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Freakonomics Goes to College, Part 2 (Ep. 88)

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Our latest Freakonomics Radio podcast is called “Freakonomics Goes to College, Part 2.”

Part 1 explored the value of a college degree and the market for fake diplomas. This episode looks at tuition costs and also tries to figure out exactly how the college experience makes people so much better off.

You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript here.

While there are a lot of different voices in this episode, including current and recent college grads, the episode is also a bit heavy on economists (d’oh!), including:

+ David Card at Berkeley, whose education papers are here;

+ Ronald Ehrenberg at Cornell, whose recent paper “American Higher Education in Transition” discusses tuition inflation;

+ Betsey Stevenson; her blog contributions are here, and she tweets too;

+ Justin Wolfers, whose blog writing is here; he too tweets; additionally, he and Stevenson are a matched pair — heading for the University of Michigan, by the way — who also appeared in our “Economist’s Guide to Parenting” podcast, along with daughter Matilda, whom they discuss again in this episode; and:

+ Steve Levitt, who has this to say:

LEVITT: So I did a study many years back that looked at Chicago public schools, and it turned out that the single biggest impact of school choice in Chicago schools was giving kids who were not doing well in the traditional kinds of schools the opportunity to go to trade, culinary school, or schools that actually taught them real skill. So, clearly you can see how going to school to learn real skills like nursing or something like that could have huge returns. The tougher question is these general liberal-arts educations, what are you learning? And that’s something that economists haven’t even tried to really think about very much.

As we explain in the podcast, calculating the true costs of college isn’t simple. A sensible place to start is the College Board, whose website includes a Trends in College Pricing page, which compares tuition “sticker” prices versus net prices, and a Trends in Student Aid page, which catalogs various forms of financial aid. Here’s David Card on the potential returns to investment on a college education:

CARD: If you’re thinking about this as an investor, you know, you’ve got a kid and you’re thinking of sending them to college or not, you have to pay a lot of money upfront and then reap those returns later on. And several features of that are difficult. One is the cost that you have to pay upfront has gone up quite a bit, and the second is the uncertainty involved in whether the kid will actually successfully complete the degree. It’s a pretty risky investment.

And here’s Betsey Stevenson on an overlooked angle of college costs:

STEVENSON: I think that people often make the mistake of not thinking through the problem as systematically and thoroughly as an economist would advise. So first of all, there are two major costs of college. Everybody thinks about tuition. But there is another equally important cost, and that’s the opportunity cost of not working. So when you go to college you’re going to forgo working a job that’s going to pay you some kind of salary. And while lots of students have part-time jobs, or try to fit some kind of work in while they’re in college, they’re obviously not doing the kind of work that they would be doing if they didn’t go to college.

That said, the returns to education are, in a word, huge. College graduates earn more money, live longer, and are healthier and happier than similar people who don’t graduate from college. Is all this upside a product of the degree itself, or does college perform some kind of alchemy? To explore that angle, we hear from Amherst president Biddy Martin about the unlikely route she took to the land of higher education; and I travel back to Appalachian State to chat with my old documentary film professor Joe Murphy:

MURPHY: People are insisting on some measure to prove to them that their $100,000 investment or $40,000 investment is worth it. I can understand that. That’s a lot of money. But in reality, I don’t think there is a way to quantify the value of college. I know you can look at statistics about people who have a college education are better paid. I think you have to look at how quality of life issues. To me, ignorance breeds hatred. And if you can get people knowledgeable, there will be less hatred, more understanding. That’s my theory.

(I spoke to a couple more favorite former professors that day, Leon Lewis and Jim Winders, and you’ll be hearing a separate podcast later in the fall that includes all three of them.)

One last highlight of the episode: a conversation with recent-ish University of Chicago grad Bourree Lam, editor of this blog and all-around Freakonomics superstar, talking with another recent grad about the hardship of not finding suitable work after graduation.

So what have we learned about college? Let’s give the final word to Biddy Martin:

MARTIN: It’s impossible to learn a completely different way of thinking about things without unlearning what one has already learned. And I think it’s important to realize that, because it’s often the case now that people think about education as the acquisition of new things as if it were an unproblematic and promising process simply of adding to what one already knows or thinks. And the truth is it is transformative, and that means upending a whole set of assumptions about how to see things, what’s possible, what’s real.

Kyle Quinton

I was quite interested in this topic and so made an effort to hunt down the podcast. I have to admit that I was quite disappointed. The program consistently referred to the benefits and costs of a college degree. But there is no such thing as "a college degree." People get degrees in subjects: business, engineering, English, biology and each of these degrees bring different financial benefits, but the program insisted on perpetuating a fallacy by referring to "college degrees" in the aggregate. I was hoping for more perceptive analysis from you.

R Thomson

Unfortunatelly, a very superfircial and unsatisfactory handling of an important topic. I'm all in favor of college education but your program made no useful contribution to answering why anyone should go to college given its high cost in the US nowadays and what people actually get for the money.

- The statement that a university education vastly improves your earning potential: where does this data come from (you never attributed it), how is it calculated and who does it really apply to? As many of the comments posted here note, it really matters what subject a person majored in. Merely taking an average earnings figure for college graduates is superficial.

- Even if we agree that you're likely to earn more with a college degree than without, you did not look at the financial impact of carrying a large education debt for the first part of your working life. Someone paying off, say, a $50,000 college loan is probably going to be unable to start saving for retirement or anything else for the first ten years or so of their working life. Since saving is largely about compound interest, the loss of 10 years has a potentially large impact on a person's over all wealth by the age of 50 or 60. Assuming that "earning power" is the only financial calculation anyone should make is simply superficial.

- As several other comments have pointed out, you also ignored:
a) the opportunity cost of the four years of lost earnings when a person is in college
b) what the amount someone spends on college could have earned them had they invested it instead.

- Why are college fees rising so much faster than anything else in the economy? You gave no satisfactory answer. Instead you asked a bunch of academics, whose jobs depend on these fees, to explain. Do you seriously think you'd get an impartial answer?

- You asked the question why on earth colleges would publish massively high sticker prices if they are actually giving most people huge discounts and scholarships. Why create the bad publicity if they don;t have to? Then you dodged the answer. And you got those academics again to tell us about the big discrepancy between sticker prices and actual prices. (Somewhat like asking the fox to justify why chickens enjoy being killed and eaten). As many of the comments here demonstrate, the idea that almost no one pays full price, or close to it, for college is not true. And in any case, if the full price for four years of college should be, say, $250,000 but a student only pays $150,000, that is still a massive financial burden for someone to bear for the next decade or two.

- I also wish you had considered the impact of massively high fees on the way people think about college and what they want out of it. Everyone you interviewed talked as if college was simply about studying to get a job at the end, as if it is just some expensive apprenticeship program. This is understandable since they have to justify and pay off the high cost of the tuition. The result is that you get an overproduction of economists, lawyers and other disciplines that supposedly lead to high paying jobs (which, by the way, is not necessarily good for society in general and may impose further costs on the economy). I was lucky enough to go to university a long time ago when the financial burdeen was very light. Back then, people were actually encouraged to study what they were passionate about (imagine that!) and not merely to calculate financial paybacks. That change in attitudes must surely have a big impact on people's general, unquantifiable experience at college, and on what they get out of it. Doing what you love and what excites you vs just doing what you think you have to do for money - which one is likely to to be the more satisfying experience (and, by some measures, therefore better value-for-money)?



"...the opportunity cost of the four years of lost earnings when a person is in college..."

The question that needs to be asked here is just how much is that person actually going to be earning for those four years. Without any sort of training, s/he's probably going to be asking "Do you want fries with that?", or doing some similar unskilled labor at minimum wage - if indeed there is any such work to be found. Not a whole lot of lost opportunity there.


I really agree that any discussion of the "cost" of college is at best incomplete and at worst potentially deceptive without making two important distinctions. The first is looking at majors and the impact of graduate degree's. As has been mentioned the benefits of certain majors vary greatly at the undergraduate level in the potential earning power and I suspect some scale differently with graduate school (a B.S. or B.A. in psychology versus a Ph.D).

Also, I am very suspect of averages in this type of converstion. Technology and working paterns (not to mention the increasing cost of benfits as a % of compensation) have created highly variable compensation. Certain high performers (or just the lucky) may be driving up average returns but the everyday person may not be benefiting. I would be much more interested in the median benefit than a classic average return.

As a parent with a child who is going to be a senior and does not have a good sense of what they would like to study this conversation if very intersting. I would really appreciate it if anyone could direct me to any information on this topic.




The problem with the worth of college is that the risk of the investment is totally on the student and their parents and not on the school nor the lender who is offering the loan. This means that an 17 or 18 year old kid must decide between going to work everyday or going to college and living in the dorms where they have fun things to do and kids their age to do it with. This teenager may not be equipped to think about the financial risk they are about to take if they accept the "aid" in student loans.

Many schools are accepting kids who they probably shouldn't because for them they are guaranteed the pay from that kid whether he finishes his education or not. The lenders of the student loans have no fear because they are well protected by the government. This means the only person left to deal with the financial risk and assess whether it is worth it is a teenager.

Wouldn't college be a little better regulated if the school and lender had to bear some of the financial risk ?



I was disappointed with this podcast. It dismissed the increasing costs of college, which are real even at the 'discounted' level, and basically concluded 'of course it's worth it'. Maybe college is still worth it, but I felt the arguments were standard and unenlightening. No hidden sides here.

Julien Couvreur

Care to share evidence that average college costs have risen (actual paid, not label prices)?

Joe J

But they are paid, eventually. loans get paid back, and gov't grants, mean higher taxes. So people are paying those sticker prices, just often indirectly.

Ben Hilby

Great Podcast! But I believe you missed one important question that I believe is important in analyzing the value of college:

Is the college grad more success because of college or because they have a higher capacity or another way to put it, that person has a higher ceiling for success?

What is the difference between college students and non-college students?

I believe an individual with an IQ over 120 will succeed at anything with hard work, college or no college. So, college might not be the reason for success, but the individual who's ability is greater than those who don't enter into college chooses college and still has success.

Ben Hilby

Great Podcast! But I believe you missed one important question that I believe is important in analyzing the value of college:

Is the college grad more success because of college or because they have a higher capacity or another way to put it, that person has a higher ceiling for success?

What is the difference between college students and non-college students?

I believe an individual with an IQ over 120 will succeed at anything with hard work, college or no college. So, college might not be the reason for success, but the individual who's ability is greater chooses college, and that is margin in pay gap for college grads and non college grads.


Its a very timely topic. The increase in Tuition fees will have long term effect on the educated US demographic. Here is what I see at the moment.

- Tuition fees are getting higher and the costs of living outside the home is increasing
- Jobs offered after college are not as abundant as five years ago
- In addition, higher paying jobs on Wall Street (Investment Banking, Accounting, Corporate Law) are falling at a much faster rate, and compensation has come down dramatically.
- The costs of a new home has increased, even in the US, is very high. Although I don't have the data, the higher paying jobs are in bigger cities, which I assume are less adversely impacted by the US Housing crash. (you can't buy a house for 200k in NYC, Boston, Chicago, LA etc)

So, in essence, an ambitious kid that wants to make it through study will face a large bill when done, plus is fighting expensive real estate, further impeding his or her ability to pay down debt with the cash flow that they earn. If the average age of the students coming out of University is between 23 and 35, (undergraduate and graduate), then when will this person start having a family? The fortunate candidates that are offered the top jobs will not want to lose them, and will further push marriage and family out to later years. Other students that do not have access to higher paying jobs will be face with the large debt burden. Will the average family have 0.3 children? Even if men can procreate until they die, women's fertility has drops significantly over the age of 35.... (maybe invest in fertility drugs!!!)

Its becoming a structural problem that does not seem to have a solution. Although the costs of tuition could stagnate until real wages catch up, I don't really see them hitting double digit declines. Or we could see more students opt for online education.

Overall: the value of a college degree is still very high and it has a lot of non-tangible benefits (contacts, problem solving, etc). But the bank cant use non-tangible benefits as collateral in future.


William Carpenter

I found the podcast interesting, but I do have some debates with the "system" that we have, if you actually want to call it this. So lets run through a few things. I attended a private school for my education, not because I really wanted to but because I took a very non-traditional approach to education ie. I worked either full time or two part time jobs while I was attending. The income that I made from this in turn benefited me by lowering the amount of government assistance I could receive because apparently I just made too much. Why did I work so much you ask, well it was called necessity, I apparently liked having things such as food and clothes, my side note is my father passed when I was 15, so I paid my own way for a lot of things, and he really didn't plan ahead for things such as this. I think my good lesson was don't be too ambitious because it doesn't help, I guess I should have just gotten someone pregnant and worked only as much as required and went to school for free on the government dime.

The other reason I chose the private school was because I could take almost all of my classes in the evening, which I needed so I could continue to work, the state university that would have been cheaper didn't accommodate very well. At one point I had two part time jobs working 50hr-60hr a week and 18hrs of school with no day off in 3months, that was really the worst however, yet I still maintained approximately a 3.75GPA.

Next I would like someone to actually present the data used to state that the "real" cost of education when we are taking into account the amount of aid and tax credits provided to justify that the "net" price of education has decreased. I also don't think that you can include that amounts for loans into this figure, it is not as though you are not paying this amount back.

The other issue that I have had is the education that I received really can not be justified by the cost. I don't feel that I received the dollar value that I paid out. I received an accounting degree and I am almost finished with my master's so that I can sit for the CPA. I took a few years off between the two, but I don't feel that I needed to be as "well rounded" as the curriculum necessitates. If I am going to be an accountant, why do I need be educated on world history, or the art's? I don't feel that it is applicable to the education that I am trying to prepare myself for. Teach me more on how to be a better and more efficient accountant, I know that it is a crazy concept.

My vote for college education is self directed and negotiable prices. I can receive education on topics that will actually apply to what I am trying to educate myself in. In turn it will be like buying a car where I negotiate a price with the school instead of buying insurance where I get what I get for "X" price. I will be better prepared for the job market I am applying to, have greater knowledge in the subject, and actually have some say in what I am receiving. I bet I could have received a much more enjoyable and through education if the school would have let me actually challenge myself in various topics related to the field that I am in, and expanded my knowledge in other areas that are closely related, instead I was forced to settle on the "more well rounded" plan that we are all forced to have. I wonder if our nation could be more innovative if we were allowed to be educated in a manner such as this. Imagine if we allowed engineering students to take all of the required classes that relate to a field of engineering, and combine this with a solid business background. We could possibly have innovative individuals starting businesses all over the country. I personally would have taken additional economics classes and combined this with my accounting classes, I feel I would be a much better accountant if I was allowed to do this instead of just the basic required classes in economics.



The statement that everyone in Europe lives with their parents is incorrect. Many students move to different cities and live on their own (however not in dorms). E.g. in the Netherlands 62% of University and College students live on their own*. From what I've seen this is similar among other (northern) European countries, in the South, where money is less easy they often do live with their parents.


Al Slagle

The professors who separated "sticker price" and "actual paid tuition" are overlooking a key factor. They stated that they took out things like federal government grants, subsidies and scholarships from the "sticker price" to get the "actual paid tuition." Well with the exception of scholarships, the federal government grants and subsidies come from taxes paid by the taxpayers. Who do they think are paying those taxes? The students and/or their parents! It's impossible to calculate how much each person has paid in federal taxes which has been attributed to college funding, but it is inaccurate to ignore this factor in my view.

Joe J

A quick internet search, and on average 13% of the average state budget goes toward higher ed. (States are usually the main contributer.
SO a quick calculation between incometax and property tax, no clue how to estimate my share of the state sales tax. Puts my % contribution to Higher ed to be $770/yr.


I posted a lengthy reply on reddit:


I'll copy and paste the text here, without the links:

OK. I just listened to parts 1 and 2 (thanks to HearMeNom for the link to part 2). I'll give a few quick thoughts, but first a little context. Just over two years ago, I posted The Net Present Value of College to /r/economics. It was an attempt to look at many of the issues discussed in the two Freakonomics Podcasts and attach a value to college for the average student. My findings were that, depending on the choice of discount rate, the value of college for the average student was between almost nothing (less than $10,000 over the working life of the student) to about $150,000 in present terms. Needless to say, I take issue with people who claim a 4-year degree is worth $1,000,000.

So with that context in mind, here are a few thoughts about the podcasts, and the one major omission:

- There was an inherent bias in most people interviewed for the podcast. Nearly all of them were professors or had other vested interests in seeing college attendance remain high.

- With the previous point said, they touched on nearly all the major factors I had written about two years ago. Kudos to the producers for that.

- Part 1 was somewhat handwavy about the benefits of college. Few numbers were presented. My own findings are that the ratio of salary for those with a 4-year degree to those with a high school diploma is shrinking, with the youngest cohort having a ratio of about 1.5 while the oldest cohort has a ratio of almost 2.

- Toward the end of part 2, there was the typical "intangibles" discussion. I would simply point out that every thing they cited in that category can be found in other ways. I was in the Marine Corps, and my experience there paralleled everything they cited as less tangible benefit to college.

- On at least one occasion during the two episodes there was the inclusion of loans as "financial aid." This warrants a longer discussion, but I'll just say that I don't equate receiving a debt burden with a grant or a scholarship.

Now for the big one. I won't list this as a bullet point because it requires a little more explanation. Around 22:00 in part 2 they start to delve into what exactly makes the benefit of the college experience. To give the professors their due, they are honestly trying, but none of them could quite seem to figure it out. That's probably because the obvious answer is taboo.

Some decades ago, the doctrine of tabula rasa became popular. A child is a child is a child, the reasoning went. All kids come into this world as blank slates, and environment (whether home life or college) determines everything, including IQ.

That idea has been well debunked, but the bad doctrinal hangover remain. Not one of the professors featured in the program even considered the idea that the brightest kids go to college in general, but those same kids would have done better than average had they not gone. There are multiple longitudinal studies that indicate this. The professors kept looking for some magic ingredient in their system that provides this benefit and never once considered that maybe it wasn't there to begin with. Maybe it was in the kids when they got there And maybe, if this is the case, the value of college is overestimated.


Caleb B

Someone also needs to point out that comparing incomes of college grads to non-college grads is incomplete. One must adjust college grad income by after-tax student loan payments (many students are now exceeding the loan interest deduction cap). Also, we need to compare AFTER-tax income to after-tax income for a true comparison.

Noe Garcia

Your podcast is incredibly interesting,as it addresses some of the questions I have been asking myself for some time. I recently graduated from San Diego State University with a degree in Economics. I found that many of my classmates chose Economics as major, not really because they enjoyed the discipline, but because it is a major that they believe will land them a good job. Most of them constantly complained about how difficult and boring it was, but also said that even though they have other interests (art, painting, chemistry) they thought economics was a way to land a good job upon graduation. In other words, college is the means to an end, rather than being an end in itself.

What I think most of my classmates concluded is that finishing college, on top of the knowledge one should obviously gain, works as a signal to employees. It let's companies know that somebody went through the gruelling process of finishing a demanding and intellectually challenging college career. So, in that respect I agree with my classmates. However, I believe that the benefits of college extend beyond landing a good job- they also have to do with personal connections, personal growth, critical thinking and intellectual challenges, which are things that I think are invaluable.


Alexander Isaac, M.D.

Mrs. Dubner and Levitt,

I thought that these observations regarding your recent discussion of the true value of college education might be helpful.

The trends driving the diminishing returns of a college education are buried in the history and culture of education in America, specifically, its commodification and branding. The offer of reliable access to the middle and upper middle class via education is losing its credibility. As the nation has grown in size and wealth over the past century, and international travel has become more accessible, the number of people desiring and having access to higher education has grown. Even if the jobs were there, (a very considerable if) the universities cannot produce enough meaningful bundles of "smart" or "competent" to ensure the promise of upward social mobility through higher education for so many people. I am not making a simple supply and demand argument, where supply has exceeded demand. Reliable mass production of a "product" as complex as education is reaching its margins.

As a physician in my early forties I have an interesting vantage point. To demonstrate the supply side: thousands, (half of all of the yearly graduates by most counts) of International Medical Graduates come to the United States for the promise of being delivered the mother of all bundles of social success, an American medical degree. Many of my peers are U.S. born offspring of immigrants from the sub-continent and the middle east. They are walking in the worn out shoes of the grandchildren of Eastern European immigrants.

Like undergraduate school the cost of medical school has increased dramatically, for many of the same reasons. However, in the case of medicine, the guild has constrained the supply and heroically struggles to control the quality, thus Nurse Practitioners. Social ambition and the demand for healthcare form an irresistible temptation to the Education Industry. But the quality of the training for Primary Care Practitioners cannot keep up with the intellectual complexity of the field or the human demands of the job, when it is done well. There aren't enough competent faculty members or adequate training resources. But that doesn't stop the administrators from filling the lecture halls.


Caryn Morgan, MAED/AET, Bold Technologies

There was quite a discussion during this podcast of the "sticker price" verses actual costs. When I was attempting to qualify for scholarships as a student with an Associate's degree, a good GPA, married, dyslexic and child of a veteran, I applied for 37 different scholarships. This was in 1993 and I was planning on attending the University of Central Florida. NOT ONE scholarship came back where I was qualified.

I ended up completing my bachelor's degree at the University of Phoenix 5 years later in Colorado. I paid "sticker price." When I decided to go back for a second bachelors degree, this time from the Academy of Art University, I tried to find qualifying scholarships again; and still no joy. I qualified for NOTHING! The BFA 2 turned into an MFA program and I was quickly racking up Student Loan debt at "STICKER PRICE."

Not one college or university, I attended, suggested the cost could be lower, offered scholarship assistance, or even cared about anything other than gaining me as a student to pay "sticker price." Sure the Financial aid department helped me get rolling on my student loan accounts but not once did they help me find scholarships I might not know exist.

So, now I have my Master's Degree in Adult Education and Training and I am the proud owner of nearly $70K in Student loans that mortgage my retirement. Once I pay these off I will be approaching retirement age (I will be retirement age and past), and all those dollars I spent on the education were not collected or invested into my retirement years. Therefore, I have blocked my ability to retire and even to have an old age where I don't need to worry about how I will pay the bills, thanks to this education.

I keep hearing that students rarely "pay sticker price." That may be true of a traditional, out of high school students, but non-traditional, older, working, students... not so much. I paid sticker price even when I attended community college. When I started there in 1987 classes were 18.35/credit hour. These same classes, just 25 years later, are 210/credit hour. Even my nieces, one of whom started college this week, wouldn't be able to take one class at a time, paying for it out of their own pockets, and expect to graduate in 5 years even 10 years. If this doesn't change, the casam between the have's and have not's will so pronounced the class system will move back into a reality.

Please don't downplay the true cost verses the "sticker price," unless there is a way that is fair and equitable to actually get they true $$$ for everyone.