The Higher Education Payoff Puzzle

Young people have become increasingly skeptical of the value of college education. Recent research by the Indeed Hiring Lab reveals that 51% of Gen Z college graduates think that their degree was a waste of money. 

Much of the frustration with the current education system stems from the fact that the value of a college degree depends on a wide range of factors, yet this complexity is often ignored in favor of simplistic prescriptions. 

Alexander Wolfe, a 2018 graduate from Northern Kentucky University, echoed this sentiment in the Wall Street Journal, stating that, “You’re told your entire life, ‘Go to college, get a bachelor’s degree and your life is gonna be gravy after that.’” Despite this common sentiment, nearly half of college graduates end up underemployed 10 years after graduation, working in jobs that don’t require a degree.

Some jobs, such as law and medicine, explicitly require certain educational credentials due to legal barriers, but the truth is that the vast majority of college majors have very little to do with real-world occupations. Even “marketable” subjects like economics are very theoretical, which may help facilitate critical thinking, but it is a far cry from knowing how to interpret a balance sheet.

The value of higher education, as George Mason University Professor Bryan Caplan identifies, is almost exclusively signaling. 

According to Caplan, education is a weird industry where “You study arcane subjects year after year, knowing you’ll never use most of what you learned after graduation.” Caplan points out that someone could simply show up to Princeton to attend classes without enrolling, saving hundreds of thousands of dollars in tuition expenses. Yet, the fact that almost nobody does this is “a strong sign that students understand the value of certification over actual learning.”

Moreover, “when professors cancel lectures, students don’t demand a refund, they celebrate.” If the product of education was knowledge, this would be considered a loss, but if the product is a credential, the cancellation of classes means they are getting it for less effort.

In a world where most jobs, especially white-collar roles, depend more on general intelligence than specific technical skills, employers often use educational attainment as a convenient way to filter a large pool of applicants. The unfortunate reality of this situation is that it leads to an arms race of educational attainment, as Independent Institute Research Fellow Art Carden points out.

Potential students might consider whether they have the means and disposition to compete in this arms race, hoping to land a coveted position in society, or whether they should opt for more immediate employment options. The signaling dimension of education is also nuanced by the fact that different employers are looking for different attributes. 

A CFO that I spoke with told me that he would rather hire a motivated state school student than a student from Harvard or Yale, because he presumed that state schools had more of the specific characteristics he was looking for in an employee. 

Yet, prestige and brand value play a far more important role in industries like management consultancy, finance, and academia.

The question of what one’s degree signals is of utmost importance when making a rational decision about higher education. Such considerations determine whether someone should study anthropology at Harvard or finance at California State University, Dominguez Hills.

The higher education crisis dilemma has been further exacerbated by the federal student loan program, which has “materially increased the cost of attending college” and has enabled people to make choices that they would otherwise not make if they were spending their own money. If this were permitted, the production of fewer degrees would help fight against degree inflation and the educational arms race.

So, on the whole, is higher education still worth it? As previously put by Independent Institute Senior Fellow Richard K. Vedder, the author of Let Colleges Fail, “The answer obviously varies with the personalities and capabilities of the individual.”

I learned a lot during my college education, but I recognize that the knowledge itself wasn’t the primary product I was consuming. If my only goal had been to learn, the internet, effectively an infinite Pandora’s box of information in 2025, would have sufficed. For Gen Z to stop regretting their college experience, the first step is to acknowledge what kind of consumer good higher education truly is and make informed decisions with that understanding in mind.