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If the position is a entry level position, then there are two options I see for hiring the person: 1) Based it on his/her education and courses. If they went to the same school as I did, then I am able to ask about certain courses/instructors. 2) Based on any projects they have completed on their own (open source/freelance/personal)

You have to have one or the other. If you don't have either, then I'm going to choose someone else.

For anything over entry level, I'm looking for work experience.

To answer your question (which is why do companies ask for the a degree) is that it is used as a filter for them. If you have ever done any hiring, you will know that you can be flooded by unqualified candidates and its a major time sink.