Grad School Economics

New WSJ Analysis

The WSJ today published a follow-up article to the one I wrote about recently in my post “Financially Hobbled for Life”. In the new piece, the WSJ publishes the results of an analysis it conducted using Department of Education data on median incomes and outstanding student loan debt for recent graduates of various universities, sorted by degree granted, course of study and school. The results are interesting and I think it is worth a few minutes of your time to read the article, which has some interactive features that will let you research specific schools or programs that are of particular interest. You can find today’s WSJ article here: “Is a Graduate Degree Worth the Debt?”

A few comments:

In my recent post, Financially Hobbled for Life, I discussed a WSJ article with the same title which examined the financial plight of Columbia University MFA film students. You will recall that recent Columbia film grads (or more precisely those who graduated with student loans) had median student loan debt of $181,000 and median annual earnings of only $30,000. This is a debt/income ratio of 6.1x. (Some of my figures are rounded). For graduates with this much debt relative to this amount of income, the financial situation is indeed dire and one doesn’t need to be a finance major to figure this out.

But the situation for film students at Columbia is not unique and things are only somewhat better downtown at NYU, where the MFA film graduates’ annual income is similar to that at Columbia ($30k) but the average debt load is about 15% less ($154k vs $181k). At NYU, the debt/income ratio is 4.9 compared to 6.1 at Columbia. Both numbers are quite shocking. Unless their incomes pick up quickly, these students are in for a load of hurt in the next few years. (Speaking of a load of hurt, Kathryn Bigelow, Academy Award winning director of the film, The Hurt Locker, is herself a very successful Columbia MFA film grad.)

Now compare the situation among film grads at the Ivy League Columbia University with that at the decidedly non-Ivy League Columbia College Chicago, which also has a big film (and performing arts) program. At Columbia College Chicago, the average film graduate earns about 15% more than at the other Columbia ($34k vs $29.7k) and the Chicago grads have also borrowed less than half as much ($84k vs $181k). This is a debt/income ratio of 2.5 at Columbia College Chicago compared to Columbia University’s 6.1. And as an added bonus, the Columbia College grads get to live and work in Chicago, a nicer city with better sports than NY. (I will concede, however, that the pizza is better in NY and that is almost—not quite—reason to live there.)

Out in Hollywood, look a the difference in film graduates’ data at USC (4.1x debt/income) and UCLA (2.8x). At UCLA the graduate income is about 18% higher and the debt load about 40% lower than at USC. I note here anecdotally that Steven Spielberg also studied film in LA, and did pretty well for himself, but he did it a long time ago and at Cal State, not USC or UCLA. Cal State does not offer a graduate program in film (just undergrad), but even so the comparative economics are interesting. At Cal State, undergraduate film majors’ median income is only about 10% less than that of MFA film grads at USC, but the median debt load at Cal State is only $20,000 compared to almost $150,000 at USC.

I am not saying these various film programs are all comparable, but the stark difference in income and debt does make one wonder which institutions offer a better value for their students. I cannot fully explain the differences in financial metrics between the programs, and I am not persuaded that the median income and debt of recent grads is necessarily the right or sole financial metric to focus on, but if I were a student interested in this career path I would sure want to find out more before signing those loan docs.

Now let’s look at law schools. We will focus on Virginia area schools which provide some good contrasts. At UVA, the most highly regarded law school in the region (and one of the top schools nationally), the graduates’ debt/income ratio is 1x, with both debt and income approximately equal at $162,000. At W&M, the median graduate income level is 60% below that of UVA (at $66k) and the debt load is only 35% lower, resulting in a higher debt/income ratio of 1.6x. Now look at the DC schools, which have debt/income ratios similar to W&M (1.4-1.9) but with very different mixes of income and debt. For example, Georgetowns’ median income is $120k, about 25% below that of UVA but 85% above W&M. Contrast that with American University, the outlier in DC with relatively high debt ($175k), low income ($63k) and the region’s highest debt/income ratio of 2.8x.

Does this mean that all you budding young lawyers should go to UVA and none of you should go to American? No, of course not. All of these schools are different and there are pros and cons for each. And I can make a good argument that for some of you it may be better to go GW, W&M or American on a full ride than it is to borrow the full cost of attending UVA or Georgetown.

Finally, let’s look at different professional degrees, comparing law and various medical fields. For Law grads, the debt/income ratio at most schools lies between 1-2x, with a median below 2 and several outliers at 4-5x. For Medicine, the debt/income ratio lies mostly between 2-4x, with a median around 3. In Pharmacy, many students have incomes in excess of their debt and the median debt/income ratio appears to be around 1x with almost no programs above 2. And for Nursing, there are fewer reporting programs but the debt/income ratios are all below 1. I don’t think you should make your career decisions based solely on these metrics, and I don’t think you should go into nursing if you don’t want to be a nurse, but the financial position of recent gradates does look better for the nurses than for the docs (at least as measured by debt/income ratios). There is a lot of job-related stress in the medical field, especially these days, and there is something to be said for not piling even more financial stress on top.

The medical (MD?) data really stands out and raises questions about the financial viability of this career path for those who must borrow heavily to complete it, which I assume is most students. The data also raises in my mind some important social questions about public policy and our future supply of doctors, particularly domestically trained ones. It does not appear sustainable for the cost of US medical education (and medical care) to keep going up and the compensation (or compensation net of rising costs) of doctors to lag behind (which seems to be happening, although the DoE data does not address this point).

I could not find the MBA data in the WSJ study, at least not labeled as such, but I would be interested to see it if any of you can find it for me. But former student and B&B reader Jake Elton kindly passed along the results of a study published in Poets & Quants, which looks at the size of the “MBA premium”. Spoiler alert: many MBAs still earn big bucks and this is a degree worth paying for (at least at the top programs). You can find the article here.

Continuing on the topic of MBAs, one thing I didn’t mention in my prior post, but should have, is the attractive economics of some part-time MBA programs compared to full-time programs. These part-time programs are tough to complete (nights, weekends and holidays in school), but they have some real financial advantages for students currently working in good jobs and who are able and willing to take on the challenges. Not surprisingly, many universities are dropping their full-time MBA programs but keeping the part-time and executive programs, in part for this reason.

In conclusion, I am hesitant to put too much emphasis on the DoE data profiled in the WSJ article, in part because I am not sure that the median income level of recent grads is necessarily a good proxy for lifetime earnings potential. I am also skeptical of the undergraduate data by degree granted, for various reasons. (See the data for W&M history vs economics majors, for example.) But the data is certainly interesting and it does raise some important questions that we should all think about and be prepared to address, individually and collectively.

What sort of financial and non-financial returns should we realistically expect from these various types of educational programs? What specific metrics should be looking at to measure financial returns? Why are we as individuals choosing to make some of these large educational investments, given the apparently poor economics (for recent grads at least)? And why are we as a society incentivizing students to make these investments, and take on overwhelming debt loads, facilitated by the provision of public funding and subsidies?

I don’t have good answers to these questions, not yet anyway, but no doubt we will be discussing these matters further. So please stay tuned, as they used to say on network tv, back when people my age still watched it.