Do employers care what college you graduated from?

We recently wrote a blog about a controversial study that concluded where you go to college may not be nearly as important to career success as once thought.  It begs the question – if employers don’t put high regard into which institution of higher learning you graduated from, then what do they look for?  We hit the books once again to find the answer.

Our syllabus in this class comes from a recent Gallup poll that ranked how much weight business leaders put into certain factors when looking at potential employees.

It found that 84% of business leaders polled said the amount of knowledge the candidate has in a field was very important.  Another 14% said it was somewhat important, leaving only 2% of business leaders who though it was not very important or not important at all.  That’s an overwhelming revelation.  Furthermore, 79% of potential employers ranked a candidate’s applied skills in the field as very important, and 16% somewhat important.

And what of their major and where they went to college?  The majority of business leaders said it was not very important or not at all important where the candidate went to college.  Only 9% said their alma mater was very important!  Of those same business leaders, only 28% thought a candidate’s college major was very important!  22% said it was not very important and 8% said it wasn’t important at all!

What they’re telling us comes through loud and clear – when judging potential new employees, businesses don’t give much credence at all into where someone went to school, or even what they majored in.  Instead, the amount of expertise and the skills necessary to perform the job at hand dominated their hiring decisions by a wide margin.  Yet, we see millions of young people every year still focused on getting into the “best” college possible, stressing over what academic major to declare, and amassing student loans at an alarming rate just to pay for it all.  Yet that has very little bearing on what job they get and future career success (though they’ll be paying off their student loans forever.)

Something interesting emerges when we poll the American public, not business leaders, the same questions.  47% of those polled thought that a college major was very important and 43% somewhat important.  An alarming 80% thought where a candidate went to school was very or somewhat important!  Compare that to only 46% of business leaders, and we can see the public’s perception what employers are looking for is incredibly skewed.

What can we learn from these polls?  Employers are less focused on what school is written on a candidates degree and much more concerned with what skills, experience, and knowledge that candidate that will help them succeed at the job.  Internships, real world job experience, attitude, and networking are far more important than what major a candidate has.  Since their major or the school you attend won’t make a significant difference when it’s interview time, they probably shouldn’t overemphasize going to the biggest name school, and definitely avoid taking on student loans just for the sake of false prestige.


A study by the NOVA Workforce Investment Board in Silicon Valley confirms these findings.  They discovered that mastery of current technologies is the most critical factor in hiring decisions for many employers, while few even mentioned college degrees. ”Especially in the tech industry, employers want to see skills applications rather than traditional resumes. Show, don’t tell,” says Kris Stadelman, director of NOVA. “Employers are interested in what skills you bring and how these skills can be used in their business.”  It seems that if you know programming languages like C++ is more important than if you got C+’s in school.

However, there is one caveat to this – Ivy League schools.  Specifically, you have a chance to go to Harvard, Yale, Princeton, or MIT, you should take it because those graduates do markedly better in their careers.  However, we might similarly attribute this to networking among smart (and wealthy) students - the future business leaders who own the companies that do the hiring.

A college degree pays off, but how much does it matter where you go to school?

We all know that a college degree has a great deal of value once you get to the working world.  Many employers see a bachelor’s degree or four years of college as a fundamental requirement when hiring; a foot in the door, not a guarantee.  In fact, according to the U.S. Census Bureau, the average income for a college grad is $51,206 per year compared to $27,915 for people who end their education upon graduating high school.  According to those numbers, over a 40-year work career the college grad will earn about a million dollars more than the high school grad!  Yes, a college degree pays.

But how much does it matter where you go to college?  Is there a big disparity in success and income levels based on which four-year university you attend?  The answer to this question is of paramount importance not just for alma mater bragging rights, but because the cost of higher education has skyrocketed.  More students are graduating with a student loan debt-load they’ll be paying off for decades.  So does it really matter if you get your degree from a prestigious (and expensive) private school, or does any old degree from any college pay off just as well?  I hit the library (ok, Google) to find the answer.

The first thing I noticed when researching this question was the surprising lack of definitive studies, especially considering the impact.  The cost of a degree is more than ever – some estimates are that a college degree costs $300,000 on average if you add room and board, books, and opportunity cost of missing 4 years in the working world – which makes college the biggest purchase you’ll make in your life besides your home.  For 7 out of 10 graduates, student loans pick up a good portion of the bill, almost $30,000 each.  Student loan debt load has now topped one trillion dollars in the United States and paying for college is acknowledged as one of the biggest stressers for Millenials.  And yet there are only a few comprehensive studies that analyze the cost of college compared to the payout.  Some of the studies are from as far back as the 1970’s or look at only a small segment of the population.  But I wanted to get to the bottom of this question so by pulling an all-nighter to cram for this exam (just like in college,) I came up with an answer.

Does it matter where you go to college?

The short and sweet answer is: Yes. But not nearly as much as you may think when it comes to getting a job, professional success, or lifetime income levels. 

The research on this is complex and often contradictory:

In 2000, the Department of Education reported that the quality of college a person attends accounts for a 2-3% variance in earnings among men, and 4-6% among women.  That’s a miniscule payoff considering what private or big name colleges cost. 

A more recent study by Texas A&M professor Mark Hoekstra in 2009 compared the income levels of white, male students (so there was a homogenous and large sample size with controlled external variables) who had just barely missed the admissions cut-off for an unnamed public flagship university to those of students who had barely been accepted.  Ostensibly, this compared students of similar academic standards to see if those who got into a good school later out-earned those who were rejected, and therefore had to attend a more pedestrian institution.  Hoekstra found that enrolling at a flagship university increased their wages by 20% over time – which is significant.

A 1999 paper in The Journal of Human Resources backed that up, showing that elite schools did equate to higher paychecks and that effect did increased over time.  From all high school graduates in 1980, those who attended a top private university went on to earn 20% more than their counterparts at bottom tier public universities.  Antiquated as it may be, the data from 1980 shows that going to an elite school pays off. 

But there’s a big caveat to these findings - we don’t know how much of this is causation and how much is correlation.  Is it the degree that helps them earn more, or the fact that they’re smart and motivated enough to attend that college and able to network with other smart people?  A follow-up study in 2011 came to the conclusion that there’s certainly more parity and consistency in educational quality these days, so where a student goes to school doesn’t matter as much as other factors like their major, extracurricular activities, networking, internships, and their grades.  In summary, there may have been a huge income divide 40 years ago, but less so now.

Perhaps the most conclusive study was conducted by professors at the University of Texas at Dallas, University of Tulsa, and Cornell, who examined the wages of students who went to college in Texas between 1996 and 2002.  The professors looked at data from four different schools; Texas, Texas A&M, a group of the rest of the state’s non-flagship colleges, and finally the state’s community colleges.  They found that students who went to the more prestigious U of Texas and A&M did have better post-grad income levels, but the variance most depended on how well they did at their own school.  In fact, the top students at A&M did better than the top at the U Of Texas.  Having a valuable major – like engineering – and how well they ranked academically was a far greater determiner of success in later life.   

Another study with a fascinating conclusion was conducted by Stacy Berg Dale of the Andrew Mellon Foundation and Alan Kreuger of Princeton.  By compiling data from the 1970’s, they matched students in pairs – one whom was rejected and the other accepted by similar universities.  Those who didn’t gain admission usually ended up enrolling at a lesser university (which they could get in to.)  Decades later they revisited those “student siblings” and analyzed the data on income levels.  Their startling conclusion was that it didn’t really matter where you went to school – it mattered most where you applied! If you were the kind of person who could come close to gain admission to a great college – enough that you were willing to apply – then you’d most likely earn and succeed post-graduation almost identically as if you actually attended that same school. 

All of these studies reinforce the notion that there’s a correlation, but not causation, with the quality (and cost) of college and later income levels. Of course you’ve got a huge advantage in potential earnings if you attend Yale, Harvard, Princeton, or MIT.  But once you discard those institutions from the mix, whether you went to USC or Cal State Sacramento isn’t the most important factor when it comes to getting a job and the income you’ll earn. 

So what factors are more important?

Look for part 2 of this blog next week, what employers look for in a college graduate. 

5 Epic changes to student loan repayment rules as of July 1, 2014.

July 1, 2014 was an important date for educational reform in America. Just shy of Independence Day July 4th, it signals a measure of relief for many Americans who are feeling the strain of their student loan debt.

As of July 1, legislation took hold that make big changes in the way student loans are paid back, expanding the rights and options for millions of debt holders. Why did they choose July 1? The school year starts some time in August or September and the fiscal year October 1, but the Department of Education is mandated to give a certain amount of advanced notice before making these regulatory changes regarding student loans. The time gap is mandated by Federal law so the public and any interested parties have time to provide feedback and comment to the Department of Education.

The changes are far reaching, but here are the 5 major points that will affect student loans as of July 1:

1. Interest Rates.
In 2013, Congress amended the laws that spell out how interest rates on student loans are calculated.  As of July 1, the student loan interest rates will be determined by taking the 10-year Treasury note rate (as of the last auction in May) and adding a small margin.  In 2014 that interest rate was 2.61, up .125 from 2013.

2. Loans will be fixed.
For decades, students had to stress and adjust to fluctuating interest rates as loans were based on variable rates that changed every July 1. Based on this new Act, any loan funded on or after July 1 will automatically have an interest rate set for the life of the loan, including Federal consolidation loans.

3. Income-based payback options for new borrowers.
President Obama recently signed Pay-As-You-Earn initiatives into law, including this reform that starts July1; on or after that date, loan holders are eligible for an income-based repayment plan that sets a ceiling on their payments at no more than 10% of their ‘classic’ disposal income plan. The previous rule was based on 15%, so this is a significant change when you consider the scope and magnitude of student loan payments. Also, after a borrower pays for a full 20 years, any remaining balance is forgiven – down from 25 years, previously.

4. Discharge for closed schools.
The old rules had provisions for schools that closed, leaving students stuck with debt but no degree.  If a student enrolled in an institution that subsequently closed its doors within 90 days, and they were unable to complete their degree at another school, their federal student loans would be discharged. As of July 1, the new time frame will be 120 days, giving students of defunct colleges a little more of a safety net.

5. New options for Federal loan holders in default.
Instead of paying their loan in full to get out of default, borrowers now have two new options: rehabilitation and consolidation. Rehabilitation requires nine consecutive, on-time payments of a reasonable and affordable amount.

How is ‘reasonable and affordable’ defined? On or after July 1, the 15% rule comes into play. That rule mandates their payment will be initially calculated by taking 15% of their disposable income. If that amount is too high for them to reasonably pay, borrowers have the right to submit and form that documents their financial hardship and requests a special exemption.

Here is the exact language:
"...once the rehabilitation discussion has begun, initially considers a borrower’s reasonable and affordable loan rehabilitation payment amount to equal 15 percent of the amount by which the borrower’s Adjusted Gross Income (AGI) exceeds 150 percent of the poverty guideline amount applicable to the borrower’s family size and State, divided by 12. If the amount determined using this calculation is less than $5, the borrower’s monthly rehabilitation payment is $5."

 Also, there is a new protocol guiding the administrative wage garnishment process. These new rules aim to standardize how the rehabilitation procedure unfolds for all borrowers, no matter which institution holds their federal loan.

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Do you have questions about these changes or would like to see if you qualify for new programs? Contact us and we'll walk you through it

20 College majors that land the lowest paying jobs.

With the cost of a college education higher than ever, it’s important for students and parents to carefully plan a student’s major.  With 70% of graduates holding student loans to the average tune of $25k or more, choosing the right major – and therefore right profession – can make the difference between struggling financially for decades compared to a profitable and financially comfortable career. 

So here are the 20 college majors that yield the lowest paying careers.  We compiled the list from information released by payscale.com, who compiled data after polling 1,000 universities, encompassing 88% of U.S. schools.

Of course, students still want to go into creative fields that they’re passionate about (like music, art, drama, etc.) but getting a college major in that subject might not be the most pragmatic approach.  Likewise, there are many majors that are important to society – like teachers and social workers. 

So here are the 20 majors that will land you the lowest paying jobs:

20. Liberal Arts

Starting Salary: $36,600

Mid-Career Salary: $ 60,500

19. Psychology

Starting Salary: $36,300

Mid-Career Salary: $60,700

18. Art

Starting Salary: $36,100

Mid-Career Salary: $57,100

17. Interior Design

Starting Salary: $36,000

Mid-Career Salary: $59,300

16. Public Health

Starting Salary: $35,900

Mid-Career Salary: $56,500

15. Music

Starting Salary: $35,700

Mid-Career Salary: $51,400

14. Hospitality & Tourism

Starting Salary: $35,700

Mid-Career Salary: $62,600

13. Drama

Starting Salary: $35,600

Mid-Career Salary: $56,300

12. Criminal Justice

Starting Salary: $35,300

Mid-Career Salary: $58,400

11. Horticulture

Starting Salary: $35,200

Mid-Career Salary: $50,900

10. Paralegal Studies

Starting Salary: $35,000

Mid-Career Salary: $53,000

9. Physical Education Teaching  

Starting Salary: $34,900

Mid-Career Salary: $56,300

8. Culinary Arts

Starting Salary: $34,800

Mid-Career Salary: $51,100

7. Special Education

Starting Salary: $33,800

Mid-Career Salary: $49,600

6. Animal Science

Starting Salary: $33,600

Mid-Career Salary: $55,200

5. Social Work

Starting Salary: $33,000

Mid-Career Salary: $46,600

4. Broadcast Journalism

Starting Salary: $32,700

Mid-Career Salary: $68,800

3. Exercise Science

Starting Salary: $32,600

Mid-Career Salary: $51,000

2. Elementary Education

Starting Salary: $32,200

Mid-Career Salary: $45,300

1. Child & Family Studies

Starting Salary: $30,300

Mid-Career Salary: $37,200

The skyrocketing cost of higher education.

Higher education has a bigger price tag than ever – far outpacing our rise in income - and it’s distancing a lot of lower and middle class families from the hopes of sending their kids to college or university.  That’s the consensus of new data published by the reputable think tank, the Pew Institute, among others.  But just how high have college costs soared, how are we still paying them, and why?

What’s not under dispute is that higher education still pays off in terms of job and income prospects – according to the aforementioned Pew, Americans ages 25 to 32 who were college graduates earned $17,500 more on average than their peers who were only high school graduates.  Over the working life of an adult, that gap probably only widens – a huge testament to why we still endeavor to send our children to a university campus in the fall.

First, a look back at the context of college education 50+ years ago, post World War II.  With GI’s returning from war and the population booming, universal access to public education was considered the ladder to pull yourself to a better life.  A college degree (sprinkled with a lot of hard work and loyalty to/from the same employer for life) was the key to open the American Dream – financial comfort, security, home ownership, and the never-ending entitlement of each generation being more prosperous than the last.  It didn’t matter who you were, how much money your parents had, or where you came from – education was seen as a birthright for all who wanted to take advantage, and especially by lower and middle class families.

Even 20 years ago, less than 50% of college graduates received their diplomas with any student loans to debt to pay, and it was less than $10,000 on average (adjusted for inflation.)  Fast forward to 2013-2014 and the number of college graduates with significant debt has skyrocketed. The latest numbers for the 2012-2013 school year show that about 70% of college graduates have student loans and other debt to pay from their education.  Even more telling is that each student with loans has an average of nearly $30,000, according to the Institute for College Access and Success. 

However, there is more to the story.  At quick glance, it would seem that the cost of college tuition has actually slowed its ascent, or is actually plateauing.  Last year, the average cost of four-year public colleges went up only by 2.9%, which was the smallest percentage increase since the middle of the 1970’s.  

Not so fast.  While tuitions may be leveling off after a precipitous thirty-year climb, the cost of college is still shooting skyward.  Factor in fees, school supplies, room and board, books, etc., and it’s easier to see why more would-be students are getting squeezed out of a college education.  When factoring in tuition AND those various essential fees, the average cost of a public four-year university has increased 27% over inflation over a five-year period, from the 2008-9 school year to 2013-14.

When looking at college costs, it’s best to consider what experts call, “Net Cost.”  That is, tuition plus those fees we discussed, less the amount of aid and grants available to help students in need, amounting to their net out-of-pocket expenses.  This is a significant distinction because ever since the GI Bill was created, the United States government has been in the business of incentivizing college education through grants and aid.  Most common are Pell Grants, Academic Competitiveness Grants, and school-dispensed financial aid.  In theory, this makes college education possible and affordable for millions of deserving kids ever year.  In reality, the financial aid system has been described as, “Arcane and inconsistent,” in a recent report by National Public Radio.   Applicants must show a, “demonstrated need,” to gain financial aid and grants, yet the economic math to qualifying still allows just as many middle class families to fall through the cracks as those that qualify.  

During the recent years of our recession, rolling into 2008-2009, the White House pumped huge money into public education support as a way to offset stalled incomes shutting the door on higher education.  Pell Grants alone doubled from 2008-9 to 2010-2011, an astronomical number.  So even though the country was feeling the pinch, the cost of higher education was like a leaking boat with a lot of people bailing water out at once – still afloat, but destined to sink eventually.  Since 2008-9, Federal grants have been decreased by at least 10%, contributing to the feeling of seasickness among families looking at a tuition bill, once again.

No matter how you slice the cost-of-education pie, we’re left with a disturbing reality – the cost of education, adjusted for inflation, has more than tripled between 1973 and 2013.  Current data shows that the cost of a four-year, in-state public university or college averages $8,893.  The corresponding cost for a private university is $30,090, a 3.8% increase since only a year ago.