Tag Archives: higher education

Academic Job Looks Promising

The recent article, “Tech Leaps, Job Losses and Rising Inequality” on the New York Times by Eduardo Porter talks about how growing technology is contributing to widening of income inequality in the U.S. As implementing cheaper technologies to industries, low skilled workers are replaced by these new machines. The article points out how certain medical conditions are tried to be diagnosed by technology. One example given is how researchers at Microsoft Research are developing a system that can predict with accuracy a probability of a pregnant woman’s suffering postpartum depression by looking at her tweets on Twitter. Science has made almost impossible things possible in the last century. If technology gets developed at the same rate as it has been for last decades, we could see today’s impossible ideas to come in our hands.

So, if technology is going to grow as it has been and if new technologies are going to replace workers whose job can be done by the new machines, what human beings are left to do?

The answer is simply that those jobs which are hard for robots to perform will be the jobs that humans will be competing for. The main function of these jobs include interpersonal communication, in which today’s technology hasn’t been developed to the extent to compete with humans. The jobs that require this characteristics include teachers and professors, variety of advising jobs, and motivational speakers!  Because, as of today, the technology hasn’t reached to the point where we can substitute another human with a machine to communicate our feelings. Even though we are experiencing growth of online schools and free Massive Online Open Courses (MOOC) offered by such as edX, Coursera and Khan Academy, human to human communication which these online education technologies lack is why teachers and professors will not have to worry about their jobs as for now. Even though we can get same amount and quality of education by taking online classes or MOOC, these courses can’t offer a type of relationship we can have with our professors in college. Professors not only teach the content of the course, but they motivate students to achieve more (Remember, most of us are going to make at least $2 million in our life time according to Professor Kimball). In other words, robots haven’t been programmed to motivate us emotionally.

Another reason that demand for academic jobs will be greater in the future is that as technology replaces jobs that require low skills or skills that can be programmed in a machine, people will be looking for to get skills that machines cannot possess. Most of these skills require higher education as how advising job requires to deep knowledge about the topic from the adviser. Therefore, demand for higher education will surge in the awakening of greater technology. Presumably so, then teachers and professors will be demanded in higher numbers.

Academic job will be demanded in greater number in the future because of its inherent function of interpersonal communication and demand for higher education.

REVISED: The Value in College

As I near the end of my time as a student here at the University of Michigan, it seems a useful time to reflect on the value of how I spent my last four years (and the tuition money to attend). Higher education, as with any other activity, is a trade off. These past four years I could have been working full time in a job that did not require a college education, which according to a report from the College Board, would earn me about $33,800 annually. According to the same report, earning a college degree typically boosts an individuals earnings by an average of $22,000 to an annual income of $55,700. Taken into account over an entire lifetime, this figure alone seems to justify the time and monetary cost of a college education.

This week the Economist also explored the issue of higher education value in their article “Is College Worth It?” The Economist article brought up two important points in my opinion – the value of a college education depends both on where you go to college and what you study when you are there.

As to the first point – where you go to college matters – the Economist broke down the value of an education from different institutions based on the return on investment that going to that school generated. They used data from an independent research firm PayScale to come up with the ROI figures over the first 20 years out of school. The highest ROI schools included University of Virginia (17.6%), Georgia Tech (17.1%), and Harvard (15.1%). While some of the nations top schools command strong double digit ROIs, there is a steep drop off in quality at a certain point – the Economist highlighted several school with low single digit or negative ROIs. At that point you would be better off taking the money you would’ve spent on college and investing in Treasuries.

So how does the University of Michigan stack up from an ROI perspective? For in-staters (which I am), the annual ROI is 8.1% according to PayScale. This obviously beats most alternatives like investing in Treasuries but also brings up an interesting point – what about the intangible elements of receiving a college education from a world class institution like U of M? I think there are three things to consider here:

  1. Networking. At an institution like the University of Michigan, some of the value is derived from the networking possibilities. An aspiring professional in almost any field values a network of similar minded people and developing that network takes time and energy. Attending a university can give an individual easy access to a strong network of like minded individuals bound by a similar allegiance to their alma matter, which carries intangible value throughout their career.
  2. Marriage Market. Last year, Princeton alum Susan Patton caused a stir when she sent the Daily Princetonian a letter titled “Advice for the young women of Princeton” encouraging women to look at college as prime husband hunting territory. While her remarks were controversial, Ms. Patton hit on an interesting point – top colleges serve as very liquid marriage markets. This is a point that Professor Kimball first brought up in class and it piqued my interest. Many people form relationships with people that attended the same college as them that ultimately end in marriage. Marriage continues to be a social institution that adds value and stability to our society. Fostering an environment that allows individuals to find suitable life partners is a great element of higher education and no doubt provides additional intangible value beyond the simple ROI calculations.
  3. Happiness. Our society places a strong emphasis on higher education, especially at elite, highly selective institutions like U of M. The utility that one derives from a college education is about more than the future monetary reward, unlike what PayScale might have you believe. People feel a sense of community and attachment around their alma matter. At a school like the University of Michigan, we have nationally competitive sports programs to root for, that add extra utility to our lives. And having the opportunity to spend four years in a vibrant and exciting college town like Ann Arbor, certainly confers a great deal of utility in our lives.

Overall, boiling down college to an ROI number is a helpful decision making tool for prospective students and highlights the concerns that parents and future students should have when selecting a school and major. I believe, however, that there is much more that goes into the value of a college degree and students should consider those factors as well when making higher education decisions.

 

The Value in College

As I near the end of my time as a student here at the University of Michigan, it seems a useful time to reflect on the value of how I spent my last four years (and the tuition money to attend). Higher education, as with any other activity, is a trade off. These past four years I could have been working full time in a job that did not require a college education, which according to a report from the College Board, would earn me about $33,800 annually. According to the same report, earning a college degree typically boosts an individuals earnings by an average of $22,000 to an annual income of $55,700. Taken into account over an entire lifetime, this figure alone seems to justify the time and monetary cost of a college education.

This week the Economist also explored the issue of higher education value in their article “Is College Worth It?” The Economist article brought up two important points in my opinion – the value of a college education depends both on where you go to college and what you study when you are there.

As to the first point – where you go to college matters – the Economist broke down the value of an education from different institutions based on the return on investment that going to that school generated. They used data from an independent research firm PayScale to come up with the ROI figures over the first 20 years out of school. The highest ROI schools included University of Virginia (17.6%), Georgia Tech (17.1%), and Harvard (15.1%). While some of the nations top schools command strong double digit ROIs, there is a steep drop off in quality at a certain point – the Economist highlighted several school with low single digit or negative ROIs. At that point you would be better off taking the money you would’ve spent on college and investing in Treasuries.

So how does the University of Michigan stack up from an ROI perspective? For in-staters (which I am), the annual ROI is 8.1% according to PayScale. This obviously beats investing in Treasuries but also brings up an interesting point – what about the intangible elements of receiving a college education from a world class institution like U of M? I think there are three things to consider here:

  1. At an institution like the University of Michigan, some of the value is derived from the networking possibilities. An aspiring professional in almost any field values a network of similar minded people and developing that network takes time and energy. Attending a university can give an individual easy access to a strong network of like minded individuals bound by a similar allegiance to their alma matter, which carries intangible value throughout their career.
  2. Colleges like University of Michigan serve as very liquid marriage markets. This is a point that Professor Kimball first brought up in class and piqued my interest. Many people form relationships with people that attended the same college as them that ultimately end in marriage. Even as liberal ideas on relationships gain acceptance, one cannot argue that marriage is a social institution that adds value and stability to our society and fostering an environment that allows individuals to find suitable life partners is a great element of higher education.
  3. Happiness. Our society places a strong emphasis on higher education, especially at elite, highly selective institutions like U of M. The utility that one derives from a college education is about more than the future monetary reward, unlike what PayScale might have you believe. People feel a sense of community and attachment around their alma matter. At a school like the University of Michigan, we have nationally competitive sports programs to root for, that add extra utility to our lives. And having the opportunity to spend four years in a vibrant and exciting college town like Ann Arbor, certainly confers a great deal of utility in our lives.

Overall, boiling down college to an ROI number is a helpful decision making tool for prospective students and highlights the concerns that parents and future students should have when selecting a school and major. I believe, however, that there is much more that goes into the value of a college degree and students should consider those factors as well when making higher education decisions.

 

Revised: How to Deflate the Education Bubble

In the last 15 years, outstanding student debt in the United States has grown from $240 billion to an astonishing $1.2 trillion, driven largely by rapidly accelerating tuition rates.  During the same time period, average wages have only grown a mere 10%, making student debt an increasingly uncomfortable topic.  In fact, JP Morgan deemed the student loan market so overladen with risk that in October of 2013, the firm stopped issuing any additional student loans.

Based on these signs, I agree with a recent Huffington Post article that relates the higher education bubble to the housing bubble America experienced in 2008.  The loose lending standards (low down payments), securitization of mortgages (MBS), and high levels of speculation (overwhelming belief that the housings values will continue to rise) that contributed to 2008 bubble burst all have parallels in the higher education market.  Many students pay no downpayment and have poor (if any) credit history.  Student loans are being packaged and resold as student loan asset backed securities (SLABS) to hedge lender risk.  And despite the 44% undermployment rate of young college graduates, most Americans continue to believe that a college education is an ideal (if not necessary) investment.  All these factors suggest another bubble is about to burst, and in an attempt to offer a partial solution, this post will focus on the speculation involved in the higher education market.

However before considering a solution, it is important to first understand the route cause of asset bubbles.  In A Random Walk Down Wall Street, Burton Malkiel makes the cause of asset bubbles very clear in his explanation of the tulip-bulb craze that plagued Holland in the early 1600s.  After the mosaic virus created striped tulips in the late 1500s, Dutch citizens desperately wanted the most unique tulips in their gardens, and they were willing to pay a handsome premium for them.  As more and more people bid up the price of tulip bulbs, more and more believed these bulbs were a smart investment.  Indeed, by the 1620’s people were selling their jewels, furniture, and even land to buy tulips!  Nevertheless, no bubble can grow forever, and in February 1637, Dutch public opinion changed.  The price of bulbs fell more than 20-fold that month, and despite the government’s best attempt to prevent a sell-off, the bulb bubble burst, leaving an abundance of disappointed and bankrupt investors.

The Tulip-Bulb craze perfectly illustrates the result of what Malkiel refers to as “Castle-in-the-Air” investment theory.  Under this theory, an investment’s value is based on public opinion, and decisions to buy and sell are based on random guesses about changes in public opinion.  When public opinion changes, bubbles can burst and investors can suffer huge losses.  In my opinion, the “Castle-in-the-Air” investment theory applies perfectly to college education (tuition costs are rising despite the fact that tuition benefits, ie: employment and wages, are falling).

I’d argue, and I think Malkiel would agree, that a switch in investment theory could reduce the risk of asset bubbles.  In addition to “Castle-in-the-Air” theory, Malkiel also explains  the “Firm-Foundation” theory, which is an investment strategy based on the intrinsic value of investments.  When the price of an investment is less than its intrinsic value, you should buy; when the price is more than intrinsic value, you should sell.  Because this form of investing is based on data and not public opinion, it is arguably less susceptible to speculative attack.  Indeed, Malkiel points out that firm-foundation investing is how Warren Buffet made his fortune.

It therefore seems that to reduce the risk of a student loan bubble, we need to switch investment in higher education from a “Castle-in-the-Air” model to a “Firm-Foundation” Model.  But how?  I believe the answer lies in a recent Wall Street Journal article.  In “Colleges Are Tested by Push to Prove Graduates’ Career Success,” author Melissa Korn points out a trend in prospective students requesting information on graduates’ salaries.  Given that college is an investment (that should generate a real return after an initial payment), this request seems extremely logical!  Why would anybody spend $200,000 on out-of-state tuition at UM without assurance (or at least data supporting) a sizable income stream after graduation?

If firms are required to release GAAP-audited financial statements to give prospective investors a prediction of future cash flows, I believe universities should have to do the same.  While there is currently significant push back from universities to release this data, I think that reporting graduate salaries based on school, major, GPA, etc. is an essential step in changing college education from a “Castle-in-the-Air” investment to a “Firm-Foundation” investment.  (The implications of this are consequential indeed, as it would likely force the cost of well-paying majors like business and engineering higher than the cost of low-paying majors like anthropology and agriculture.  That said, this is a consequence that is completely in line and appropriate given a “Firm-Foundation” investing environment, and it is one that I am comfortable with.).  Personally, I believe if we can successfully alter the way students choose to invest in college education (by reducing speculation), we can effectively reduce the risk involved in student loans and prevent student debt from repeating the Dutch Tulip Crisis and pushing America back into recession.