Is going to a traditional college worth the cost? The answer used to be pretty simple for most. But as the job market for college graduates has become more competitive and the cost of a four-year degree has risen, itâs not such a clearcut issue anymore, especially at elite schools with astronomical tuition fees. Even those who excel at Harvard or Stanford may graduate with enormous student loan debt theyâll carry for decades, limiting their ability to earn, save, and build the kind of lives they began working toward in school.
My friend Larry Kotlikoff takes this issue very seriously, and he addresses it (and other financial matters) in his new book, Money Magic: An Economistâs Secrets to More Money, Less Risk, and a Better Life. In this excerpt from our recent conversation, Larry argues that students can attain an elite education while avoiding the debt trap if they avail themselves of the much-less pricey online options many top schools offer.
But will a series of online certificates from, say, Stanford really make a job candidate as attractive to potential employer as an equally qualified candidate with a traditional four-year degree? Does a degree from a selective school tell us anything about a personâs qualities or ability to perform in the real world? Does Yale produce brilliant students, or are they selected by Yale because theyâre already brilliant? What about top-ranked graduate programs? Answering questions like this would get us closer to understanding the relationship between merit, education, and success. Larry and I mull the issues over, and I invite you to join in below.
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LARRY KOTLIKOFF: Think about, you know, they have student loans. I mean, talk about government scams. The federal government is making basically all the loans to students at a high interest rate. You can't refinance at a lower rate, you can't get out from under these loans by going bankrupt, you can't discharge them in bankruptcy. They will come after you. If you're 99 and you haven't paid your student loansâand there are people [who are] 99 who haven't paid them offâthey will take it out of your social security check every month. This is Uncle Sam at his nastiest. And then they have these repayments schemes. Some are income-related. They're so complicated, you again would need a supercomputer to figure out what's best.
So I talk about what to avoid. First of all, I have a chapter called âDon't Borrow for College.â I talk about the ways in which you can get a terrific college degree on the cheap from a place like Stanford, just using online courses. Think about, if you want to get a job with IBM, and you cannot afford Stanford, Harvard, Yale, whatever, Oberlin College, where my sons went, where it's very expensive.
Well, take 20 online courses from those places on the cheap, get a certificate, get a grade for the online course, and then go to your community college for $6,000 a years, or say $10,000, get a job at McDonald's to pay that. Don't borrow. And then, when it comes to graduating and applying for the quantum computing job at IBM, send them the 20 certificates of these courses and see how well you do against the Williams College graduate who majored in English and is applying for the same job. They are going to hire you, not that college graduate who's walking out the door with a major in English, wanted to do English, borrowed $300,000, he and his parents, and cannot afford to do English, be an English professor or an English teacher in high school because he's got $300,000 in debt.
GLENN LOURY: I don't know whether the employer is going to read the stapled-together certificates in the same way that he'd read a Stanford degree. That's an empirical question, right? Whether employers will value ... I mean, objectively, they should do so, but the Stanford reputation and all of that.
Well, it's a certificate from Stanford. I mean, it's an online course being given at Stanford. I would think they would. And it's a grade, and it's 700 bucks for the course. And it's out there. You want to go to college at a top schoolâ
I mean, somehow I'm doubting that that arbitrage opportunity is quite as simple, because Stanford has chosen, through its massive online course program, to make these courses available. If indeed they thought that you could arbitrage them in the way that you describe, by taking those courses online and then presenting certificates, they'd be undercutting their own market, wouldn't they?
Well, I think what Stanford's doing is partly arranging marriages.
[Laughs]
Rich parents send their kids to Stanford so they can meet other kids from other rich parents and preserve their wealth and whatever. That's part of what's going on here.
You put it in humorous terms. There are many social connections to be acquired by attending selective and elite schools. Some of them have to do with romance and marital relations. Some of them have to do with business partnerships or fraternities that you might join, which benefits you down the stream. And part of what you gain when you show up at one of these exclusive $60,000-a-year outfits is the ability to mingle with other people similarly selected and to form bonds with them that may benefit you later in life.
That can be true, and it might be not inefficient, Larry. It might be that we need to have some kind of matching service, because the associations between people are productive in and of themselves, and they have to be able to find each other somehow.
Right. No, absolutely. There's lots of reasons people go to these elite schools that have nothing to do with real education. And also the evidence is that, if you go to an elite school, Harvard collects hardworking kids and kids that are talented. It doesn't really make them hardworking or make them talented.
And there's been studies by economists that show that the value added of going to Harvard versus Wake Forest, conditional on kids' performance in high school, there's no clear value added. It's just the connections, and the connections are only going to last you so long. As I describe in the book, you can take your Harvard sweater. It says Harvard all over it. You know, I went to Harvard, you taught at Harvard, you went to MIT. So nothing against Harvard per se. But you can wear your Harvard sweater maybe to your first job or two. Then you'll become a laughingstock if you're wearing this in the summer, the Harvard sweater. It's not going to take you through your career. I know lots of kids who went to Harvard and didn't end up great successes. I know kids in my grad school that didn't get through grad school.
Let me ask you a different kind of question. So we're both professors in economicsâ
Because they didn't know how to work. They didn't have the ability, the discipline to work. That's the real thing that matters in life, in terms of making a success of yourself, is hard work.
I didn't want to step on your punchline. The punchline here is that hard work and character are what's important, not pedigree and an elite stamp on the forehead. I'm one of the ones who got into Brown. There are 32,000 applicants for 1,600 slots. You've got a 1 in 20 chance of getting in. I got in. He says, that's not what matters. What matters is whether or not you have grit, whether or not you know how to deal with adversity, whether or not you can apply yourself consistently over time to develop skills and to produce value, and that's not well-proxied by the pedigree. Do I get you right, Larry?
Right. Yeah, absolutely.
Well, I was gonna say, we are both teaching graduate students in economics programs, PhD programs. My impression is that you take the top 20, top 25 schoolsâlet me include Brown and BU in the top 25 graduate programs in America. I think I can do that without too much risk. Does it matter whether you're in the top 5 or the 20 to 25 in terms of the value of your degree? Not just in the marketplace, but also the objective signal about quality that that degree confers.
Here I've got somebody coming out near the top of their class from MIT or Stanford or Brown. Here I've got somebody coming out near the top of their class from the University of Vermont. Do I care? I'm trying to apply your maxim now to a different venue, not four-year undergraduate colleges but the training of professionals to, in this case, do research in economics.
You know, I think there might be some signaling that this person had to compete against other people, that he was more assiduous, more creative at different levels. Through high school, they got into a better college, did better in college, did well in grad school. And so yeah, there are people that have that ability to be creative and diligent.
But whether that person became more creative because he had these particular professors at the University of Chicago versus what he would've had at Michigan State University, I don't believe it. I think people's creativity is somehow, I don't know, God-given, if you like. And their discipline is probably based on what they experience through real life, their parental influence. I don't know. What do you think? I don't have an answer for this.
I think it's a difficult problem. I was just going on to talk about citation indices and how you measure the productivity and the influence of a scholar and who's a good economist and who's not. And I wouldn't just say, someone has tenure at Harvard, they must be better than someone who has tenure at the University of Illinois, because Harvard is a more distinguished department.
On the other hand, if I went and saw, I don't know, Andrei Shleifer had 200,000 citations over a 25 year career and another person had 2,500 citations over the same period, or if I saw that the articles that were published were in the most highly sought-after journals in the professionâEconometrica, American Economic Review, et ceteraâwhereas the other person's articles were published in less prestigious journals, measuring the prestige of a journal again, in terms of reference to how influential are the articles published, et cetera...
I don't want to take the nihilistic position that there's no way of making discriminations amongst these people. But I grant that any mechanism used to make those discriminations is likely to be subject to criticism, is going to have a subjective element to it, or whatever. But I would be against the position that, let's scrap meritocracy because it's all a shell game and pretty much everybody is operating on the same plane. I think there are gradations that can be discerned.
So for example, I know when I'm sitting in a seminar and somebody is giving a lecture that I'm listening to somebody who's really, really sharp based on the way they respond to questions, based on the seeming quality of their mind, the depth and subtlety of their insight, the quickness with which they're able to grapple with complex matters, the clarity of their vision, the erudition that they bring to the enterprise because they are aware of all these literatures and they can combine them. I know when I'm in the presence of greatness, and it's not evenly distributed across the world or across the institutions or whatever.
A lot of that greatness came from hard work, a lot of it came from luck, a lot of it came from just, you know, luck of genes or I don't know what it was. I mean, Albert Einstein went to, I think, the University of Basel. I think he thought his professors were idiots. He did basically all his work on his own. Now, clearly he was a genius and transformed the world in a zillion ways. We got nuclear energy because of him. But did he need to borrow so much money that he couldn't become a physicist? That would have been a terrible thing!
One note on investing, the best book I ever read on it is "Unexpected Returns" By Ed Easterling
Basically you need to understand value (as expressed by PE Ratios) when investing
https://smile.amazon.com/Unexpected-Returns-Understanding-Secular-Market/dp/1879384620/ref=sr_1_3?crid=2VUFXU1F0OPC1&keywords=unexpected+returns+understanding+secular+stock+market+cycles&qid=1644454147&sprefix=unexpected+retu%2Caps%2C166&sr=8-3
"I mean, Albert Einstein went to, I think, the University of Basel."
Albert Einstein was born in Ulm the German Empire, but moved to Switzerland in 1895, forsaking his German citizenship. In 1897, at the age of 17, he enrolled in the mathematics and physics teaching diploma program at the EidgenĂśssische Technische Hochschule (ETH) ZĂźrich (Swiss Federal Institute of Technology in ZĂźrich), graduating in 1900.
ETH is often called the MIT of Switzerland, and it is usually ranked among the top 10 institutions in Europe. Of course, one of its major claims to fame is that Einstein was a graduate.
He may have thought that many of his professors were idiots, but he later said that one of them, Hermann Minkowski, was a great influence on him. Minkowski was an early proponent of Special relativity and did a great deal of important work on its development