Calculating ROI on education: Earning a college is also about signalling value

Published: December 16, 2019 2:15:12 AM

Earning a college degree is also about signalling value, and not just learning.

Most people see higher education as a ticket to a job, but Return on Investment—the salary after graduation relative to fees paid—in most non-top-tier institutions is deteriorating

By Shantanu Rooj

Every year millions of Indians receive an asset that promises to be the master key to a well-paying job, i.e. a bachelor’s degree, earning which is an achievement. For the vast majority of the millennials, however, this prized possession is turning out to be quite a dud. A college degree is not what it used to be; Michael Spence’s Nobel prize for his work on signalling value of a degree is relevant even today—60% of taxi drivers in Korea, 31% of retail check-out clerks in the US, 15% of security guards in India have a degree. With unemployment rates around 8.5% mark, the improving gross enrolment ratio (GER)—93.49 lakh students enrolled into BA last year—will only add to the rise in demand for jobs as fresh college graduates enter the workforce in June. The demand-supply gap is widening; people know that whereas their degrees do not assure them the wage premium, if they want to break into the middle class or higher, they will need not only experience and skills, but a degree as well.

Most people see higher education as a ticket to a job, but Return on Investment—the salary after graduation relative to fees paid—in most non-top-tier institutions is deteriorating (it’s no coincidence 40% of engineering seats are empty every year, and top 20% of ITI pass-outs get higher packages than bottom 20% engineers). Traditionally, higher education earned a wage premium due to two reasons: (1) the GER—the number of kids in colleges was low and hence signalling value was high; and (2) economies and companies were more stable and predictable—the average life expectancy of a Fortune 500 company has come down from 65 years to 15 in the last 70 years. Noise around progress in digitalisation, automation, AI, trade protectionism and lower immigration creates further confusion on the future of jobs. The wage premium for soft skills is inching over hard skills. India’s youth are tired of degrees that do not lead to jobs.

Universities must get ready to cater to students who will want to take a variety of courses from different institutes. They will need to explore technologies that can help lower costs, freeing up monies to provide the kind of support that poor or first-generation students need but that institutions currently can’t afford, and to build a more social form of assisted learning. Universities need to recognise employability as a crucial objective—not narrow specialisation, but higher education at a cost that can justify third-party financing that can be paid back from work after graduation. Universities will need to encourage diverse institutional responses for the challenges of affordability, access, equity and employability, and build a multi-modal approach to a modular curriculum—education that taps into the motivations and abilities of the learner and nurtures differentiation and personalisation as its values.

The government will need to rise to the occasion—India’s higher education needs emergent deregulation to create the space for innovation, because the current system is unable to deliver employability at low costs. Traditional academics have confused regulators with their definition of higher education that confuses university buildings with building universities. Policymakers, educators, employers should focus on providing viable alternatives to traditional university education—investing in technical schools and colleges built around the needs of local employers.

Former President APJ Abdul Kalam had noted: “It is not unemployment which is a major problem; it is the question of ‘unemployability’ which is a bigger crisis.” An MHRD report noted huge growth in quantity—3.8 crore kids in higher education in 51,000 colleges and 1,020 universities; our five-year goal is to double the numbers, but everyone must be employable and pay lower fees. India has deep reserves of academic resilience, but policy must permit the resilience to articulate itself. Minor tweaks in the policy would not be enough—it’s time to set the ball rolling.

(The author is founder & CEO, Schoolguru Eduserve. Views are personal)

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