Blame cheap, easy loans from the US Government combined with the cultural belief that a college degree will guarantee a living wage. The colleges should be issuing the loans. I can bet that if they did, they'd be a heckuva more selective about who attended and have a much larger vested interest in making sure their students became successful financially after graduation.
> cultural belief that a college degree will guarantee a living wage
I have more than a few friends and acquaintances who are deep in debt from school loans, many of them with degrees from excellent schools but with low market value (compared to e.g. engineering, science, medicine, law). I'd be in the same boat (a lit degree) if it weren't for an obsessive hobby that happened to be lucrative (programming, design).
So I think you're exactly right. Many people are given false expectations about what opportunities a degree confers. Much of what you're paying for is a good brand attached to your name and access to a social network. That's much more of a gamble than med school, where although you're guaranteed to come out with a lot of debt, you're also fairly certain you'll be able to pay it off in ten years or less while making a very comfortable living.
I would love to see more money and effort spent on secondary education, vocational education, and community colleges. I would pay more taxes if that's where they were going. If the collective mindset could be shifted from "I need to go to college" to "I need to get an education, learn how to be creative and work constructively with other people," we'd have fewer people in debt and more functional institutions.
There's no one deciding whether investing in a particular degree for a particular student makes sense. Which is what would normally happen if you go to the bank and ask for money.
There's a reason we aren't graduating enough people in the difficult high-value fields like engineering. Its financially too easy to take an easy, low-value degree. And young people don't have a good understanding of how things work out in the long run.
So societally we are, once again, sending people down very bad roads paved with good intentions.
We have a mistaken belief that every good thing can and should be subsidized. But in doing so we destroy the decision-making process that normally would weigh the costs and benefits.
The result is decisions that more frequently don't make sense for individuals or society.
An unintended consequence would be limiting education based on financial ability - a school would not admit a lower income student as opposed to a higher income student. While this does occur in loans, and also in property taxes feeding school districts... to say someone can't go to college here because they don't have the money now is a tough argument. The great equalizer will have taken the final plunge into a wealth-based advantage.
Plenty of rather poor people were going to college 50+ years ago. They worked during the summers, or took a year or more off first to earn money and then went off to school.
The graph in the article show college costs up 300% in the last 21 years.
The economist[1] reports an 11x increase in college tuition from 1978-2011.
The problem is definitely _not_ that people can't get loans but rather that college is so expensive that it requires loans in the first place.
It might exclude the middle, but the truly needy tend to get scholarships to cover college costs. Scholarship programs might have to be rethought out to compensate for the lack of loans.
Based on the Bureau of Labor Statistics 2010 data[1] the average college graduate has nearly double the weekly wages of someone with only a hs diploma ($1038 vs $626/week) and is nearly half as likely to be unemployed (5.4% vs 9.2%)
So I think it's a bit unfair to say that this is merely a 'cultural belief'. Do you have any data to support that dramatically improved salary and employment rate is just a myth?
I do agree with the points on students loans, but I just hear way too often how "college isn't worth it" without any data to back this up what-so-ever
I can assure you there are correlation/causation issues with those stats. I come from a demographic and gene pool of people likely to hold degrees--aside from me everyone in my 6 person family has at least a bachelors and my girlfriend has a masters. However, despite no degree, I had no trouble obtaining a lucrative career as a developer.
You have no control group so the $1038 vs $626 or unemployment numbers are meaningless. The top would natural succeed even without going to college, you can't tell how much value it actually adds.
I'd be way more interested in those statistics over time? A degree has mostly always meant more money/better job eligibility, but is that now a smaller gap compared to years past.
If I was held to the same standard as your last sentence I would've never made it to a quality college when I had many external circumstances that affected my GPA. And yes, I was, and am, still talented.
Where do others like me fit? Are we to be cast aside? Will you push aside the next genius for something that is more 'safe'?
College costs are just like any other bubble: they rose and continue to rise due to the ease of financing. Why we allow 18-year olds to blissfully sign up for a lifetime of crippling six-figure debt is beyond me. At least make them get an engineering or business degree from a public college. In-demand colleges can keep raising tuition because students will just get bigger loans to get the name on the degree.
They're adults and aren't being forced to sign up for an out of state private school that costs 40k a year. Intelligent adults will pursue scholarships and go to school in state for for a reasonable price.
The problem is that even intelligent adults can be easily led astray without the proper information to arm themselves to make proper decisions. There's a lot of misinformation out there and pre-collegiate education isn't always up to snuff for performing this task.
* WARNING - ANECDOTAL EVIDENCE AHEAD - PROCEED WITH CAUTION! *
After I graduated high school (~ 8 years ago), I realized how little information I got from the school about college and my post-high school options. Most of what I had learned was from doing my own research and what my family had told me. Perhaps all the college counseling went to the gifted and talented group (yes, there actually was such a group in the school for each year).
The public school education system probably sucks in this regard for the same reason why most public schools don't teach anything about personal finance: there is none. No good reason whatsoever. It's quite baffling really.
While it is true that they are (or almost are) adults and should be able to make their own decisions, I think you'd be hard pressed to say that there is nothing wrong with a bank giving a $200,000 dollar loan to someone with absolutely no income.
Because you can't get out of student debt, the banks are more than happy to make loans to people who shouldn't really be taking them. Eventually, the bank will get its money back. For the education bubble to be popped, there's going to have to be a change in legislation allowing people to be protected from student loans if they go into bankruptcy.
Once that's the case, banks will start being more careful with the loans they make, there will be less cheap money available, and people will have to start making more rational decisions about which college they attend.
>change in legislation allowing people to be protected from student loans if they go into bankruptcy.
I think there is a balance there, but that is the huge deal: no one should be able to co-sign, and you should be able to go into bankruptcy after a long period of trying to make it work and drop the student loan dept too.
I don't want to swing the other way and see chapter 7 bankruptcies right after school driving rates up to absurd levels.
They're legally adults, however they don't know the difference between getting an engineering degree from Georgia Tech (best lifetime earning to cost ratio in the country for Georgia residents, equal ratio for out of state students as Harvard) and an English degree from Notre Dame.
Is lifetime earning to cost a useful metric, though? There are costs outside of college that won't scale with that ratio. Extreme example: a 1000:1 ratio isn't much good if your lifetime earning is $1000, and a 2:1 ratio could mean you come out ahead by a few million dollars.
I don't think any rational individual over the age of 30 is going to agree with your assessment that 18 yr olds are adults. Maybe adults-with-training-wheels...
Government policy: everyone should have as much health care as they want. Result: health care prices soar. Government policy: everyone should own a home. Result: home prices soar. Government policy: everyone should go to college...
I hate histrionics, but I feel compelled to connect the dots here.
Colleges charge more and more -- the growth rate is way above anything most of us would consider reasonable. Why? Because the feds guarantee loans for kids attending. That is, the person directly paying is not the person receiving the benefit. In fact, for many people the goal is to have the feds completely pay for education using loans, thereby giving everybody the chance to make an easy trade: take on some debt which you will have to pay many decades from now, and in return you get a few years of attending a super cool school, learning incredible stuff, and making new friends.
Except, you can never default on these loans. Once you make them, you are stuck with them for life. And those things you choose to study? Many of those will never offer you the chance to make the money you need to pay the loans back.
So now you're out of college with a degree that doesn't offer the income potential you need to pay for all those loans you signed for.
So how is this any different from indentured servitude? It's not to a particular person, but to society at large. We give you a piece of paper, you sign it, you have fun and work hard for a few years, and then you're in such bad financial straits that you'll have to take anything you can find that makes money in a sad attempt to ever get even again. How many PhDs are waiting tables in college towns? Does this appear to be a functional system achieving necessary societal goals?
There's a big discussion over whether college is necessary. No clear answers there. But there is also a discussion over whether the money trades that we make as a society are actually doing any good. We keep paying more and more, getting lots of good folks in debt, and when we ask if college is supposed to help them pay these loans back, we get a speech about how college is a special time in a person's life and shouldn't be related directly to money. It seems fine to relate it directly to money when the kid is signing his life away for a vague promise, but when we ask where the payoff is we're told we're being crass. It's about more than money. It's about the experience.
That might be true, but there are a lot of special times in a person's life. Why are we letting people trade a few good years when they're young in order to limit their options for decades afterwards? Where's the sense in that, not to the person involved necessarily, but to the rest of us?
Depending on the job market, college grads may or may not have a hard time find a job to get on track to pay off their loans quickly, so what? Everyone has a rough patch, some more than others.
The high school student who chooses NOT to go to college might be better off for a few years after high school, but on average, their LONG TERM economic future is not as bright as that of a college grad-- even if the college grad has a rough time find settling into a career after graduation.
This is perhaps more clear if you look at people in their 30's and 40's. The college grads are, I think, generally better off (modulo some outliers).
Correlation or causation? It seems to me colleges often accept people who are already poised to be successful.
Imagine if a university decided to randomly pick people to educate. (Not randomly pick among the applicants -- randomly grab people off the street.) Do you think those students would be very much better off after being educated?
It depends. I think there are lots of folks who would excel but do not make it to college simply because of economic conditions or low familial expectations holding them down. There's also many without intellectual talent who get into college simply because a parent held their nose to the grindstone for years and forced every available opportunity onto them.
It also depends, at least somewhat, to what the degree is. This is anecdotal, but my friends that majored in math, CompSci, and Engineering rarely have trouble finding a decent job. On the other hand, the English and History majors I know frequently struggle to find a good job.
While you can't default on the loans -- if you have the federal direct loan agency maintain the loan, it is relatively forgiving arrangement. They let you defer the loans almost indefinitely if you're near the poverty line or have any sort of hardship. They will also limit payments to a percentage of income... regardless of how much you owe. I've missed payments & they've re-set my schedule with almost no problems. They don't fine you to death. Overall, it's probably the most pleasant financial transaction I've ever engaged.
The relationship being so pleasant probably makes the problem worse, because there are fewer horror stories to warn young people away from the easy credit. The availability of this credit allows colleges to just keep increasing and increasing tuition at a time when education should be getting cheaper and fewer people can afford it.
Colleges vary quite a lot in terms of how much spending they do that can reasonably be accounted for as spending on student instruction, and spending on all aspects of care of students. At some colleges, the list price for the students who pay most out of pocket is BELOW the spending per student. That's because those colleges have sources of income (e.g., endowment income and direct grants to the institution) other than tuition income.
Yes, I see a lot of that. Virtually every university I come across has recently completed or in the middle of some huge sprawling campus expansion. It is hard to fathom that the growth from increased tuition aren't directly funding such building projects.
There's interesting comment after the article about why this may actually be very misleading:
Public college costs used to be covered more by the state, whereas now the states are cutting and cutting and raising tuition and fees dramatically. This raises student's tuition at a much faster rate than the total tuition rate is actually rising.
I'm a 22 year old university student in Sweden (starting my 2nd year now) and I find it hard to imagine life with school costing a fortune like this.
Sure I, and most students in Sweden, take loans to pay for food, rent and books but the school itself is free - even now! We're also getting a good low rent loan with a part allowance. No wonder we're having so many foreign students. That's going to change from next year though when the foreigners will get charged.
your school itself is not free, the costs are just hidden from you. You will pay much more in taxes over your lifetime than the college costs cited this article.
I still find it a bit hard to imagine, where would I be now if I had loan a lot more. I might be studying the same but I surely would work harder, both in school and during the summer.
On a related note things like medical care and laws sometimes makes me feel the same.
Well I have to ask if anyone actually thinks this system of student loan debt and increasing student loan debt, is sustainable? I personally see it coming to a bubble state at some point in the future and with the debt being basically impossible (except for a slim set of cases) to remove in bankruptcy... what are we going to do about it?
I'm curious- if all schools were run like businesses on the open market, is there anything stopping tuition from reaching an equilibrium price close to the value of the degree (in terms of wages)?
It seems like folks will likely continue paying more to go to college so long as the boost in income is worth it, and colleges will continue to increase tuition until they can no longer get away with it, so it seems like that's where we could be headed.
Why it didn't happen before, I figure could be due to public schools setting a very low bar and private schools had to remain at least somewhat nearby. But as the government continues to pull funding from public higher education, it becomes more and more private, i.e. driven by the market.
What you're missing are the loans. College loans are cheap money, which change the equation so that price doesn't matter nearly as much. It's almost an identical situation as the housing bubble: people get cheap money to pay for college, with the expectation that a degree will make the loan easier to pay off in the future (just like houses never go down in value, right?).
The difference is, there's no defaulting on student loans. Even bankruptcy won't save you. And that means this bubble is going to be much harder to pop. In the meantime, colleges will keep raising tuition because there's enough cheap loans out there to sustain it, and the banks will keep making cheap loans because it's a bet they can't lose.
In theory, supply will rise and demand will fall, and they will meet in equilibrium. In practice, nothing ever reaches an equilibrium. It's often not even close.
Colleges are basically in the fashion industry, if you squint at their business models. Price can be a selling point, if it can be used as a way of signalling class or dedication, look at Gucci handbags and the Ivy League. It doesn't matter how little you can buy a handbag for, people still pay more for a top brand.
I guess it might follow the fashion industry. A few boutique providers sell "high quality" goods, to people who want to pay extra for the label. Everyone else will try to drive costs to zero. I wonder how much business process outsourcing they will end up doing? Get ready to have your tutorial papers marked by someone in another timezone ...
Remember, economics assumes rational actors. We have loads of students in school because they think they have to be, but don't treat it as an investment. For most fields, tuition is already way above equilibrium, because schools and students alike believe that demand is inelastic: either you get a degree, or you're a second-class laborer. By not having this information, they can't be rational, and continue to "buy degrees" even though MC > MB.
"...if all schools were run like businesses on the open market, is there anything stopping tuition from reaching an equilibrium price close to the value of the degree..."
Obviously: competition and alternatives. Just like the equilibrium price of a computer is way lower than what you are willing to pay for it.
Often, markets lead to lower* prices on many things as technology and processes improve in pursuit of profits.
*: If you define the value of a degree as the extra value above and beyond the next best alternative, than of course alternatives don't really factor in. But with most goods and services, there is some kind of alternative in addition to competition.
How can you determine the value of the degree? The only thing you know for pretty sure is that without degree you will have a massive problem on the job market.
Depends on the degree...Perhaps at the undergrad level there is some truth to this. Comparing an undergrad english degree to a degree in medicine and you can easily be an order of magnitude off.
"As a hypothetical example, take the University of Pennsylvania and Penn State, which are two schools a lot of students choose between," Krueger said. "One is Ivy, one is a state school. Penn is much more highly selective. If you compare the students who go to those two schools, the ones who go to Penn have higher incomes. But let's look at those who got into both types of schools, some of whom chose Penn and some of whom chose Penn State. Within that set it doesn't seem to matter whether you go to the more selective school. Now, you would think that the more ambitious student is the one who would choose to go to Penn, and the ones choosing to go to Penn State might be a little less confident in their abilities or have a little lower family income, and both of those factors would point to people doing worse later on. But they don't."
My personal opinion is that Ivies bang-for-the-buck is in the networking possibilities. There usually is some cool research, but high-grade official research isn't usually at the undergraduate level these days.
You want to make college costs come down? Make college loans dischargable in chapter 13 bankruptcies after 7 years of the date of graduation, or 12 years from date of first attendance
Why the down vote? The education bubble is not a global phenomenon, and there are plenty of great working educational models in other countries that the US could look to (even if it would be branded as 'socialism' etc).
