Cost of attending college has grown exponentially.  The how and why has seen lots of debate but rarely if ever does any one writer try to refute the fundamental fact that college is expensive.  More often, we see this argument.  “Sure college is expensive but look at it as an investment which as a tremendous ROI”, (return on investment).  Actually, that is a great argument in vast majority of instances. However, as I hope to outline in this post, the approach used is often biased and does not fully consider all factors that are typically included in most business ROI models.

Whoa, you say, aren’t you a marketer.  Are you getting ready to take us down a finance path?  The answer is yes.  Marketer or not, if the argument for a college education is based purely on the financial model, then an informed customer needs some layperson terms and definitions to explain the ROI model.  It is also helpful to provide some full disclosure on types of costs, investments, and periods.  Therefore, that is the approach of this post.  I begin with a few definitions and explanations of concepts first.  After each definition, I discuss some problems and implications with these common definitions.  Then I provide some examples of the application to the college investment model after making some common sense adjustments to the current assumptions. After reviewing these examples, we can see if we reach conclusions about the viability of the college education on a purely financial basis.

I will begin with the most common cost discussed.  This is what is now becoming a federal government mandate cost, cost of attendance or COA.  COA has its roots in the Federal Financial Aid literature and this is a typical definition. “The COA includes tuition and fees; on-campus room and board (or a housing and food allowance for off-campus students); and allowances for books, supplies, transportation, loan fees, and, if applicable, dependent care. It can also include other expenses like an allowance for the rental or purchase of a personal computer, costs related to a disability, or costs for eligible study-abroad programs.”

This is a fine definition to help compare costs across colleges and programs.  However, when used in the financial model for ROI (as it most certainly is in most cases), it violates a basic assumption of ROI models.  You should only include costs or expense that would incur if you take the investment action.  That assumption would exclude on-campus room and board (or a housing and food allowance for off-campus students), transportation,  and dependent care.  Whether a person goes to college does not determine having housing, transportation or the need for dependent care.  Even the need for a personal computer seems essential across all life situations these days.  However, the tuitions and fees are substantial and are a major portion of the investment.  Associated with college costs, would be the student loans but only the portion of the loan as it relates to tuition and fees.  Taking loans that allow for high standards in housing, transportation, or food is an issue for a different kind of blog.

An additional issue with the COA is that excludes an essential cost, opportunity cost.  Opportunity costs in our ROI model would be income that is forfeit because the majority of the person’s time is spent in class and studying.  At a minimum that would be 4 years of at least minimum wage in a full time job, though it could be substantially more as it would seemly likely that a recent high school graduate that earns admission to college is likely to secure more than a minimum wage job. 

Finally, the ROI model discounts future earnings and costs to a present day value so all dollar values are equal.  Any model should discount back to the decision point of choosing to attend college.  That would mean to the first month of attendance.  The period is neither to a graduation date nor to a date of acceptance.  Therefore, with those assumptions in mind, we can explore some alternate scenarios. There is one other time related assumption, the length of time to pay off loans.  Most federal models assume a ten-year time though research cited by US NEWS in 2014 shows an average closer to 24 year Link. Since, most interest amortization is based on 10 years and most discount models in business use 10 years, we use the 10-year assumption.  

Next, it is time to build out some scenarios.  This may seem boring at first but I assure you that I used the most unbiased sources I could find.  I also made sure to disclose the date of the studies.  College costs are changing and estimates from even a decade ago can be poor representations of current conditions.  Oh and by the way,  if bored with the numbers you can jump down and see the conclusions.

First, we start by noting some of the research on the returns earned from a college education.  The first thing that jumps out is these returns really do depend on the degree earned.  This degree earned means not only what school but also relevant is what major.  These factors will add quite a bit of variation in earnings.  We try to stick to using on average with a big caution that keep the college and major in mind.  One very commonly cited study comes from the US Census Bureau Link (however it is from 2002) showing over 10 years the college graduate earned $195,000 more than the high school graduate or $19,500 more per year.  Again not the full story as we have to factor in the opportunity cost of earning $75,600 over the four years of college, which we subtract from the 195,000.  Therefore, for this scenario we will use $119,400 in additional earnings for the college graduate. The Pew Report from 2014 does not show a great deal of difference though the gap is decreasing Link.  For this scenario, the gain over 10 years is $175,000 and the opportunity cost is $112,000.  Therefore, we have an effective gain of $63,000.
Next, we need some estimates on cost of tuition, fees, books, and supplies. The College Board Link  estimates in 2014-15 that the average tuition and fees for 4-year public institutions is $9,300 per year.  Books and supplies add approximately $700 for a nice round figure of $10,000 per year.  Assuming that the student borrows the 31% estimate provided by Sallie Mae in 2014 Link, and then the discounted amount of interest is added on.  We have another $13,500 of college cost.  Our total cost for attending college for four years is $53,500.

Now to revisit the additional earnings estimates for college graduates. Using the same discount rate on the cost of student loans, we have additional earnings of $103,725 from the 2002 census date versus the $53,500 cost of 4 years of college costs with interest on student loans.  Under the Pew Report of 2014, the picture is not so positive.  The discounted earnings surplus for the college degree is $54,730 versus the $53,500 cost of 4 years of college costs.
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It seems clear that should earnings go up because of major or the brand of the university then the return on investment is still likely to be even better.  However, using the more recent Pew numbers, should the amount of college funding by loans go up substantially and/or the cost of tuition and fees go up, then the positive return on investment is not likely to become negative.  While I am a firm believer in the additional non-financial benefits of a college education (see my previous posts), the ROI financial model with significant student loans just does not seem to make a strong case at this time.
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I hope that by now the theme of these blogs has emerged.  A college degree earned at the end of the college education is the culmination of a transformational process.  When it works best, this transformational process should create a new trajectory for the individual’s future.  And while I come from a practical and applied discipline in business, marketing, I believe the indispensable foundation to this process is the core liberal arts courses or what some programs call the general education program.

Regardless of the name, these broad based and multidisciplinary courses are an essential ingredient to the transformational process.  As I will elaborate upon below, these courses influence multiple facets of the individual’s development as they pursue becoming ‘college educated.’  First, the liberal arts education forms the historic foundation of what is known as a college education.  Therefore, in that sense, these courses provide a common link to what is considered a college degree.  Another benefit of these multidisciplinary courses is to introduce students to a breadth of knowledge, and one these subjects might become their passion and major.  Beyond a breadth of knowledge, the courses also form a foundation about lifelong learning both in process sense and in developing a quest or thirst for new understandings. Each of the above outcomes provides a compelling argument for the liberal arts education but when considered in their whole, these outcomes provide the rationale for what I refer to as an indispensable foundation.

As I expand on these positive outcomes, I will begin with the history of college education.  So far, in these articles’ I have used the United States version or definition of College or University interchangeably.  That may not be appropriate as we discuss the origins of higher education, which also has been referred to in by others cultures as tertiary education. Tertiary is third level education or beyond secondary education.  In some part of the world, this tertiary education is limited to University education while others refer to both University and College.   Therefore, we will try to review only the origins and history of third level higher education, which of course would assume the existence of secondary education.  

While others have useful arguments about ‘higher’ education developing differently in other cultures, the origins of tertiary education with a liberal arts component is best traced to the European institutions that evolved out of cathedral or monastic schools between 11th and 14th centuries.  These institutions existed for the study of the Arts as well as the higher disciplines of Theology, Law, and Medicine.  The Arts encompassed the seven disciplines of arithmetic, geometry, astronomy, music theory, grammar, logic, and rhetoric, which would become the foundation of the modern Liberal Arts education.     There are of course different configurations depending upon the institution but the core disciplines remain essentially the same but with the added learning outcomes of intellectual and practical skills such as communication, analytical, critical thinking, and problem-solving skills.  And the benefit of this continuity is that today’s students are uniquely connected to the students from hundreds of years ago as each studied these core disciplines as they all strived to earn their collegiate credentials.  An expectation and experience endures over the centuries of what it means to be collegiately educated.

Some of the above intellectual and practical skills develop as outcomes of learning in depth the content knowledge of courses such as calculus or chemistry. This, of course, is the second benefit of the liberal arts component of college.  However, learning the above skills also develops perseverance in learning as students move through courses or disciplines that do not engage or interest them.  Often their learning is how to develop intrinsic motivation based on persevering in order to achieve an ultimate goal.  Rare is the collegiate student that has not privately or publicly complained, “why do I have to learn this, I’ll never use it in real life?” about some subject or two.  Only later, will they find the usefulness or perhaps realize that the process of learning as a skill unto itself was enhanced by ‘slogging’ through the course.

Of course, moving through the breadth of courses also helps the student explore and perhaps find their life ambition.  At my institution, over fifty percent of the students in my discipline change their declared entry major at least once.   That is exactly as it should be.  Expecting an 18-year-old student to understand their life goals is unrealistic.  They often have not even had the exposure during the secondary stage of their education to the breadth of opportunities.  Similarly, these students have limited exposure to the experts in these various disciplines.  These experts are the exemplars of that discipline that can appropriately convey the content and future of the discipline.

So, before we even get to the expertise development provided by a collegiate education, we have a compelling argument about the transformational nature the general education provides.  A process vetted by hundreds of years.  This general or liberal arts education changes the student, hones intellectual skills, and potentially helps sort through majors and career opportunities.  It is for these reasons that as part of the collegiate experience and the collegiate education that I deem the liberal arts component indispensable.

College Educations: Transforming Society
There is a quote often attributed to Thomas Jefferson that goes something like "An educated citizenry is a vital requisite for our survival as a free people."  The actuality is that Mr. Jefferson apparently never said those exact words.  However, it a perverse way the fact that I know he did note use those words and the fact that I know he actually wrote in a letter to Charles Yancey an argument for public education, including university.  The exact words about democracy and education were, “if a nation expects to be ignorant & free, in a state of civilization, it expects what never was & never will be.”  Moreover, it is not that I ever knew this quote from my education.

Rather, this is an example of the outcome of my university education.  My professor insisted that I needed to be curious and skeptical.  It was impressed upon me to seek out the source of knowledge myself and not rely on others opinions or conjectures.  Further, I was educated on how to conduct that original research such that I could find the original letter to Mr. Yancey from Mr. Jefferson and read the quote and the context.  This letter is an interesting read as are most of Mr. Jefferson’s letters but that is an aside.
Now I need to be clear, I was not a history major though I am a history buff.  I was not a Political Science major either though I took the LSAT for fun one time.  Nope, I was a statistics major.  However, I received the basics of a liberal arts education that formed the foundation of my critical thinking skills as well as my research skills.  To Mr. Jefferson, this training was essential for democracy otherwise, any government’s propensity was to erode the liberty and property of the people.  Therefore, that alone might seem enough ‘value’ of college education to society.  However, I would argue there is more.

An economic impact and multiplier develops from college education on the macro level.  The evidence seems compelling.  In 2003, Sianesi and Reenen concluded in their article in the Journal of Economic Surveys, that each year of University education increased overall GDP by 3 to 6% but also increased the rate of growth in GDP in the United Kingdom.  The research has built on these findings to conclude that it is not just attendance but the quality of the education that leads to the “strong evidence that the cognitive skills of the population - rather than mere school attainment - are powerfully related to individual earnings, to the distribution of income, and to economic growth.” Page 1 (2008) Hanushek and Woessmann, World Bank Working Paper 4122. These are just two of literally hundreds of papers that empirically demonstrate that college or university education accelerates economic development.

It is apparent that University educations transform the individual and through the individual their society.  For over 200 years, the foundation of democracy has had education as a pillar.  In addition, for almost as long, the innovation and drive that lead to economic prosperity has come from the same source.  In the next post, we begin looking at the actual mechanisms that leads to a university education.

It seems as if we are in the season when the articles about college and university education focus upon the income earned after graduation.  Occasionally, there is a slight variation and the article, news story, or blog post focuses on career success.  And of course, these stories totally miss the point.  These are the outcomes of the college education.  There is not a guarantee associated with the college degree.  In fact, many like to point out examples of those with college degrees getting the fast food jobs.   Of course, these stories of less successful career outcomes miss the point as well.

College is a unique transforming journey tailored to each individual.  The importance of the previous statement compels me to repeat and rephrase.   A successful college experience will transform the individual in manner that will alter the trajectory of their life.   The goal of colleges and universities is to create the environment where each individual can transcend the projected straight line of their supposed destiny.   The roots of this extremely successful system have been around for over 2500 years.  (This history will be the subject of a separate blog).

I read an interesting article pointing out some successful business people that did not complete their college education http://time.com/money/4388043/7-successful-ceos-who-dont-have-a-college-degree/. I could point out the article implies 493 out of 500 Fortune 500 CEOs do have college degrees but for now, let me point out the positive impact of this individualized system on a very personal level. By personal, I mean I will relate my own experience.

Mine is neither dramatic, awe inspiring, or particularly interesting.  Rather, I think you may find in its very mundane nature the essence of the beauty of the college transformation.  My father was enlisted man in the US Army Air Corp and then the US Air Force.  He was the son of what is called a sharecropper today.  My mother was college educated and the only daughter of a middle class family.  My father passed away when I was five. This fact is relevant only so much as his Air Force benefits are big part of what enabled me to go to college.

Now I went to college in the late 1970s and early 1980s.  My degree is a B.S. of Statistics.  I am sure none of my professor would remember me.  I attended the University of Florida, which even then was a large state institution.  I had a great experience but what sticks in my mind the most is how those years form such a fundamental foundation of whom I am today.  None of the technical computer skills are relevant but the decision trees we had to learn still are part of my planning process.  The language I learned was Latin of which I remember next to nothing but the words of other romance languages such as Spanish, Italian, and even German have patterns I recognize. 

My skepticism of doomsayers and pessimists remains as I remember clearly the abundance of articles about the coming Ice Age (see Time Magazine January 31, 1973) or this quote from a personal favorite of mine “"Climate experts believe the next ice age is on its way."- Leonard Nimoy, 1978.  You can see more here http://www.populartechnology.net/2013/02/the-1970s-global-cooling-alarmism.html .  Of course, these comments and projections are in direct contrast to the current Global Warming scenario.  I am not here to take sides in either projection but rather point out, my nuanced view of both projections is a product of my college education that included science, mathematics, languages, social sciences, and a breadth in all subjects.  This college education changed me forever.

Nor was this an easily accomplished transformation.  I was young and unbelievably self-assured.   My college education launched me in my career and I was successful beyond even some of my grandiose ideas.  I also had some significant setbacks, which once again my college education provided the resiliency for recovery.   Through it all, I continued to transcend what was likely a mediocre path.  I have no idea where a child raised in a single parent family in the 60s would have ended up but I do not think it would be where I am now.  Even with a college degree, I am not sure many (especially not me) would have projected me as the chair of an academic unit at a University.   Nevertheless, here I am with even this blog providing some example of the change wrought by a college education.  

Therefore, to me the college education is not the outcome but the opportunity.  The design of each university and college is to create the opportunity to transform.  Sometimes students do not avail themselves of the opportunity provided but still successfully graduate. That is their loss.  There are other examples of those non-graduates that did encounter the transformation.  That is great.  However, for the vast majority the opportunity to transcend is there and they fully embrace all that is offered.  This opportunity is not foisted upon any and must instead be embraced for the transformation and transcendence that will occur and not for the potential later outcomes.  Those will likely occur but are absolutely the byproduct of the college education and not the primary goal.

I encourage all that read this and are considering college for themselves or their children, to reframe your questions.  Do not just ask about the post-graduation outcomes.  Rather, ask and listen to the answers about how the university plans to make the change and even the transformation in the graduate.

Sometime a prospective student reframes or abbreviates the question as “Why go to college?”  Others (not students) touch on part of the question from the perspective of expense and cost.  Meanwhile, some people look at the question and answer through the lens of their personal experience.  It appears the framing of the above questions as well as the answers are often from each person’s perspective.  We need to consider a broader perspective.  That will not be easy.  It will take time and patience to explore fully.
The purpose of this blog is to broaden the reader’s understanding of the importance of a college education and the value of the colleges that provide that education.  The value and importance will be partly from the transformation this education imparts upon the individual.  There are also societal values that come from an educated citizenry.  There are cultural implications.  There are generational commitments, which fuel the rhythm of transference.  There is certainly the perspective of investment and the expected return on that investment. Of course, it is critical to understand the origins of what is today’s college education.  These topics as well as others will be part of this series of blog posts.
It is also likely that I will not convey everything correctly or succinctly.  My colleagues in higher education likely will disagree with some of what I post.  That is fantastic.  I welcome alternative points of views and all the corrections I will richly deserve.  That dialogue not only informs and broadens everyone’s understanding but it also serves as a living example of civil discourse.  The ability to communicate while agreeing to disagree is another of the wonderful benefits of this topic, a college education.
I hope for one final benefit for this blog.  I hope that I as well as other educators draw back the curtain on how we attempt to educate.  I think even we as educators and professors sometimes forget in the day-to-day grind the larger picture.  We do not want to hide or be less than transparent about our learning goals but sometimes we do forget to voice our noble purpose.  However, ask any of us and we will surely gleam when we talk about that moment when we discern awareness or understanding has dawned in our students.  The sudden elation we feel when that proverbial lightbulb goes off. 
So buckle up and enjoy the ride as I humbly attempt to provide my perspective on the answers to “Why have colleges and college education?”  If all goes according to plan, I will post on this topic every two weeks.  I hope that there will be some other posts mixed in as well as some pictures of my trips.  Please if you read, comment.  Agree or disagree, all viewpoints help so I look forward to comments.