparing food and other life necessities, living a healthy lifestyle, maintaining personal security, keeping commitments, and handling money.
3rd – Our hope for citizenship:
College helps develop citizenship and a sense of community.
4th - Our hope college leads to a great job!
This is perhaps the biggest of all. This is our hope college leads to a great job!
It seems obvious a college education is helpful to getting a good job and earning a living. The connection between college success and income is certainly aligned with the BLS perspective. I generally adhere to the “college education as a means to earn income and build wealth” objective. But college success is not guaranteed. Given the dramatic increases in college costs, there are certainly risks to achieving the desired outcome.
The risks could be realized if a student:
a) spends significant financial resources, then
b) regardless of whether those resources are sourced from family or loans, and then
c) the student does not achieve the desired college outcome.
This result would likely be financially devastating. Also, what about employers? How do they view college graduates? If getting a good job is the main outcome we want, then understanding the employers’ perspective is critical to college success. Over the next few weeks, we will dig into the college decision from the employer’s and risk manager’s perspectives.