Talking To Teens: Expert Tips for Parenting Teenagers

Andy:
So, this book that I read is Making College Pay: An Economist Explains How to Make a Smart Bet on Higher Education. Talk to me about this. Why is this the important topic to turn into a book?

Beth:
Sure. So, I've been writing on higher ed, mostly about policy, for about a decade now. And one of the things that I've been noticing is that there's a lot of regrets about paying and picking colleges. Student loan cancellation for example, is a central political issue today, and that seems to stem from dissatisfaction with what people, in retrospect, are paying for college.

Beth:
So, I tend to believe that part of the reason we have that problem is because we're coaching people to make decisions about college in the wrong way. And I like to say that we're coaching them to be too romantic about it. We talk about sending kids to college visits and having them wander around the campus and get a feel and see if it seems like a fit for you. It's almost like we're picking a life partner or something.

Beth:
Instead, with my book, I say, "Let's get out the calculator and look and see if the numbers, in terms of what you're going to have to pay to go to this school, what you'll likely earn after you finish, whether those things would really jibe with what your personal goals are and what your personal financial circumstances are." And so, the book is a how-to guide on how to approach college decision-making in that way.

Andy:
Ooh, that sounds cold-hearted, isn't it? They're supposed to... there's the fall in love, and you find the perfect match and it just feels like this is the right campus for you, and this is where you're going to be fulfilled and be your best self and be able to connect with your true, authentic source of the universe. Isn't that the point of college? And once you find that, then price shouldn't matter and you just go for it?

Beth:
Well, wouldn't it be nice if that was the world that we all lived in? I'm an economist. And so this is by far not the first time that I've been called cold-hearted in my approach to something. But the idea is, yeah, wouldn't that be lovely if the world we were in is one where people can sort of wander through this utopia of higher education, taking their time and exploring and twisting and turning and all those sorts of things?

Beth:
The financial reality for the vast majority of families and aspiring students in this country does not allow for that to be an affordable path. And that's sad, but true. We can argue that the education system should be different, but unless it changes, people need to hear kind of this story that, "Hey, that's a nice dream. And if you've got the cash on hand to pay for it, great, go ahead and indulge in it. But before you go down that path, you better make sure that you've got the financial that makes that realistic for you."

Beth:
And I think a lot of the regret that we're seeing, especially around how much people are borrowing to go to school is that they imagined that beautiful ride that you and I are both describing, and only realizing in retrospect that it's a really expensive and maybe out of reach path for them.

Andy:
Yeah. Okay. If we're focusing on the economic reality, then what is that? What does that look like? Is a college degree even a good deal? What the numbers work out to and how do you even measure that or look at that?

Beth:
Yeah. Quite plainly, all the research points to the same answer, which is that, "College is worth it." Now, what does that mean? That means that if we look at how much everybody in the country is spending on college, compared to how much everybody in the country is getting from college, in terms of employment opportunities, we all together are getting more than we're paying.

Beth:
That's great, but what it doesn't tell us, every individual, whether or not their investment is paying off. So, we've heard economists and policy makers and thought leaders say over and over that college is worth it. We haven't heard them say is that it's also risky. Just like investing in the stock market, it's worth it, we have an average return of 7% or 8% per year, but that doesn't mean every stock is delivering that return.

Andy:
So, going to college is almost like gambling, or we should think of it in terms of like we're placing a bet on the education that we're receiving?

Beth:
I think that's a reasonable and healthy way to think about it. It's a decent bet. It's not like going and buying a lottery ticket or going to Vegas and playing in the casinos or the slot machines, right? So, the odds are stacked in your favor. But in order to really ensure that you're making an investment in yourself that's going to pay off, it's absolutely necessary to make certain decisions that are informed by data, as well as your values regarding what it is that you hope to get out of school.

Andy:
Okay. And you say in the book here on page 10, that researchers found the return on an associate and bachelor's degree is 14%. That's pretty good deal.

Beth:
It's double what you'd expect in the stock market, for example, on an average year.

Andy:
Plus you learn stuff.

Beth:
Well, there's that too.

Andy:
Then you did some research kind of in terms of looking at how informed people were about their own college finances, and even simple things like asking college students questions about how much they're paying, how much they're borrowing, things like that. And what did that research show and why is that interesting?

Beth:
Yeah. What the research showed was that students are shockingly unaware of both how much they're paying for school and how much they're borrowing for school. So, when I was kind of a green researcher, I had this plan to go do an experiment on a college campus where I was going to really transform the way that people saw their finances, like getting students to have this really nuanced understanding of how much it was going to cost them to repay their loans.

Beth:
And I was humbled by a generous financial aid officer who said, "You have no idea what you're talking about. These people don't even have the simplest understanding of their financial situation." And this person was absolutely right. And he asked people, just shortly after they've enrolled in college, how much they're paying or how much they've borrowed, or even if they're borrowing, a shocking number of them just don't know.

Beth:
In the book, I'm coaching people to be these very critical consumers and to consider carefully the trade offs that are in front of them. What it is that you're getting from school, whether it be financial or something else, and compare it to the cost. But if these students don't even have a sense of what they're paying, there's no way they're doing this sort of analysis. And it seems impossible to me that that's not in some way related to the regret that we're seeing now.

Andy:
But isn't it just part of the whole romantic notion of college? Like, "I can't be bothered to be thinking about how much it costs. It's so much bigger and more important than that. And this is the most important years of life and whatever it costs, you need to go for it."

Beth:
Yeah. And in one sense, that's absolutely true. I mean, look, I stayed in educational system as long as I could. I went to undergrad once I graduated school and stayed there basically for forever. So, I love school. I think it's a great place to be. And there's tons of immeasurable social and private returns to education that are beyond the financial piece.

Beth:
So, I don't want to send the message that those don't exist, but what is the value of feeling... Colleges often use the language of, "A global citizen." You become a global citizen after you've gotten your education. And if you're a global citizen, because of your enlightenment that you've gotten from education, but you can't find a job, it’s sort of inconsequential those other things that it brings.

Andy:
Can you talk about being undecided? That was me when I showed up at college. I think a lot of people find themselves in that boat. Isn't that good to keep your options open and just be undecided when you show up at college? Or what are the economics?

Beth:
Yeah. It is a wonderful idea to think that you can go off to college and spend some time kind of exploring different paths and considering different options for yourself. And I think that's in fact what a lot of people do, to a degree. It's what I did. I was sort of decided when I went to school, but not really.

Beth:
But it's important to realize that that may be a very expensive way to go to college. And I say that because the alternative, which is to think from the end point first and go backwards, can get you across the finish line much more efficiently and effectively sometimes. So, if I know where I'm trying to go, I can go to the data that we have on all the different colleges and all the different majors in this country, and figure out which is the least expensive, most effective path to get me to that end.

Beth:
Now, on the other hand, if I don't know where I want to end up and I'm just using education as a means for figuring it out, that can work quite well too. But if it means that you end up taking a wrong turn here or there, which is bound to happen, maybe it takes you an extra semester or two to finish because you don't quite know where you're going, that's a very, very costly way of exploring opportunities.

Beth:
And so some students just don't really have that luxury of spending the sort of money that is necessary to do that. And we're so hesitant to tell people to take time off because we think, "We've got to get everyone in through college because it's the best way to ensure that they go through it and don't stop out and just go and join the workforce."

Beth:
But for some people that, "gap year," whether it's working or doing something else may be cheaper than kind of wandering around college and figuring it out what it is that you want to specialize in. Again, it's not that you can't go to college undecided or that you shouldn't, but it's that you need to appreciate whether or not that's really affordable for you.

Andy:
And you talked a little bit in there about picking a major, which I thought was a really interesting discussion in your book. And you break down all the different majors and sort of look at what they actually get you in terms of the expected salaries after graduation. And some of these things I thought were really interesting. So, how should people be thinking about this?

Andy:
I mean, isn't picking a major about finding what your passion is, following your heart because... trying to find the career that's going to truly fulfill you and all of that? How do you weigh the economic ramifications with the sort of personal side of things?

Beth:
Yeah. This is something that everyone at an individual level is going to need to balance for themselves. Economists are kind of often criticized for being this character who says, "Go dig into the data, find the highest return major, highest return school, just go there and do that." Nobody's saying that. I mean, we all appreciate that there are multiple factors that are driving people to want to go to college and the things that they'll value from it.

Beth:
I like to say that that those data are best used to figure out what is unaffordable and what is affordable to you. Not necessarily to say, "Okay, chemical engineers earn this, electrical engineers earn this. I got to be a little electrical engineer." Right? It's kind of not the point. Electrical engineers, chemical engineers. They can both pay back their student loans. To me, that's the crux of it.

Beth:
Basically, if I see the level of earnings associated with that type of major, I think, "Okay, this is a comfortable path for me." On the other hand, if I look at a particular major from a particular institution in college or university, and I see that the earnings of that major on average are similar to what high school graduates are earning, or maybe even less, or just are not enough to allow me to afford the payback, the amount of debt that I need to take on, then that may not be an affordable path for you.

Beth:
On the other hand, maybe you've got a trust fund and that's just fine for you. Congratulations, and then go on and go forth and do that. But it's got to be an informed decision. And I think the earnings information bit should be kind of that binary thing, which is, "This is affordable for me or not affordable for me," rather than what an economist would call a maximization problem. I'm not trying to maximize my income. I'm just trying to make sure that the income that I'm likely to receive would be sufficient for the amount that I'm paying, the amount that I'm borrowing.

Andy:
You also kind of point out that it's more complicated than just looking at the average of what people make when they get each degree, because there's some that have sort of a lot more variation. And one of those you mentioned specifically in here is physics. Physics degrees are pretty variable. There's a big difference between what people make at the low end, at the high end with those. So, how do you know if the degree that you're thinking about is one of those super variable ones? And then what does that mean? Does that mean you should avoid those kinds of areas or just you need to think about it differently, or what?

Beth:
I think it means you need to think about it differently. Well, first, you need to pick up my book and see what those ranges are, so that you have the information in front of you. But when I think is a unique contribution of this book and the approach that I'm suggesting is that it suggests that aspiring students should think about their own tolerance or ability to take on financial risk.

Beth:
I'm a hugely risk-averse person, kind of no fun to be around. I don't like to take any risks or do anything too exciting. If I had this data in front of me when I was 18, I probably have shied away from a major that tended to lead to very uncertain outcomes. And so that would be satisfying my individual tastes and the fact that financially, I didn't feel that I had the luxury of having my college degree not pay off in a financial sense.

Beth:
That's the calculus that people need to make. One is, what is their taste for uncertainty? What is their financial ability to take on the financial risk that comes from those different majors? And part of the reason I highlighted physics in there is that some of the things that you would think to be true about majors just aren't. We kind of paint with broad brush strokes on this and say, "Okay, well, the arts are not that well-paying, humanities are not so good, but sciences, technology, those are all great, right?".

Beth:
The problem is, there are some specific science-related fields where people don't tend to go on to high-earning occupations. And so you actually have to look pretty carefully. You want to go beyond just that initial kind of gut response that, "This is a science," or, "This is an arts." And that way I know if it's going to pay or if it's not.

Andy:
Yeah. Interesting. Yeah. It does sort of change the way that you think about these decisions, going through this book and thinking of it really in terms of how much risk you're taking by doing these things. Because really, yeah, you're investing years of your life and studying whatever this is. You're investing also, you point out, the opportunity costs of those years that you could have been working. You could have been making more money. You could have been investing those towards learning something else or doing something different. And it's a prime part of your life here.

Andy:
And then on top of that, there's a financial cost. So, it's a huge investment going to college. And just thinking of it in terms of how much risk you're taking on by doing that and balancing that out in terms of whether or not it makes sense.

Beth:
Yeah. It seems like an important new way of thinking about it. I mean, we've convinced everyone that college is worth it, right? I mean, it's now become almost baked into the American dream. It's like the house, the white picket fence and the bachelor's degree now.

Beth:
But that's not enough. We can tell it's not enough because people are really angry at how the higher education and the federal funding of higher education system is working. And so my hope is that this added wrinkle of understanding the riskiness of this investment will help people to be less surprised when they get caught up with the outcomes that they do, and aren't satisfied.