Our Headline Only Society is Problematic

I’ve already lost a lot of eyeballs with my relatively tame, non-provocative title.  I’m sure a title like “Real Photos of Aliens Storming City Hall” would generate more views.  Make them naked aliens and I’d generate even more page views.  There is a great deal written about our shortening attention spans as a society.  I won’t try to cite a bunch of studies, I’ll simply offer as support two of the fastest growing, most popular sites are Twitter (limiting content to 140 characters) and Vine (consisting of videos no more than 6 seconds in duration).

Make no mistake, I like to cut to the chase and be as time efficient as the next guy.  The problem is when we start relying on the wrong headline writers to do our thinking for us.

Misleading headlines are one of my pet peeves, particularly when they come from powerful sources.  One from the Wall Street Journal this past week caught my ire. “A College Education Still Pays For Itself, Fed Economists Say” (May 5, 2014).

If you are so inclined I’ll encourage you to read the article.  I’d also encourage you to read the research it was based on, The San Francisco Fed’s “FRBSF Economic Letter” dated May 5, 2014.  Read both (they are actually relatively brief) if for no other reason than as an exercise in critical thinking.

The authors of the research draw a pretty definitive (but flawed) conclusion:  Earning a 4 year college degree is a worthwhile investment for the “average” student.  Period.  Definitive statement.  They go on to put a dollar figure on it saying it’s worth an extra $800,000 in net earnings over a lifetime.  Sadly, too many people stop there.  They think, “Fed Economists? They must be pretty smart people.  The WSJ wrote it up?  It must be true. Well then, sending my kids to college must pay off.”

I’m not going to quibble with their math.  In fact I’d bet a lot of money they double and triple checked their work and had their staff do the same.  In fact they lay out many of their numbers in such a way that they lull the reader into giving some credence to their findings. I do take huge issue with several of their key underlying assumptions and/or methodologies.

First of all they have a major correlation/causation issue.  They lump together all 4 year college degree holders and compare them to the non-degree holders.  They then (implicitly) assume they made more money because they went to college and got that degree.  That’s simply not the case. Let’s face it: the high achievers (& earners) were more likely to go to college period. The “Smart Kids” (for lack of a better term) were going to be fine regardless.

If they really wanted to look at the “average” kid they should normalize for high school achievement[1].  For example, maybe compare the middle quintile of students based on standardized test scores (SAT, ACT, etc.).  Within the middle quintile, how much did the degree holders earn compared to the non-degree holders?  I suspect the numbers look different.  Not to say that the conclusion necessarily changes but I doubt it is the same quantitative slam dunk the Fed Economists and WSJ tout.

Not to pile on too much but some other limitations in their research:

• If they are going to attempt to do an analysis that shows a rate of return or present value they need to include a risk premium in the discount rate that takes into account the probability of not finishing.  The one thing their research pretty clearly demonstrates is that there is also a big difference in earnings of someone with “some college” and a degree.  Particularly if the funding source for the education is uncertain (which is going to be most of the “average” families), some kind of risk premium needs to be attached above the cost of money.
• They do not consider non-tuition costs (e.g. living expenses) of getting a college degree. While it is cleaner (easier) to do it their way from an analysis standpoint it doesn’t represent reality.  When a student applies for aid or asks their parents for help they need the full cost of attendance not just tuition.
• This assumes the individual graduates in four years.
• This uses mean earnings not median earnings and as a result skews the impact of extremely high earners.

While I’m tough on their research, I think it is worthwhile to note I’m not anti-higher education.  I have a degree which has benefited me. I served on the University Board of Trustees at my Alma Mmater and remain active in our Alumni Association.  I’d like to think I am a good ambassador encouraging talented young people to apply early and often to “Mother Miami.”

I do not think, however, there is a one size fits all answer when it comes to the decision to attend college or not, particularly when you have scarce financial resources.

I think our Fed and the WSJ do us an incredible disservice when they take research[2] like this and package it as a real simple answer: “College pays off.”

Unfortunately in our headline-driven, limited attention span world a headline like, “College or Not – It’s Complicated,” probably wouldn’t have been acceptable.