Thursday, 15 January 2015

Are more expensive degrees better than cheap ones?


A recent Facebook status update provoked a flurry of arguments about whether expensive degrees are 'better' (e.g. better education quality, higher returns for graduates) than cheaper ones. The Australian government is deregulating the uni system which will probably lead to sky high costs for students. Is this an issue though? In an education system where you only have to pay if the degree pays off for you (i.e. if you earn more than ~$50k/year), then having this form of secured debt is not an issue so long as you make a killing from it.

The question then is - will paying more for a degree allow you jump a few rungs on the corporate ladder? An anonymous friend and I had another argument about this (by the way - this friend is very keen that you read the confounding variables section at the end.). Rather than relying on rhetoric, we decide to consult a data set from PayScale.com.


Here's one example from the dataset. We crunched the numbers for business degrees and found a statistically significant correlation (p < 0.001) between the amount you spend on the degree and your net salary over the next 20 years (minus the cost of the degree).

It wasn't the case across the board though. Although a few other majors had the same trend (e.g. computer science had a fierce upward hook), some degrees showed a neutral correlation (e.g. economics) and some even showed a negative correlation (e.g. humanities).

What does this mean?
In my facebook post, I argued that the more you pay, the better quality education you get. This dataset is a bit too limited to back up that claim. We can see that for specialist degrees that directly lead to jobs (e.g. business/computer science), a pricey degree affords you pricey toys. But for majors like humanities, there's no real link to economic return and sometimes even a negative return.

Does this mean that the expensive Humanities degrees are actually lower quality than the cheapo ones? Not necessarily. It might be that a $165,000 humanities degree from Florida International University actually makes you an amazing anthropologist/psychologist/historian but that there just isn't much demand for these skills in the job market. (For more on this refer to my other post on ROI for different uni degrees).

It might even be the case that with business/computer science degrees, the higher returns are not due to better educational quality but simply because prestigious degrees attract a more intelligent cohort who would've done well regardless of what university they attended.

Unanswered questions
We'll keep thinking about how we could better measure educational quality. The easiest analysis I can think of is to crunch the numbers for completion rates. Are people more likely to finish off an expensive degree than a cheap one? We did a quick analysis for business majors and it seems likely.


There's more to explore here but we'd need a new data set. PayScale only looked at personal return on investment and completion rates.

Are personal economic returns the right way to evaluate the success of a degree?
Economic return is a somewhat crass way to measure the value of a degree when some degrees (e.g. humanities) are distinctly not about making money but rather about contributing back to society and better understanding yourself. It would be cool to measure the SROI (social return on investment) of different majors.

Sure business majors earn more money, but do they also disproportionately contribute to climate and income inequity by buying unethical goods and burning out their health with workaholic investment banking hours thus causing a drain on the health system? This will have to wait for another blog post.

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