Fact or Fiction: College Means a Better Job?


Most students attending college now are doing so "to get a better job," according to a UCLA survey. This reason trumped the pre-recession top answer of "learning about things that interested them." Given these answers, one would assume that college provides a chance at better employment. Do the facts support this assumption? Or does the "college means a better job" belief need to be chucked into the same pile of discarded truths as "the Earth is flat"?

First, getting a job
No matter the quality of a job, you have to be able to get one first. There's no question that finishing high school dramatically improves your employability: The unemployment rate for those 25 years and older without a high school diploma is at 12.5%, above the current national unemployment rate of 8.1%. But, how do high school graduates compare to those who have some college under their cap? Take a look:


The spread between those with some college and associate degrees versus those with no college is shrinking and currently sits at a 0.3% difference. Those with bachelor's degrees or higher are at 4% unemployment, but given that the nation only has a 29% graduation rate, chances are that many will leave college before completing it. So, if you're going to college to improve your chance of landing a job, an associate's degree is losing its edge over not having any higher education. If you earn a bachelor's degrees or higher, you still maintain a hefty advantage in finding work.

Second, quality of the job
For simplicity, let's look at earnings to measure the quality of a job. Obviously there can be other measures of job quality, but money earned is the easiest to measure. PayScale, a compensation analytics firm, calculates the value of a investing in college by totaling earnings over 30 years, subtracting out the salary earned without a degree, and adjusting for the typical number of years it takes to graduate at a certain institution along with its graduation rate and average grant aid. What did PayScale find?

Private schools outperformed public schools, engineering schools outperformed liberal arts and business schools, and the Ivy League outperformed a majority with seven out of the top 15 spots. These rankings are greatly affected by graduation rate, but as shown above, the difference between some college and a bachelor's degree is a major factor in landing a job.

The good news from the study that was done for Bloomberg Businessweek is that there is still, on average, a positive return from attending college: about $150,000 after 30 years. Unfortunately, out of the 1,248 schools studied, 281 had negative returns. And as Businessweek explains, "graduates actually fared worse than those who dropped out after a few years -- the financial benefit of earning a degree was so meager that the added expense it entailed was simply not worth it."

A better job, for now
While associate degrees and carrying around an unfinished degree are losing their edge in the job market, a bachelor's degree still earns you a much better chance at finding employment. And, chances are that the cost of that degree will be more than made up for in future earnings, especially if the degree was granted by a private, Ivy League school in engineering. College is likely still worth the cost, but some more so than others.

This produces a bit of a mixed bag for publicly traded institutions like Bridgepoint Education (NYS: BPI) , Washington Post (NYS: WPO) , Corinthian (NAS: COCO) , Apollo (NAS: APOL) , and EDMC (NAS: EDMC) . On one hand, the average degree seems to be worth its salt, but on the other, these schools have come under scrutiny for the high level of debt students hold along with high withdrawal rates. This scrutiny has led to new regulations set to take effect on July 1 that will restrict federal loans to programs that fail to offer "gainful employment," as well as altering the pay structure for admissions counselors to end incentives based on the number of students signed up. This is in addition to previous regulations that state student default rates cannot exceed 25% for three consecutive years, and federal aid can be at maximum 90% of a school's revenue.

Federal regulations may be tightening a noose around for-profit education, but there are other stocks that stand to benefit depending on how November's election turns out. For an idea of just which stocks I mean, read our free report: "These Stocks Could Skyrocket After the 2012 Presidential Election."

Editor's note: A previous version of this article incorrectly referred to publicly traded institutions as public institutions. The Fool regrets the error.

At the time thisarticle was published Fool contributor Dan Newman holds no position in any of the above companies. Follow him @TMFHelloNewman.The Motley Fool owns shares of Bridgepoint Education. Motley Fool newsletter services have recommended writing puts on Bridgepoint Education. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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