R.O.D.

Is a college degree still a good investment?

Quite fashionable lately to ponder this question…. To do so in context of contemporary analysis du jour requires a certain analytical framework called R.O.D.. You know…it’s just like R.O.I., but a little different.  It’s Return on Degree. With R.O.D., the oft-termed “intangibles” of the college experience will be heavily if not entirely discounted. Such is life in the rough and tumble, nuts and bolts world of financial analysis. Financial return affords no quarter.

In other words, contemporary analysis centers around a strong imperative that there must be financial return to justify an investment in education. Otherwise, a college degree is simply a “bad investment”. Or at least so say the experts.  So, we temporarily fall in line and adopt this line of thinking. Despite a belief that these intangibles do count for something, we reluctantly agree to ignore all non-financial forms of return. This goes against our grain, but this we must do – at least for the moment.  The R.O.D. equation simply does not allow for this variable.

It is true enough that at some institutions the cost of a college education has increased by rates paralleled only by medical cost inflation.  Within an R.O.D. framework, this simply means that the cost of our  inputs has increased.  At the same time as input costs have risen, relatively high unemployment, scarcity in entry-level hiring, and flat wages are combining to crimp investment returns.  Now even the best paybacks for educational investments will take longer. But they likely still exist.  For example, MIT, Harvard, Yale, and Stanford all still have a certain cache that just smells like money.

Today’s Dose of Reality

This brings us to today’s dose of reality. Expecting Wall Street income streams from community college investment remains foolhardy. Nothing has changed in this regard. Similarly, investing in “ologies” in an increasingly technical economy is probably a bad bet to make.  Investing in degrees that yield employable skills  continues to make sense.  Investing in degrees at the Ivies (like Cornell pictured at right) probably also yields a return that is acceptable to those who invest in them regardless of what R.O.D. equations would say.  In this world of ours, legacy, tradition, and cache count big-time.  No room in the equation for these variables either.

Where critical arguments make the most sense is with respect to students and parents taking on huge debt to fund degrees in majors that do not increase employability.   Discounting any intangibles, the high school graduate is probably better off getting a four-year head start in the labor market rather than spending four years to master a discipline in which there are no jobs and going deeply in debt to do so.  A related point is that the ability to carry a given debt load and take investment risk is not a concept borne of equality.  Some people can afford it more than others. This concludes today’s dose of reality.

Other Solutions

Adult degree programs are an area that will continue to yield favorable R.O.D. and may become one of the fastest growing R.O.D. levers. Especially when funded by employers, everyone wins if tuition reimbursement programs are properly structured.  Both in the classroom and online, this is a growing sector of the higher education market.  Accelerated degree programs further reduce investment risk and increase R.O.D.. Increasing one’s employability at higher skill, contribution, and compensation levels within an existing employer’s ranks – and doing so in a shorter timeframe – is a clear cut R.O.D. winner.

To be sure, a college education is not for everyone.  Ever-broadening vocational technical training also yields a favorable return in current employment markets.  To have a skill, trade, or competency is an individual asset upon which future earning streams are built.  No need to look further than the signs that have dotted hometown highways for the length of our degreed professional careers.  They bear the names of high school classmates who went the vo-tech route and continue to run successful businesses.  Many are “doing just fine, thank you”.

Author’s Note – Pictured at the top of this post is the University of Delaware.  UD continues to offer students and parents a best of both worlds balance of academic challenge and vibrancy in campus life.  It does well in both world and national rankings, possessing all of the necessary ingredients for favorable R.O.D..

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