America's universities need a reality check - and American business could provide it
With students heading back to campuses, America's universities need a reality check - and American business could provide it.
Even before recent demonstrations disrupted campuses and forced embarrassing confrontations between university presidents and congressional leaders, Americans' confidence in higher education was declining.
A recent Gallup poll found that just 36% of Americans expressed a lot of confidence in higher education - down from 48% six years ago.
The earning premium for a college degree over a high-school diploma is about $31,000 a year. College graduates also live longer and healthier lives and enjoy more employment stability. Yet just 22% of adults believe college is worth the cost if a student must take out loans.
Prospective college students must choose wisely. In 2023, the barebones cost of four years at the average college - tuition, fees, and room and board - was about $153,000. Add a student's foregone income - at $15 an hour, or around $30,000 a year - and the price tag balloons to $273,000. For in-state institutions, the total cost was $229,000; for the typical private college, $355,000.
The interest rate on federally guaranteed student loans is now 6.53%. Applying that rate of discount, the present value of the income differential is about $370,000.
Head of the class
Close to half of all college graduates end up in jobs that don't require their degrees, and about one-quarter earn less than the typical high-school graduate. The secret to making a college degree pay for itself is in choosing a major and location well.
For example, New York's state-supported Baruch College is a great investment. It sends lots of accounting and finance majors into New York City's Financial District, and its students generally do well.
Meanwhile, employment outcomes are consistently better for new graduates in just about any major who do a reasonably relevant internship.
From a strictly labor-market perspective, supply exceeds demand for college graduates. Many members of Generation Z choose to learn a trade or enter an apprenticeship - and often those routes pay while the young person learns.
It would help if universities could better prepare students for the working world. Employers often complain about graduates lacking critical-thinking abilities and the soft skills to work smoothly with others. That is not surprising given that universities often require allegiance to progressive purity when recruiting and granting tenure to faculty.
Moreover, openings in sought-after majors are rationed, pushing students into the humanities and social sciences, where job prospects and salaries are not as promising. On top of that, faculty governance procedures often make it maddeningly difficult for university administrators to scale back departments that are undersubscribed in order to create more spaces in programs that offer better employment prospects.
Employers use diplomas as signaling devices
We need a standardized exit exam for college seniors.
Employers are eliminating degree requirements and say they are emphasizing skills more. Although a LinkedIn study found a 36% rise in job postings that did not include a degree requirement, the share of positions filled by candidates without a sheepskin rose much less.
We need a standardized exit exam for college seniors that assesses the ability to organize complex information to solve problems, deal with ambiguity and tolerate disagreement. If employers used the results to screen applicants, the incentive to reform university decision-making, hiring and curriculum would become more compelling.
College should be worthwhile for noneconomic reasons, too. Nowadays, looking at the intolerance on college campuses, it's hard to expect universities to cultivate such reflective qualities.
After the recent turmoil at prominent institutions such as Harvard University and the University of Pennsylvania, several presidents lost their jobs and big donors advocated withholding contributions until progress is accomplished on combatting antisemitism and other forms of intolerance.
But things won't change until powerful men and women on Wall Street and elsewhere shift their hiring preferences away from new graduates of intolerant Ivy League universities and other elite institutions - and until those institutions establish an atmosphere where open discourse based on verifiable facts and reason is again welcome.
Peter Morici is an economist and emeritus business professor at the University of Maryland.
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