2. Culture since the Clinton era of "everyone should go to college". Massive cultural stigma for those who don't.
3. Colleges continue to justify costs based on lifetime earnings delta of people with degrees. Sadly, this data is backwards-looking and not indicative of what today's students should expect.
The most heinous thing though is that student loans are exempted from American bankruptcy laws. The gov't will give you a loan, without doing any diligence on your ability to repay, but make it impossible to discharge your debt if you go bankrupt.
University financial counselors are very well versed at helping students obtain the maximum amount of loans, along with an obligatory brochure cautioning them not to over-borrow.
I had a friend of mine who I knew when I was working at Thomson Reuters back when they still had their educational publishing wing of the company. He was in sales and said educational publishing is one of the biggest rackets nobody has heard of.
He said he would do his due diligence and meet with professors and educators regularly during the year and let them know what the publishers were doing, but in the end, he said it was always a 50/50 roll of the dice if a professor or school bought the books he had been pitching them since they got the last version of the textbooks they ordered.
He said it mainly came down to name recognition, and Thomson had that - but he also said it was similar to how agents woe professional athletes. Lots of perks, free dinners and baseball tickets to the professors making the decisions. He said as a sales person, they had a "client account" card where they could wine and dine clients and had a monthly stipend between 5K-10K specifically for this purpose.
He said you'd be surprised how greedy these professors get once they know they can influence what books are going to be purchased for the following year and from what company.
That was my impression of University/College. Having only experienced what was shown in movies and the media, I was under the impression that college meant getting your own "apartment with a roommate". Unfortunately, in the non-US university I attended, it meant "4x6" meter room, two beds, two cupboards, two desks, and two-roommates.
Then again, the entire year's tuition did only cost about $3500, about 9 years ago.
What?
Literally every student I talk to knows full well that loans are meant to be repaid.
But if it turns out that it cannot be, virtually all are dischargable in bankruptcy.
Student loans are a very, very rare exception. Also a rather recent one.
Wow, citation please? Credit card companies set up pop-up stands and give away free t-shirts to students who apply for their credit cards. The VAST majority of the applications are happily approved.
Update: excellent citation kileywm. I guess my perception was a bit dated.
"(5) Eliminates excessive marketing to young people. Consumers under the age of 21 must prove that they have an independent income or get a co-signer before applying for a credit card. The Act also prevents credit card companies from mailing offers to consumers under 21 unless they "opt in," and prohibits companies from wooing students with T-shirts, free pizza and other free gifts at university-sponsored events."
As an anecdote, my experience (within the past decade) reflects the parent post's perception. My first credit card had a very low limit of < $1000, and was surely because I was then young, a student with no stable income, and had a lack of credit history.
My first credit card as a student came with a $500 credit limit for what its worth. I wasn't able to get a $5k limit until I was out of school and working in my field and made a dent into my student loans.
Also, the interest will kill you unless you actually plan on declaring bankruptcy, in which case say goodbye to any chance of buying a house in the next seven years.
I would think that in your early twenties, defaulting on student debt and declaring bankruptcy would have roughly the same net impact on your life.
College has been improperly marketed. I've mentioned this on other threads, but my view is that college should be used as a forum to learn, not a means to get a job. The reality though is the opposite.
The pressure against this reality is mounting. I feel we're nearing the point where one is better off going straight into the workforce to receive on-the-job training instead of pursuing a college degree. In other words, the market forces are starting to take effect.
But do we need to fast track this shift in mentality? If so, how? How much do we leave up to the invisible hand to flesh this issue out and how much should the onus lie on third parties (e.g. the end of federal government loan subsidies, corporations, etc)?
No due diligence.. guaranteed loan.. cannot be discharged in bankruptcy. Makes sense to me. If the gov't could discriminate on who it loans to for risk assessment then that's a different story.
It has always been my belief that if government is going to provide loans it should set limits on the cost of the education it is taking the risk for. It already sets limits on medical care through reimbursement rates, how hard would it be to limit course costs? The means test should be on what you are receiving, not necessarily who is receiving it.
1. If your parents earn enough to finance you studying, you won’t get a loan
2. The loan is limited to 800$ a month
3. If you fail too many courses, the loan is cancelled.
But:
4. You only have to pay back in months in which you earn over 30k€ per year
This allows the loans to be a lot less risky.
I’d argue this is a much better system than what I read about the US tuition system, especially for the students.
(Obviously, the large supply of free governmentally paid universities help drive the price down, too.)
As an American, it would be difficult to engineer a worse tuition system than ours.
If they could, they wouldn't be allowed to. As soon as a hint of racial/sexual/anything disparity is shown in who is getting the loans, there would be a massive uproar to "incentivise" the non-proportionately-represented class with loans. Then you're back to square one, as the loan process is then "not" to be used as a corrective measure for society's ills.
In short the loan system is transferring the benefits of the education away from the students and allowing the institutions to take it for themselves instead.
Personally, I think we've already passed that point. Would love to see some more research here.
The incremental lifetime earning from a Bachelor's degree is something like 0.5 to 1.5 million dollars[1]. The cost of attending college could double at least once before the ROI goes negative.
[1] https://cew.georgetown.edu/wp-content/uploads/2014/11/colleg...
You have to assume totally unrealistic investment gains in the first four years to make up for the $500k less total income.
https://news.ku.edu/2015/06/19/ku-study-gives-more-accurate-...
But these studies are all flawed because they are based on historical data when 4-year degrees were scarcer. In an era when many graduates can't get a job or end up with one that does not require a degree (i.e. barista) it's obvious that their ROI prospects are grim.
> But these studies are all flawed because they are based on historical data when 4-year degrees were scarcer. In an era when many graduates can't get a job or end up with one that does not require a degree (i.e. barista) it's obvious that their ROI prospects are grim.
I don't think that's at all obvious. We are rapidly approaching the moment [1] when over half of the U.S. population has some sort of college degree, and already 2/3rds have at least "some college" education.
Applying to a front-line retail job with a Bachelor's degree no longer marks you as desperate and over-qualified. You are assuming that an employer will hire a person with only a high school diploma when she can just as easily hire a person with an associate's or bachelor's for the same wage. That will put downward pressure on wages for those without a college degree.
It may very well be the case that sending "everyone" to college does nothing more than depress the wages of those with only a high school education. However, that is not an argument against the positive ROI of college. Spending $100k to avoid $200k in lost wages is still a positive return.
Finding a job with a B.A. or B.Sc. may be difficult, but finding a job with only a high school diploma is even more so.
[1] https://en.wikipedia.org/wiki/Educational_attainment_in_the_...
That is by far the most concise summary I've ever read of the nature of the problem.
Would you say that the same thing is true to a lesser extent in the housing market? It's not as bad, but there's a huge amount of loan subsidy there that's driving the price of housing crazy.
The recipients have become the schools, deriving all of the benefits with no risk. The originators have escaped their traditional role as gatekeepers and risk takers. That leaves the students for all of the risk to concentrate on while they receive few of the benefits.
Essentially becoming sharecroppers of their own minds.
Not only that, it's downright bullshit.
I remember seeing once a comparison. Non college degree average salary: let's say it's 30K. College degree: 40K. Instead of college, take those 4 years and at least $50K of educational expenses and invest in the S&P 500. Do nothing. Earn more over your lifetime that the more sophisticated 40K college graduate.
Or better yet, take that 50K, use the plethora of free online learning resources and become an entrepreneur. For a large portion of the population, college is simply not worth it.
of the 2.9 million "good jobs" (i.e. full-time, high paying with benefits) created since 2010, 2.8 million have gone to people with college degrees.
It fun to say that you don't need a degree to get a good, high-paying, satisfying job, and there are plenty of anecdotal examples to reference, but the data clearly indicate that the odds are not in your favor if you choose an alternative path, at least in the US. I suspect that software engineering and some related industries might be a little more degree-agnostic, but that's far from the norm.
Basically, all of the mismanagement that people associate with government applies to colleges as well. They have guaranteed revenue, so they have no incentive to control costs. Project planning and approval are more about politics than about cost and value. Leadership is weak and more interested in covering their own asses than in making the right decisions. There's constant mission creep, with colleges strangely obsessed with running all aspects of students' lives. Adding new spending is easy, but eliminating existing programs is near-impossible. The workers are unionized, and are often able to recruit naive students to their protests against any cost-control measures.
At my college, there was an administrative department for every kind of minority, each with its own budget and staff. What goes in inside of these departments is its own scandal. Some were far-left outfits that spread the toxic identity politics that's been in the news lately. That's not the kind of instruction that parents think they're paying for.
The government needs to stop its irresponsible loan and grant programs. Colleges need to refocus on academics and basic services for students. The only way they will do that is if they are forced to justify their costs on the market.
But that is assuming a lock-in. Costs increased 3.7% this year [2]. If there was a 3.7% increase every year during your 4 years, you would pay $279k for a 4 year degree. This is a $15k increase over 4 years.
What's even worse, because of the magic of compound interest, only 9 years after you graduate, yearly costs would be $102k per year.
I personally see this as insanity. It will have to self correct itself, because no one can afford those fees.
So how does BU get away with it now? Primarily through allowing any foreigner with the ability to pay in, regardless of their educational merits. BU has a massive amount of Asian, Indian, Eastern European, and Middle Eastern students who pay the full costs. Anecdotally, a man in my freshman dorm was the young scion of a wealthy family from Dubai, worth over $100 million.
US students rarely pay the full tuition, which is why the outrage isn't so large.
[1] http://www.bu.edu/admissions/admitted/tuition-and-fees/
[2] http://www.bu.edu/today/2015/bu-tuition-and-fees-to-increase...
I'm not convinced government backed loans have much to do with it. Here's a table comparing Stanford tuition growth to inflation over periods of 10 years.
Each row represents the 10 years ending in the year given in the first column. Second column is how much inflation multiplied prices over that 10 years. Third column is how much Stanford tuition multiplied over that 10 years. Final column is the ratio of the Stanford column and the inflation column.
Year Inflation Stanford Ratio
1930 0.8 2.5 3.0
1940 0.8 1.2 1.4
1950 1.7 1.9 1.1
1960 1.2 1.5 1.2
1970 1.3 2.4 1.8
1980 2.1 2.6 1.2
1990 1.6 2.3 1.4
2000 1.3 1.7 1.3
2010 1.3 1.6 1.3
It would be interesting to compare to other schools, in particular to other top private schools, top state schools, and other private and state schools, because it is quite possible that factors that can affect tuition affect it differently at different kinds of schools. My Googling only found sufficient historical tuition data for Stanford which is why that's the only one I was able to compare against inflation.
Inflation data: http://www.usinflationcalculator.com/inflation/historical-in...
Stanford tuition data: http://facts.stanford.edu/administration/finances
You're also only looking at cost, which is only half of the equation. You also need to scrutinize lifetime earnings of graduates. For Stanford, this metric would obviously be excellent (see: endowment). For many of the mediocre to bad universities in the United States, this metric is likely terrible.
1. Services in general don't benefit from productivity improvements like goods do. As productivity goes up, services tend to get more expensive in terms of physical goods. Education is a service (as is health care, which is also out-pacing inflation).
2. Saving is extraordinarily difficult on a national and generational scale. Outside of saving easy-to-extract natural resources (oil) for later, basically the only other option is to make the next generation promise to make things later. This is why the lending standards are like they are for student and home loans - the economic pressures of retirement planning demand it.
3. Education is a positional good - you only need a degree for entry level jobs because you're competing against degree holders. Since we're getting better at providing absolute goods for our society, more resources are getting freed up to chase positional goods.
4. A good chunk of the price increases are getting made up with corresponding scholarships and need-based awards. Universities are less trying to gouge all their students, and more realizing that they can pull much more money from higher-income students. This is especially true for Ivy League and other prestigious schools.
Very not true. Productivity for paralegals, accountants, and programmers has certainly risen over the decades. We could define education as "person at chalkboard talking about things to other persons sitting at desks", which probably doesn't scale well. There's no reason to think that, in abstract, distributing information won't scale well.
> Saving is extraordinarily difficult on a national and generational scale.
Exactly. Leaving money to the next generation without getting a huge tax hit is non-trivial. If I got cancer tomorrow, I'm not deciding between leaving my daughter a college fund or going through chemo to eke out five more years. I'm "not paying" for the healthcare, so I'll spend whatever I can on lasting a couple extra months. I certainly can't opt to forgo treatment to leave $250k to my grandkids.
If you aren't trading current goods for future promises of them, then you're doing things like building machines and roads that deprecate and require maintenance, or growing crops that rot, or otherwise making stuff that won't be very helpful when you're older.
And since a lot of people want to be taken care of when they're older, and they're making tons of things that people today want, there's absolutely zero surprise that they're extending shitloads of credit (especially to young people, and college/housing in particular).
But once you make the mental leap from it being about a public good to it being about an individual good, the arbitrage starts, just as it does for any item where the cost is significantly below its value. Colleges would have faced a massive backlash if they'd tried to just adjust directly to the point of equilibrium, so they've been moving to that point over the past ~30 years.
My wife teaches high schoolers and a huge percentage of their parents think admission to an out of state private school guarantees a solid career. She (an older millennial) is often the only voice in favor of a strong in state public school or picking a major that actually leads to a job.
Prediction: the problem gets worse until the leading edge of millennials have high schoolers of their own.
In the U.S. everything is for profit. It's just that some of the for-profits find it beneficial to file as a non-profit for the benefits it confers.
Look at just about any big American university or hospital. You have marketing, customers, revenue maximization, ruthlessly driving down labor costs, and as much cash as possible captured by the CEO (er, president) and other high level executives.
The great thing about running a business like this, is how the U.S. government earmarks massive amounts of the national GDP, which can only be used on your product. School loans, as others have mentioned, and Medicare/Medicaid for health care.
That being said, easy government loan money and a growing pool of students demanding a much-slower-growing number of slots at "well regarded" private universities has made it easy to keep ramping up the price.
[1] http://www.nytimes.com/2014/07/29/upshot/how-the-government-...