Sunday, April 29, 2012

The Political Obsession with College Education Has Created an Unsustainable College Tuition Bubble

From Jeff Jacoby in today's Boston Globe

"For decades, American politicians have waxed passionate on the need to put college within every family's reach. To ensure that anyone who wants to go to college will be able to foot the bill, Washington has showered hundreds of billions of dollars into student aid of all kinds -- grants and loans, subsidized work-study jobs, tax credits and deductions. Today, that shower has become a monsoon.

The College Board, which tracks each type of financial assistance in a comprehensive annual report, shows total federal aid soaring by more than $100 billion in the space of a single decade -- from $64 billion in 2000 to $169 billion in 2010. And what have we gotten for this vast investment in college affordability? Colleges that are more unaffordable than ever. Year in, year out, Washington bestows tuition aid on students and their families.

Year in, year out, the cost of tuition surges, galloping well ahead of inflation (see chart above). And year in, year out, politicians vie to outdo each other in promising still more public subsidies that will keep higher education within reach of all. Does it never occur to them that there might be a cause-and-effect relationship between the skyrocketing aid and the skyrocketing price of a college education? That all those grants and loans and tax credits aren't containing the fire, but fanning it?

Directly or indirectly, government loans and grants have led to massive tuition inflation (see chart). That has been a boon for colleges and universities, where budgets, payrolls, and amenities have grown amazingly lavish. And it has been a boon for politicians, Republicans and Democrats alike, who are happy to exploit anxiety over tuition to win votes.

But for students and their families, let alone for taxpayers who don't go to college, it has been a disaster. The more government has done to make higher education affordable, the more unaffordable it has become."

MP: The chart above shows that the rising costs of a college education (7.5% per year) have far outpaced rising medical costs (5.7%)  and housing prices (4.2%), and have risen annually at twice the average inflation rate (3.8%).  The graph also illustrates that the rising costs of college and the resulting college tuition bubble make rising U.S. home prices and the resulting housing bubble look relatively inconsequential by comparison.    

13 Comments:

At 4/29/2012 10:41 AM, Blogger hal said...

College goes up in price, because there isn't much competition and growth. Colleges should act like businesses and grow to meet demand.

Students should not compete to get into colleges. Colleges should be competing for students. There should be a surplus of places at even the best colleges. High supply and competition will lower prices. Regardless, the traditional college is obsolete.

 
At 4/29/2012 11:39 AM, Blogger morganovich said...

the key question to my mind is "have we created a bubble of college graduates"?

my suspicion is that the reason recent college grads are having a harder time finding jobs than in the past (even in recessions) is that we just have too many college grads.

those graduating from a top school are not having trouble finding work, but those with a degree from the university of catbut wyoming are finding that this credential means little or nothing and that there is just not demand for them in the way they hoped.

could it be that the demand was not really for "college grads" but for, say, the top 10 or 20% of 22 ans 23 year olds and that those just happened to also be the college grads?

if that is so, then upping college grads to 40% of the population or whatever is not really increasing their opportunities much, just their costs and worse, setting them up to hate what they do.

how can you sens a boy back to the farm once he has seen paris, non?

 
At 4/29/2012 11:54 AM, Blogger morganovich said...

hal-

"There should be a surplus of places at even the best colleges"

i could not disagree more. part of the role of a top college is that of a screener. if you triple enrollment at yale, the quality of student will drop and thus, the prestige of a yale degree will drop as well. it will affect the education they get as well. you's need more (and lower quality) faculty, bigger classes, less faculty access, etc.

the top schools have every reason to keep enrollment low: it keeps the quality of their educations high in addition to the prestige of their credentials.

employers have limited time to sift through resumes etc. they effectively outsource part of their HR to highly selective schools making the (generally correct) assumption that if you could get in and do the work, you are a top x% student.

why would they want to give that up?

that's like asking porsche to make as many cars as toyota and getting their price down to $25k. that's just not the business they are in.

the market needs porsches as well as toyotas.

the traditional college is nothing like obsolete. it's more poignant than ever. 2 resumes that look the same apart from one saying "mit" and one saying "uconn" are treated more differently than ever and that gap is going to widen even further.

in an age where individual employees (if they are the right ones) are so incredibly productive, you really want the best ones.

students will always compete for the top schools just as workers will always compete for the top jobs.

this notion that there will be a surplus of spots at top schools is utterly impossible.

if there is a surplus of spots at brown, why would anyone go to sunnybrook community college?

the notion that "i never got into harvard but did online coursework equivalent to a degree" is going to be treated like a harvard degree is simply untrue. as someone who has hired a large number of ivy grads, i would not even consider an online degree to be in the same league, and i suspect that most employers feel likewise even if it could be verified that you really did the work yourself.

you have to realize that getting in is half the battle in terms of credentialing.

faced with a choice between hiring someone who could get over that hurdle and someone who could not and assuming both did the same coursework, why would you hire the latter if you are after the best?

 
At 4/29/2012 2:05 PM, Blogger AIG said...

my suspicion is that the reason recent college grads are having a harder time finding jobs than in the past (even in recessions) is that we just have too many college grads.

Of course not. There is no such thing as a "college grad". There is a mechanical engineering graduate, there is a psychology graduate, there is a computer science graduate, there is an education graduate etc etc. Then there's a BS, and then a BA, and then an MA and then an MS. And then there's Harvard, and then there's Cal Poly and then there's Michigan State and then there is Middle of Nowhere College.

PLEASE do not fall into the TRAP of aggregating for the sake of aggregating, to make a cheap political point.

The very notion that somehow "college tuition" should rise or fall comparatively to other goods in society, goods which are completely different in what service they provide or what benefit they provide...is ridiculous.

WHY should college prices somehow mirror housing prices? Or CPI? It absolutely shouldn't, if it is doing its JOB right.

The very fact that someone with a degree in a scientific or engineering field today can enjoy a huge premium in the market compared to not having one, is reason enough why their college tuition CAN be a lot higher and can be increasing a lot faster. The fact that today more and more people are getting masters, because the market place DEMANDS it, is also reason enough for the prices to go higher.

A degree from a good university in a competitive field is hugely valuable. It is MORE valuable today than it has ever been. So why should its price be comparable to CPI? Why should it not be increasing?

-----------

Again, this is a cheap political point, arrived at by a method which makes no sense, because it doesn't even bother to look at the benefits this good is providing, or how those benefits have increased over time, or how the CUSTOMER for those goods demands more and better of them (the customer, always being the employer, NOT the student).

-------------

And again, this very wrong method of comparison leave's out the most important and critical measuring stick...a UNIT OF COMPARISON. You cannot speak of price inflation, if you have nothing to COMPARE with. A "unit of degree' is 2012 is NOT a "a degree". A degree in the same field today, is not equivalent to a degree in the same field in 1980.

But they can be compared based on a UNIT of value that they deliver. For example, the cost per $ value added to starting, or to mid-career salary, vs not having that degree.

So if my premium for a degree in say, software engineering today in starting salary terms is $70,000, and in 1980 that premium was $20,000 (assuming constant dollars)...is the increase in cost for getting that additional benefit, worth it to me. THAT is the question. That is the comparison. That's the only comparison that matters.

The results will be that a large number of degrees from a large number of universities will fall below the line of reasonable returns....but a large number of degrees from a large number of universities will be above.

Of course it's not easy, so whomever wants to score political points, can just compare the rise to CPI...

 
At 4/29/2012 2:11 PM, Blogger AIG said...

Students should not compete to get into colleges. Colleges should be competing for students.

They do. What's your point?

Regardless, the traditional college is obsolete.

Yeah, sure. All those non-traditional college graduates are sure sticking it to the traditional college graduates, aren't they?

Do you people even bother to look at things like, facts, when you make these proclamations?

 
At 4/29/2012 3:42 PM, Blogger Gale L. Pooley said...

Mark, can you also include the cost of textbooks in your chart? Seems the textbook publishers are also enjoying the subsidized demand.

 
At 4/29/2012 3:42 PM, Blogger Gale L. Pooley said...

Mark, can you also include the cost of textbooks in your chart? Seems the textbook publishers are also enjoying the subsidized demand.

 
At 4/29/2012 4:16 PM, Blogger Benjamin said...

Dr Perry has hinted around at better models than traditional four-year colleges.

I suggest Dr. Perry cut his ties to the tax-funded, public University of Michigan, and become an entrepreneur---start his own institution of higher learning, based upon successful completion of standardized tests by students.

Target cost: One third that existing colleges.

 
At 4/29/2012 5:04 PM, Blogger Cabodog said...

As an employer, I can honestly state that I'm not impressed with the product being produced by many colleges and universities.

Applicants for jobs with spelling errors on their resume. New hires that don't have command of the English language. Laziness beyond belief.

Just a sample of what we've experienced. It's obvious to me that many institutions exist for the money and certainly not for producing a GREAT product.

 
At 4/29/2012 5:47 PM, Blogger Jon Murphy said...

One thing that is pretty obvious is whenever the government gets involved to control costs, then prices rise.

 
At 4/29/2012 6:32 PM, Blogger AIG said...

Target cost: One third that existing colleges.

Cost by itself is irrelevant. Which is why this comparison, is irrelevant. It's the cost-BENEFIT, that matters.

It's very easy to cut costs to "1/3" of "existing colleges" (which range from 7k for cheap state schools to 60k for top private schools...so you 1/3 doesn't make much sense either).

It's not easy, however, to cut those costs and still provide an adequate return for that investment.

Go to any of the hundreds of online schools. How much value for your dollar do you think you will get? Some can get very very cheap. But that's irrelevant, if you get nothing out of it.

This is why I am surprised that such concepts pop out in an economics blog, and more so by people who have some sort of understanding of "markets". Plopping out graduates and degrees at $10 a pop...is VERY easy. China does it day in and day out.

But what's the value?

None of you have yet to provide a justification for grouping together a very wide distribution of different populations, ranging in price from 7k to 60k a year, and in scope from bio-medical engineering to glass blowing...labeling it as "college", and then ignoring the different value outcomes

 
At 4/29/2012 7:06 PM, Blogger Jon Murphy said...

None of you have yet to provide a justification for grouping together a very wide distribution of different populations, ranging in price from 7k to 60k a year, and in scope from bio-medical engineering to glass blowing...labeling it as "college", and then ignoring the different value outcomes

I don't know. For a Bachelor's, everything's pretty much the same. Is a BA in economics really much different from a BA from Framingham State University? I think once you start talking about graduate degrees, there is a difference, but not so much at the BA level. You'll have different experiences, sure, but different knowledge? Nope.

 
At 4/30/2012 3:57 PM, Blogger AIG said...

I don't know. For a Bachelor's, everything's pretty much the same. Is a BA in economics really much different from a BA from Framingham State University? I think once you start talking about graduate degrees, there is a difference, but not so much at the BA level. You'll have different experiences, sure, but different knowledge? Nope.

The world doesn't start nor end with degrees in economics.

In engineering, it sure matters a lot where your undergraduate degree is from, if you intend to stop at that level.

Because education, is not about information.

But again, my point wasn't about economics degrees or engineering degrees, but rather about combining these very different types of value outcomes, into one thing called "college", and then attributing all sorts of unrealistic assumptions on this thing called "college".

 

Post a Comment

Links to this post:

Create a Link

<< Home