The risk of attending college

We don’t generally talk about the risk of attending college. But it is a big investment for the individual, his parents, and taxpayers that subsidize the average college student at least $10,000 per student per year (via guaranteed student loans, state and federal grants, state subsidies of colleges and tax deductions for donations to colleges). And big investments involve risk and reward. A college education is no sure thing even though we frequently here much more about the rewards than the risks.

Two alternatives to college are for junior to work right after high school or start his own business. Why is it risky for junior to experience real work and the business world before he enters academia?

The analysis is quite different for college entrants than they were for my grandfather when he headed off to UC Berkeley in 1917. Few high school grads back then had a chance to attend college, and college graduates were a rare commodity. It didn’t cost nearly as much (relative to the cost of living), virtually nobody borrowed to attend college and those families wealthy enough to be able to afford this luxury were already in the top economic tier. My grandfather graduated in 1921 with no debt and a head start over his high school mates that had worked on the farm during the same four years.

But today the college “investment” is different and far riskier. Here are the three main risks involved with going to college today right after high school:

1) You won’t finish. Today only about half of those entering college have graduated within six years. (If you graduated in the bottom 40% of your high school class and went to college then 76% won’t earn a diploma). For college students who ranked among the bottom quarter of their high school classes, the numbers are even scarier: 80 percent will probably never get a bachelor’s degree or even a two-year associate’s degree.

2) You will pile up far too much debt to pay off your student loans with the rewards of the college education you have earned. Americans now owe more on their college student loans than on their credit cards.

3) You studied a “fun” or interesting degree rather than one in demand in the job market. So you have graduated but no one but the fast food chains want to hire you. Modern Dance or Sociology sounded interesting when you selected your major as an 18 year old but no one ever warned you that after all the time and money you invested in earning your degree, you were destined for poverty.

Perhaps the lesson today isn't that you shouldn't go to college, but that you should approach it like you would any other investment: with caution.

“It’s a very risky investment,” said Laurence Kotlikoff, an economics professor at Boston University and president of Economic Security Planning Inc., which makes financial planning software.

America's Waiters and Cashiers Are Over-Educated

Good article at Reason.com.

And not only are America's waiters over-educated - they are deep in debt because of their college student loans. I don't really buy into the notion of being over-educated; I just don't want to pay for your study of esoteric and impractical subjects. If you are going to pay for it, I could give a flip what and how long you study.

Not everyone should go to college and if one goes to college, it should not cost nearly as much as it does today. And we should not be borrowing (as governments, parents and students) for this education. Let the market function; eliminate all the borrowing and the subsidies and we can then sort this mess out.

Not all education is created equally. A BA in Art History will not afford you the same opportunities as a BS in Electrical Engineering. Even if the former is at an expensive private Liberal Arts College at $50,000 per year and the later is at the State U for $8,000 per year.

Let's get rid of the government subsidies for college. This by itself will lower the cost, and help focus colleges and students on education that will pay for itself.

Going to an Elite College Won't Get You More Money; Being Good Enough to Get Accepted at One Will.

In 1999, economists from Princeton and the Andrew W. Mellon Foundation compared students at more selective colleges to others of “seemingly comparable ability,” based on their SAT scores and class rank, who had attended less selective schools, either by choice or because a top college rejected them.

The earnings of graduates in the two groups were about the same — perhaps shifting the ledger in favor of the less expensive, less prestigious route.

100 Percent Of College Football Players Are Receiving the Benefits Of Being College Football Players

An exhaustive three-year internal investigation has confirmed that a full 100 percent of college football players receive the advantages that come with being a college football player, the NCAA reported Friday. "We were frankly stunned at the benefits athletes received when it came to classwork, housing, transportation, tuition, even food.

Word of mouth is an important factor in sustaining the “image” of a college

This article in the Huffington Post is the kind of drivel that we hear too frequently on the cost of college.

The author, David Skorton, the President of Cornell University talks about the “net price” of college as being less than the sticker price. But if one adds the cost of all the subsidies (parent, government and donations) of at least $10,000 per student per year (in governmental subsidies alone) the “actual cost” of college today is actually much higher than the sticker price. The student may experience a lower net price but only because someone is picking up the rest of the tab.

This article never asks: 1) What in the heck are students actually studying today at college? 2) Why have we combined minor league football and college? Why not move minor league football outside of college like we have in professional baseball? 3) Why are we paying professors more for their esoteric “research” rather than their effectiveness in educating our youth? 4) Why do we have to invest so much in the ambiance of the campus (large park-like settings with resort dorms and meals that are fit for a cruise ship)?

College should be tough and we should have standardized tests that allow us to determine who is producing the most useful education for the dollar spent (this is called productivity).

Word of mouth is an important factor in keeping up the “image” of a college. So the author points to a recent study by the American Council on Education that says 89% of alumni reported that “their college experience had been worth it”. First, many of these grads have not paid for their education yet and so it is too early for them to experience buyer’s remorse. And more importantly, with what do these unemployed, deep-in-debt, Sociology majors have to compare their college experience? Once you drink the Kool-Aid, you are vested in getting the next poor schmuck to drink the Kool-aid as well. Do we really expect the recent grad to say: “I was an idiot, and my parents were morons to push me into attending six years of college to pursue my dream of an Ethnomusicology degree. I am working at Kentucky Fried Chicken right now but at least I can now better understand the rhythm and the melody of a hard working fast food operation.”

Skorton goes on to state: “The increasing emphasis on higher education in China, India and other emerging economies is testimony to the near-universal agreement that success in this world, not to mention national competitiveness, requires more, not less, higher education. Thus, we as a country need to expand, not contract, the availability of higher education and increase public investment in colleges and universities.” In other words, because others agree with our madness, do not give up the ship. And he insinuates that we need the existing college establishment to do this expanding.

The author states: “We can no longer avoid true, tough and thoroughgoing reviews of faculty productivity and quality, including after tenure is granted.” But how does tenure help provide a great education at a competitive price? If we move towards a market based system where we see what institutions and entrepreneurs transmit the most education for the dollar spent then tenure and public employee unions will be left in the dust.

And then Skorton goes on to opine: “Given our continuing uncertain economy, I call on my colleagues in higher education to reduce the rate of rise of our operating costs through focus, connectivity, accountability and administrative streamlining.” What do you mean reduce the rate of rise? How about cutting your costs at Cornell by 50% (tuition alone is now $39,450 for undergraduate nonresidents of New York)?

Skorton’s comments would be akin to the former CEOs of Braniff, Eastern, and PanAm airlines explaining: “We will be charging $1,000 per trip from Los Angeles to Las Vegas because the rate of inflation and the tenure agreements we have with our pilots have resulted in our costs going up at twice the rate of inflation.” And then expecting Southwest Airlines to just sit back and do nothing. Instead Southwest blew the competition away by challenging the basic value proposition. They were the first to say: “We won’t give you meals; we will give you peanuts. We won’t assign seats instead we will give you an incentive to show up early and line up so we can turn our planes around faster than the old school.” Guess what Dr. Skorton - you are the old Brantiff Airlines. You are an old unionized and protected industry that needs to face and adapt to real competition.

We need outsiders and new entrants to challenge the way incumbents deliver college education. We have to be careful about listening too much to 18 year old students complaining about their dorm rooms and tenured professors bitching about not having enough time for their “research”.

Dr. Skorton deals little with basic supply and demand principles because of all the subsidies built into the US college system. Perhaps he should go online for a free refresher course in how the Khan Academy and Google Books are educating the world.

What combination of services might provide a far less expensive college education?

The Khan Academy might be at the center of the new college experience. It is a free online not-for-profit organization with a mission of providing a world-class education to anyone, anywhere.

At Khan one can study subjects from Calculus, Chemistry, Economics, Finance, Physics, Probability, Statistics, & Biology. They even have some History classes. But alas they currently offer nothing in Ethnomusicology, Sociology, Physical Education, Recreation Management or Gender Studies. And all of their programs are free.

So why are some college students spending $50,000 a year to study some of these same subjects? Well first the “college experience” is given much credence. And second, it is not the learning that is valued by our society nearly as much as the eventual “degree”. And third, students are greatly subsidized (by parents and government) and usually don’t have to start paying off their college loans for several years so they tend to be indifferent to cost comparisons while at college.

If cost-effective learning is the goal, then between online education, and some complimentary for-profit services including private live laboratories, the “education” component could be achieved at a much lower cost.

Look at the Advanced Placement classes and exams that high school students are taking at an ever increasing rate. These high school students get college credit for demonstrating the mastery of a subject and at a cost that is much less than college. And the mastery of the subject is confirmed via a standardized exam.

But a class in Advanced Engineering Mathematics at one college may not be equivalent to the learning achieved at another institution. We can easily compare the cost; we just can’t compare the learning achieved for the money spent.

The broadly accepted notion that everyone needs to “attend” college, and that college is a great investment no matter the cost or the field of study are finally getting challenged. And with all the subsidies given to those attending college (both the hidden and obvious that currently add up to at least $10,000 per student per year) has allowed the cost to go through the roof.

We rely on the traditional lecture where we pay an expensive professor (or his less expensive graduate assistant) to instruct a class in the method that has been used (with very little adaption) in universities for centuries. We have also combined minor league football, resort living (beautiful campuses, great recreation facilities, comfortable dorms and excellent food), “research” and some very expensive education together into today’s college. But what we haven’t emphasized is preparation of our youth that makes graduates and therefore America more competitive in the world economy.

In addition to the Khan Academy, Google labs, Google books, YouTube, Wikipedia and the internet in general make an infinite amount of information, views, writings, speeches, lesson plans, tests and teachings online and usually for free. I am not suggesting that a student does not need some occasional tutoring and coaching. But is that better achieved in a meeting in the professor’s office or online or via a Skype conference? And if the test results are the measure of success, then it is more straight forward to determine who is getting the education job done and who is failing.

Let’s say instead that one managed one’s own degree in Mechanical Engineering that complemented an unpaid (25 hour per week) apprenticeship program. You work on real world problems at the apprenticeship, while studying online materials, and seeing online lectures with some down-to-earth laboratory work. You pay a coach for occasional career and academic, industry contacts and learn what subjects are in demand in the real world from this adviser. And perhaps there develops a whole online tutoring business where the student can get online assistance on technical subjects at a reasonable rate. And finally numerous chat rooms emerge where similarly situated students discuss Solving Linear Equations or understanding Photosynthesis and learn the material in greater depth by virtue of teaching each other the material.

All told the elements of this new college education might consist of the student hiring an advisor for $1,000, paying $5,000 for lab time ($50 an hour times 100 hours), $2,500 for lab exams (5 exams times $500 per exam), $5,000 for online tutoring ($50 an hour times 100 hours) and $1000 for ten standardized final exams at $100 each. For a total of $14,500 for a Mechanical Engineering certificate. I use the term “certificate” because I also question the concept of a four year “degree” - seems like an arbitrary length and appears extended to meet some unknown goal.

Perhaps over four years a student earns certificates in Chemical Engineering, Physics and Accounting and future employers know by virtue of his standardized test scores how well he knows the material.

Now many in the college establishment won’t like this proposal. They will point to the importance of the contacts made at college (as if this is the only way to meet others in your field) and the broad learning (in other words liberal indoctrination) that is achieved on campus. They will point to the importance of the research on America’s college and the fall off in education that will result if we leave education to the greedy private sector. But they will not say a thing about cost. Because the existing college establishment is infinitely more expensive than a lesson learned online at the Khan Academy.

The case against college

What if President Obama (along with many others) has it backwards? What if America is sending too many people to college?