Comment by cjmb | Hacker News Reader

Comment by cjmb | Hacker News Reader

Author here. Another long read -- apologies!

The TL;DR of this essay might perhaps be:

- College degrees are more valuable than ever in post-industrial economies, so applicants to top-tier schools are up 240% over the last 25 years

- Meanwhile, available spots at top-tier colleges in America have increased just 2% over the last 25 years (Thanks to Tyler Cowen & others for complaining about this publicly)

- Microeconomics 101: Fixed Supply + Increased Demand = Increased Price

- That’s the obvious part

- The non-obvious part is that this is intentional...

- ...because the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education (read: “receiving financial aid”)

- That Charity-status protects the Investment Returns of College Endowments from Uncle Sam & the IRS

- Investment Returns Compound over time, and there is no more powerful force on Earth — anyone not playing the game to maximize Compound-returns will lose to everyone who is

- Thus: if Colleges want to keep their Investment Returns tax-free, Tuition MUST remain unaffordable for at least 50% of undergrads

"...because the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education (read: “receiving financial aid”)"

I wasn't aware of this at all. Do you have a source? Non-profits don't generally need to give away their money.

For sure, you’re totally right that non-profits don’t generally need to give away their money.

I tried to touch on this idea in the “Case for Charity: A Charity Case” section, but my approach is to view it idealistically / as things should or might be.

And in a hypothetical world where Colleges charge double-digit fractions of a family’s net worth, while generating as much investment profit as our best companies and hedge funds, but where 0% of students received any “aid”......

.....and the institution was still allowed to remain a non-profit and have returns tax-sheltered....

....I can’t imagine that such a state of affairs would be allowed to continue.

Which organizations are allowed to be considered 501(c)(3) and on what basis and what privileges that affords them is a matter that is hypothetically at the prerogative of Congress.

I know trust in Congress/the political process is pretty damn low these days.

But my point with the “best play it safe” comment was basically...if I were colleges, I wouldn’t roll the dice.

But no one is "colleges", if they're each acting in their own best interest. I don't see how this argument explains their behavior unless colleges are coordinating as a cartel. What's keeping them each in line?

One of the points in the article is that this tier of colleges have been operating as a cartel since before the 1990s.

Are you implying that there's more to the financial-aid-cap scheme than we know?

You weren’t aware of it because it’s not true.

A minor quibble: The ratio of admissions to applicants is kind of a funny number. Applications could be driven by an external factor such as online application systems and word processing making it easier to apply.

Colleges have amped up their marketing budget to increase the top of the funnel as well.

Foreigner here ... can confirm this. The application process to US universities has gotten much better compared to 20 years ago. Back in the day, we needed to pay application fees+international postage. Now, the second part has gone away. The first part, surprisingly, has not gone up by much.

Yes, and the improvements in financial aid at elite schools makes them as affordable as a state school so applying to them is a low cost gamble.

Since you're using MIT as an example, it says here [1] that 90% of students get financial aid.

I doubt that's changed much. The "sticker price" for elite colleges has always been too high for most families to afford, but most students' families don't pay that price.

If you want to prove that maintaining charity status is a cause of tuition increases, you'll have to try harder.

[1] https://web.mit.edu/facts/tuition.html

The college board publishes a nice charge of net cost of college: https://trends.collegeboard.org/college-pricing/figures-tabl...

Room and Board is a major driver of the increased cost of colleges.

Do you see a responsibility of the federal government in lending money to students who have no ability to reasonably pay back their loans because their degrees don't have a high rate of return?

Do you see a problem with universities increasing the quality of student housing, sports programs like football, and college administration, and that this desire to spend more to get more students to pay more tuition dollars is an undesirable feedback loop that perpetually increases tuition costs over time?

> Do you see a responsibility of the federal government in lending money to students who have no ability to reasonably pay back their loans because their degrees don't have a high rate of return?

Can we all agree that this is an awful idea societally and for the individuals involved? If you couldn't get credit to go, it's because the market is sending a signal that it's a really bad idea to go. Yeah, it sucks if your dream is to do [insert unmarketable degree here] and there are few jobs for people who do that and the training costs just as much as an engineering degree. The idea that "society" should subsidize that is narcissistic at best.

We absolutely cannot all agree on that. As you point out - the fact of the matter is that an undergraduate degree in business, engineering or medicine costs the same as a degree in art, social work or childhood education and pays about 3-4 times as much. So it's individually quite stupid to major in anything _other_ than engineering, business or premed. Do you really think a society is going to function without teachers, psychologists, lawyers and artists? So in that case can we all agree that arranging the incentives so that the only thing Universities produce are engineers, MBA's and medical professionals is an awful idea societally and for the individuals involved?

But why does the "degree" require paying for college football or fancy dorms or student entertainment? College has lost its focus on education and, nationally, colleges are competing on providing amenities and costs of college are skyrocketing.

Wouldn't it make sense to bring college education back to its original purpose?

Which original purpose? The elite school one of allowing the next generation's ruling class to network with one another, or the land grant one of doing the same thing for flyover country, but also discovering new ways of applying fertilizer at the same time?

Thank you for this. Can we start backwards from a model of what we believe a rich, healthy society should look like, and then figure out how to get there? A society that depends only upon "market signals" to determine which jobs have value is not one I would wish to live in.

But, our current society already does this, since we're not living under communism and centralized price fixing.

Even "public" school salaries are determined by the market.

do you think it's likely that the number of teachers, psychologists, etc. could actually approach zero without significant increase in pay for these positions?

> As you point out - the fact of the matter is that an undergraduate degree in business, engineering or medicine costs the same as a degree in art, social work or childhood education and pays about 3-4 times as much.

And one of the major reasons for that is that we continue to produce an oversupply of liberal arts graduates, who then get stuck in food service rather than actually working as a teacher or psychologist, while their existence suppresses wages for anyone who can actually find work in those occupations because the employers can choose the lowest bidder from a desperate population of qualified applicants.

It's like saying corn farmers are having a hard time, so let's subsidize the production of corn. Well, then there's too much corn, and what does that do to the price of corn?

> Do you really think a society is going to function without teachers, psychologists, lawyers and artists?

This is a loaded question based on a faulty assumption. A societal shortage of people in these professions would cause their compensation to increase accordingly, incentivizing more people to enter them until an equilibrium is reached. This is basic supply and demand. Also...

> So it's individually quite stupid to major in anything _other_ than engineering, business or premed.

This is based on the faulty premise that everyone has the same skill set and can succeed at engineering, etc. as opposed to other fields where they may have a comparative advantage.

The thing is, society doesn't survive a drought of teachers, for example. If the number of teachers fall below a certain amount, the new generation will not be correctly educated and the knowledge transmission link is broken.

This is similar to any other area, really.

I think the education market is ripe for disruption with increased online education and collectives for socialization. Homeschooling 2.0, which doesn't require expensive physical plants for every neighborhood.

Arranging the incentives to be responsive to market signals would move us towards a situation where there are paying jobs for all who graduate, not one where everyone graduates in what are currently the top-paying fields given a different system.

Do you have a source of data on the costs for the different degrees? I'm skeptical for a couple of reasons. First, there may be disparities in the cost of hiring teachers in different disciplines.

Second, to exaggerate just a wee bit, engineers need big expensive labs and modern computers, whereas French literature majors only need a supply of French literature.

As far as I know (at least in the US) college tuition is constant at each college across majors, though there are occasionally extra materials costs for particular classes.

Ah yes. I was thinking of the overall cost of running the program, not the out-of-pocket cost to the student. In fact, two students within the same major don't necessarily pay the same tuition.

The government has decided that it's unethical for a bank to market a credit card to a college student (maybe a $5,000 credit limit and dischargeable in bankruptcy) yet we permit 18-22 year olds to take out $50,000+ in loans without regard for the return on the investment and make it almost impossible for them to get a fresh start if it turns out to be a bad investment.

When did they decide that? I started getting 5 credit card offers a day as soon as I applied for college.

Title III of the Credit Card Accountability Responsibility and Disclosure ("Credit CARD") Act of 2009[1] and the CFPB's Reg. Z[2] which implements it. It amended the Truth In Lending Act to prohibit a lot of the "sign up for a credit card and get this free poster" marketing that had been happening on college campuses. It also requires that card issuers evaluate a consumer’s ability to pay before opening a new credit card account or increasing a credit limit. That requirement effectively stopped the issuance of credit cards to full-time college students without a co-signer. It also had the unintended side effect of making it much more difficult for stay-at-home parents to get a credit card without their spouse as a co-signer because the regulation only permitted card issuers to consider the applicant's income/assets. Reg. Z was amended a few years ago so now card issuers only need to evaluate someone's ability to pay if they're under the age of 21.

[1]https://www.ftc.gov/sites/default/files/documents/statutes/c...

[2]https://www.consumerfinance.gov/policy-compliance/rulemaking...

Yep that’s after my time.

> the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education

This would still be true even if college cost 10x less than it does now. Very few 18-22 year old full time students can afford any level of tuition.

I guess it might be more precise to say that it depends on the familiies of most students being unable to afford tuition.

Thanks for the quick breakdown. Reading now...college is a subject I’m endlessly fascinated by.

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