The College-Cost Calamity
economist.com
economist.com
So if the per-student budget is lower, why are per-student fees much higher, rather than 25% lower? Well, the state portion of the funding has declined even faster: from $16,500 per student to somewhere in the $8-9k range in the upcoming budget (inflation-adjusted). So tuition has gone up to compensate.
The situation differs at different universities, but in the UC system it's close to being a dollar-for-dollar replacement of declining state funding by increased tuition.
In their defense, I want to say that I think it is an example of wise financial management with a long-term view. Most institutions struggle to consider any time horizon beyond the current year (if not just the current quarter), but often schools can take a longer view. And right now, interest rates are hitting a once-a-century record low. I contend that an institution would be WISE to borrow as much as possible on a long-term basis. In a few years that 2% loan may be LESS than they are making on their investments (if their investments were locked in years ago, it may be less right now). Do all the building possible right now, then plan to ride out a couple of decades.
The article suggested that taking on this debt wasa sign of mismanagement and recklessness, but it seems to me like a sign of long-term vision. What do you think?
The graphs they chose for the article are also absolutely uninformative. As an example, the top graph indicates that long-term debt grew substantially faster than instruction costs from 2002-2008, but that's exactly what I would expect given that instruction costs were relatively static, but interest rates plummeted.
That said, borrowing "as much as possible" can be problematic. Debt should be used to finance only what is necessary. Problems arise when institutions (or people) take on as much debt as they can, figuring they'll put it to use eventually.
You shouldn't stock more food in your pantry, so to speak, than you can eat in a reasonable timeframe. The stuff you don't get around to eating will start to spoil.
I haven't looked, but I doubt U of Chicago have that much debt. I would guess that they can mostly service their debt on income from the endowment.
To the extent that individuals and businesses are using college degrees as signals, it does seem reasonable to expect lots of attempts at cheaper alternatives.
Fewer people will get degrees, of course. Some courses of study are investment, and some courses of study are consumption. You'll see a drop in the consumption degrees, since those people could only get jobs by continuing on to get a law degree. There aren't any jobs for newly minted lawyers right now.
I would like to see the law changed so colleges can't ask about your family's finances. The kind of perfect price discrimination they practice would be flatly illegal in any other industry. Imagine going to a car dealer and having him tell you "Well, the list price for a new car is $100k. But if you turn over all your financial information, you know, how much your family's house is worth and how much your parents make, we'll adjust the price of the car so you can just barely afford it."
Sounds awfully like "value based pricing" - which is a pretty common strategy in enterprise software sales.
Luckily, I left after my 2nd year and only walked away with $50k in student loans. It was one of the best decisions I've ever made.
As far as the $300 goes I take it you never worked in high school?
Still, a $75k jump is unheard of unless you're doing some sort of hybrid undergrad/med school program.
I did work, at Target, making minimum wage. One full-time paycheck was about 300 bucks, give or take. Since I supported myself, that money was used on car/food/gas. So, 300 bucks was the most I'd ever seen.
And as an ignorant 18 year old, I had no idea what a $175,000 loan really meant. Everyone does it, right? So it must not be that bad.
A lot of companies see RIT as a huge talent pool, and dedicate quite a bit of recruiting resources to look for potential interns and full-timers. Plus, you'll find peers that you can use to develop your professional network.
That's too much money to spend on a technical degree. You could make the argument Harvard or Yale is worth that kind of money because your contacts are with people who are going to be senators and CEOs. But a place like RIT? $44k/yr is way too much money for what you're going to get.
YMMV.
Really? You were so disconnected from numbers that you couldn't tell the difference between 10^4 and 10^6?
I've never understood that argument. I'm 19, and last year I could comprehend this. It's not particularly difficult to run the math versus your expected salary, cost of living, etc.
It's the equivalent of trying to wrap your head around the difference between 1 billion and 1 trillion dollars. Sure, I can SEE the difference, but really can't comprehend it, even though they are orders of magnitude apart.
Speaking of the latter, there is the disruption of online course offerings. These are creeping in from the bottom, replacing introductory lectures, and working their way up. Online classes allow schools to take the already squeezed adjuncts and grad students and pay them even less to help grade/moderate the online variants. Meanwhile eating away at the consensus that education is a series of seminars amongst the wise.
The way everyone today feels they need a masters reminds me of the way everyone used to say you need a credit card to get a good credit score. It's called drinking the kool-aid.
Man, if I could go back in time...
Two components of indentured servitude is that they do not permit you to leave your work until you have paid the debt, and secondly that they charge you so that you can never escape your debt. A final onerous part of real indentured servitude is that debt can be passed to your children, and many generations can be born into slavery and never leave it. [Source: Disposable People]
[edited to remove bankruptcy reference. Apparently it doesnt help]
Of course, it's not going to follow for generations, so you're right about the situation being substantially better than indentured servitude. But the metaphor isn't too far off the mark if its context is toned down a bit.
Prisons making you borrow money would be indentured servitude. College loans is taking a loan.
There could be a case made for credit cards being indentured servitude, due to their unreasonably high interest rate and the fact that they entrap you by just issuing them. Far more so than college loans.
You could probably find millions of people, including me, who would gladly trade their student loans for several years of indentured servitude.
My history is a little shaky on old American slavery, but I'm pretty sure that a large number of indentured servants brought to colonies in the Caribbean were disposable: they were worked til they died and never managed to leave their servitude.
What I am saying is that college debt from middle class 1st world adults is not indentured servitude.
A sort of institutional will has taken over the universities, one that leads them to expand at all costs. The area occupied by George Washington University in Washington, DC, has considerably increased over the years, and they have campuses in Alexandria and along Foxhall Road. AU, Catholic, and Georgetown have all expanded--the last, which is hemmed in with expensive real estate, is looking to open a campus several miles away across town. And they all seem to have Schools of Professional Studies (or some such name) where one can earn a credential by the investment of a couple of years of evenings and money that one's employer might pay for.
The problem is that colleges know that magic statistic that on average people with a college degree earn about 1 million dollars more than those without. So they can raise costs because it still pays to go to college and they're taking a bigger share of that future 1 million dollars in income.
Especially if this lending will allegedly give more status/money to the person
Housing bubble, Education bubble, Healthcare bubble
Ok, so I don't actually think it's a sector-wide bubble but I do think near-zero real interest rates and excess capital looking for a return can explain some of the excessive funding rounds and valuations that have at least temporarily prevailed in the last year.
If anything, in my opinion it's that very speculation coming to life that will do it.
I'm not seeing this. I mean, fewer jobs, sure, but If by education, you mean 'formal education' I mean, other than as a class marker (try getting a barista job post-college age without a degree) a huge number of employed people I know do not have a degree relivant to their career. Perhaps most. I know a fair number of people in my industry (including myself) without degrees at all.
I mean, as a class marker it shouldn't be underestimated, but as for actual instruction? a degree in history... does not teach you skills that make you significantly more employable.
Really, I think that article's complaint (that is, colleges are spending on classing the place up rather than on instruction) is a good one, but I think it's unavoidable. I mean, right now education is a class marker, and that is the problem. We don't have enough class-based jobs for all the people graduating with arts degrees.
In many ways, I think this is good; Maybe people will be judged more on merit than on familial background. Or maybe some other proxy for class will come into vouge.
Either way, the real problem isn't education, its that we haven't figured out enough jobs for people that need to be told what to do.
Personally? I think the next frontier is monitizing more of traditional 'women's work' - I mean, I know a lot of couples where both people earn six figures (and both work brutal hours) - sometimes those people even have kids. Usually it's the woman who is expected to do most of the traditional women's work while still working, but whichever way you slice it, it's crazy to work a bunch of hours a week outside the house for really good pay, then come home and spend a bunch more hours doing work the unemployed person down the way would be happy to do for cheap. Why not monitize that?
I mean, in my price range, though, there's not a lot of room for a middleman. Sure, people even in silicon valley are happy to work for those rates, but if you have a middleman, you essentially double those numbers. People like me? we don't care; we prefer going direct anyhow. But most people feel more comfortable with the legitimacy of a middleman.
There's a business idea; a low-overhead domestic services agency. You'll either be able to lower prices to end-customers, vastly expanding your customer base, or pay your workers more, which likely will net you better service.
That, and I think many people need to be told what to do not because they can't run a business but because they have been told it is hard. And some of it, especially when you don't have the cash for an accountant, really is hard. So I think there is a lot of room for low-cost franchise operations that take the accounting/legal bs out of starting a company.
Heck, some kind of 'ycombinator for lifestyle businesses' would be pretty great, though the business model isn't really there. I guess the business model is that if someone comes up with a business model you franchise it out.
Yeah, that's a pretty good idea, I think. Some kind of incubator for new service businesses; instead of exiting through VC, you turn the successful ones into franchises.
(It's possible that 'service' isn't the right sector, and we need to come up with an entirely new means of economic production... but I'm not the man to make that jump, and I think there is still a lot of room for 'service' industry growth, especially now while labour is inexpensive.)
I suspect, for instance, a rural Idaho government agency hiring a sysadmin will expect a 2 or 4 year degree.
I mean, outside of the computer industry, you may very well be correct, I don't know. But for SysAdmins, at least? even in government, a degree is demonstrably not required if you have the requisite experience and knowledge.
Hell, 30 years ago when my dad got a computer operator job at the university of california, such things weren't required. I mean, he ended up getting a degree, and it no doubt helped make the jump from SysAdmin to IT manager, but it wasn't required for the SysAdmin position.
"Disruption" is an overused buzzword but it may apply in this case. Universities trade of the fact that their expensive product is important and exclusive. What happens when it isn't exclusive or expensive any more?
The quality of education obtained at the Ivies is not part of that.
An interesting question to consider is whether admissions to Ivies followed by independent, autodidact study can work around the actual attendance. "Here is my online coursework portfolio, research, and my admission acceptance letters to Yale and MIT . . . "
There's nothing stopping the online-U's from eventually working on reproducing or circumventing the Ivies' specific advantages.
Another outcome to look out for would be for cash-strapped Ivies to be hollowed out. i.e. become a cluster of buildings where students log on and do work online in exchange for an attendance certificate. That would preserve the quality of education and the social advantages of the university, while costing less. It would work, at least for a while until the next generation sees through the archaic model.
You don't have to go to a high-priced private university for four years to have a good career (that you enjoy) and live a nice life.
I was an average student in HS (3.0 GPA), but I buckled down at CC and got my GPA up high enough to score an academic scholarship (full tuition) when I moved on to university through Phi Theta Kappa.
The averages are the averages of those who borrowed, which for most of those schools is about 50% of the students (about 25% at Princeton), so half the students at these high-priced private schools are graduating without any debt.
These are 2010 numbers. The numbers are probably lower now at some of them. Stanford, for instance, waives tuition completely for students whose families make under $100k.
By all means consider affordability when choosing a school--but don't assume that you can't easily afford a high-priced private university just because the sticker price is in the stratosphere.
Student loan ABS are harder to short unless you're an institutional investor or hedge fund (in which case you wouldn't be asking ;), but if things get nasty again in the financial markets people tend to pile into treasuries and USD as relative safe havens.
Here in Australia everyone can go to college and what happens is that the tax office keeps track of the money you owe and then as you start earning money they pay the loan back through a tax increase. You also get a discount if you have the loan back quicker. It's all seamless and you can also add books/computer to the loan as well.
"The 2012 limits (indexed annually) are $89 706 for most courses and $112 134 for students undertaking a medicine, dentistry or veterinary science course" http://www.deewr.gov.au/HigherEducation/Programs/StudentSupp...
..which is hardly enough for many degrees in many universities in the US, where it can cost over $40k a year.
Of course, this is Australia and even if a student didn't make it to HECS-HELP where the government subsidies around two thirds of the cost of a degree, or for international students where government funding and lending isn't available, a degree can't cost more than $25k a year.
The Aussie HECS system is more like the European style systems than american ones where universities compete in a semi-free market. Unis get paid a set amount per student. Student contributions are a fixed contribution to the total. Including the subsidized loans but not including founding & research grants to Universities, they account for about 25% of total costs, an incentive to take it seriously but not a pay-you-own-way system. Very far from a free market.
The interesting element of the Aussie system is that they have maintained competitiveness and a steep quality curve more similar to the American environment with the best Unis (eg ANU & Melbourne) ranked much high internationally than the those just a step down locally. Australia has more highly ranked Unis than most European countries with larger populations.
But.. Judging by inflation in international & (the less subsidized) "full fee place" tuition, fees are rising fast down under too.
Education is not something where there should ever be an attempt to capture the consumer surplus.
There is no downside for institutions to continually inflate prices, so they do. Incentives run the world.