OT: Why does a college degree cost so much?
Very detailed and insightful piece from CNCB that does a great job addressing the question:
"With the total level of student debt outstanding at more than $1.2 trillion, parents, students and researchers are now asking: how is this sustainable? And why does college cost so much?"
With plenty of great charts, facts and figures covering public and private, every state, most major schools - 26 schools in Michigan, for example.
My University tuition was less than my Jesuit high school tuition - about $250 a semester.
http://www.cnbc.com/id/102746071
You don't need "undercoating" or "rust-proofing" on a college degree. That's a myth.
Do you think the "diploma insurance" I've been paying $300/mo for is a waste? I've thought not, because what if it were somehow destroyed?
Cuz they be edjhamecating us.
but now we have decided that government should not support education like it used to, making it necessary for all the expenses talked about above to be covered by your tuition.
http://www.acenet.edu/the-presidency/columns-and-features/Pages/state-f…
hmm. but if the Government is underwriting students loans, then aren't they still supporting the same education system? The bucket changes, but drain remains the same, isn't it?
Because robbing banks is illegal.
Because there's an almost infinite demand for these schools so they have no reason to worry about pricing. People just take out loands and attend Michigan, UCLA, Harvard, etc. anyway
Eventually it'll all crumble as loans default and people realize their 4 year degree in a major that won't help them pay off their loan debt isn't worth it. It's probably going to take some type of collapse for that shift to occur though
The main reason is because its so easy to get loans. As soon as the goverment (this is not meant to be a political attack) started to guarantee loans for damn near everyone, the schools could literally charge whatever they want because there is a limitless invisible bag of money somewhere that the students could get their tuition money from.
So once the loans became guaranteed to go through it didn't matter if tuition was 10,000 or 50,000 because the schools and students both knew they would be able to come up with the money. The schools obviously chose the 50,000 option because why wouldn't they if the money was there for the taking.
As mentioned above, the consequences of this are going to drag the economy way down. There is an entire generation of people who are saddled with insurmountable student loan debt that will prevent them from buying homes, purchasing cars, spending any money on extras such as entertainment and dining out etc. The loan bubble is going to burst soon and its going to be a big, big problem.
Federal Loan Guarantees. This is an answer I am very confident in. I had to study this subject for a public debate when I was a college undergrad. I spent a lot of time trying to find the best answer, and this is the root cause. The Federal Loan program correlates strongly with the rise in prices. The bigger the program, the more prices rise.
Here's why:
A federal loan guarantee is just what it sounds like. The federal government "guarantees" the loan. It provides money to universities if students default on their loans, This allows universities to raise prices to ridiculous sums without being restricted by basic supply and demand principles.
If universities had to face the loss when former students default on their loans, they would have to lower prices, so that fewer students would default on their loans in the future. But universities don't face the costs, the federal government does, and ensures that the universities get paid, no matter the price of tuition.
Think about that for a few minutes. It is an unbelievably bad incentive structure. The only thing preventing prices from going exponentially higher, is that a small proportion of people pay out of pocket, and universities want to capture out of pocketers business. There is otherwise almost no incentive to lower prices.
The other incentive structure similar to this in recent memory was the housing boom, where the banks had an implicit guarantee from the Federal Reserve and Treasury that they would be bailed out should shit hit the fan. It created a self- fulfilling prophecy. This type of structure is known as moral hazard, where one party incurs the risks of another party, and it is exactly what is going on with universities.
but instead of lowering prices the universities could just raise the interest rate so that post default they still had an expected gain. One could argue that the gov't guarantee has kept education semi affordable through semi reasonable interest rates.
Beacuse the demand is so high regardless of type of degree the easy supply just fuels the fire.
I have no doubt the gov't guarantee hurts but how much, I am not certain how clear that is. Would students still go to school at the same cost if the interest rate was 15-20%? Maybe? I don't know. For some degrees it would still certainly be worth it.
The Federal Loan guarantee means that a person studying in the humanities who will have a difficult time finding a job (and I say that as a historian and has a humanities PhD) will get the same rate that an engineering or computer science student would get. In a real market, those with degrees who would result in jobs would have lower interest rates. Having interest rates based on your high school scores and intended major would also help drive more people into STEM.
Add in layer after layer of administration that's been built in over the last few decades (that money from tuition increases isn't going to professors, that's for sure) and you've got a perfect storm for a bubble.
If universities were to raise interest rates, fewer students would attend, and the default rate on loans would be higher. That doesn't result in a favorable outcome for universities... unless we have a system where the government guarantees loans. Raising interest rates is essentially the same thing as raising the price on tuition, the only difference is that it is money paid in the future. The guarantee on loans enables universities to profit no matter what price they charge- the only thing keeping interest rates down is because the federal government fixes the interest rate on student loans, otherwise, as someone mentioned, engineers and history majors would not get the same rate.
You say: "One could argue that the gov't guarantee has kept education semi affordable through semi reasonable interest rates."
You'd be hard pressed to supply any evidence for this. Back before the loan program, students could work during the summer and pay off their entire annual tuition working just that summer job.
To do that today, your summer job would have to pay you $45k to $50k, an annual equivalent of around $200k. This reaks of government messing with incentives. In a true marketplace, prices tend to go down over time due to increased efficiencies, innovation, competitiveness, etc. The market is acting this way because the incentives have been tampered with.
Sent from MGoBlog HD for iPhone & iPad
The arms race to build bigger, fancier, more appealing dorms/classrooms/labs/libraries/cafeterias has something to do with it.
IMO, Michigan and many of the "blue blood" type universities were content to house kids in South and West Quad and let them work out at the IM and CCRB. In my opinion, they felt the educational experience was neither enhanced nor dimished by such frivolous amenities as state-of-the-art workout facilities* or gourmet cafeterias. However, other schools started attracting kids to their schools with shiney new things. My daughter goes to Alabama. Her dorm room was a 4 bedroom/2 bath suite with living room and kitchenette with Wifi and cable. Their student activity center is as nicer than Lifetime Fitness. Compare that to my son's room at West Quad and the IM weight room.
I think it parallels the race for new athletic facilities as part of the recruiting pitch. Before Schembechler Hall, our locker room wasn't any nicer than your average YMCA locker room. Crappy stained carpet, little metal stools, and yellow painted metal mesh lockers. The meeting room was painted cider block walls, old school desks, and industrial tile floor.
*The IM and CCRB are an embarrassment. I realize they are working on them now, but it is long overdue. Fielding Yost championed student workout/activity centers because he believed it was as important to excercise the student's body as it was their brain. Alabama's "oldest" facility is about 30 years old and has been updated TWICE. Ontop of that, they added a second, 3-story facility with rock climbing wall, track, cardio equipment that looks over the Black Warrior River through floor to ceiling windows, and a cafe. It's one of the few things I've ever emailed the administration about because I feel like Michigan owed their students more than what they were given, in that regard.
Great answers to your question in this thread. The solution would be for government to stop backing student loans. This alone will create a tuition price crash. Of course it would never happen because anyone that would dare propose it would be ostracized as anti-education.
Mostly because the (privately owned) Federal Reserve has reduced purchasing power through inflation by 98% since 1913.
It is indeed ridiculous how much college costs. The same goes for healthcare in this country. These things are both many people need/want and willing to pay for, so the cost is ridiculously high.
Students have been drilled since the day they stepped into preschool that they have to go to college to live a fulfilling life as an adult. As a result, nobody wants to be "that kid" who didn't go to college. It would mean throwing away their pride, admitting they aren't good enough to make it in the world (from some students' perspectives anyway, this isn't the reality). Since everyone has to go to college no matter what now, the demand for college is much higher than it was in the past. The rest is simple microeconomics.
Already starting to devolve.
Because he can. Same goes for college tuition. Virtually unlimited demand because of government-backed student loans. I've told this story before, but the LSA dean spoke to our local alumni club about 12 years ago. A harried-looking alumnus and tuition-paying parent asked what the school was doing to keep tuition increases in check. The dean managed not to guffaw but he did smirk like a champ. The easy money is what allows tuition to go up, and the mushrooming of administrative positions solves the problem of what universities should do with the money.
For housing there was a massive influx of easy govt money that anyone could get access to (e.g. stated income loans, etc.). It never ever got repaid. When the music stopped, people couldn't believe that the prices they paid were not real. There is never a shortage of people braying "oh, but with student loans for education it's different!". No it's not.
The only difference I know about is that, unlike unpaid mortgage debt, unpaid student loans can never be expunged by bankruptcy. The govt has you buy the balls. You need education and training to compete and become gainfully employed in the service economy, but tuition, books, residence prices are rising exponentially because its not even your money. It's taxpayer money.
I know a guy that's 44 and still has $94K to pay off in student loans, and there are far worse cases than that. His wife is 40. She has over $100K. Their children are 10 and 12. Everything today really is backasswards to what your parents and grandparents experienced. Millenials/Gen Y's must be like WTF man.
In the housing bubble, the bubble eventually popped because homeowners simply defaulted on their mortgages, because that became (for many) the economically rational thing to do. Similarly with the dot com bubble, stock prices outpaced actual earnings to the point where it became economically rational to stop pumping money into the sector.
But each of those had a triggering event that eventually popped the bubble. What is the triggering event in the student loan bubble? Student loans aren't dischargable in bankruptcy and are guaranteed by the government. So the loaners of student loans will always be paid. Instead, the only effect of the student loan bubble is secondary, as many have said. People stop buying houses and cars and stop building up savings, but they will still carry that debt with them. For the economy at-large, that is a slow and painful effect, because not one event (short of a mass suicide of debtors or a sudden change in the law, I suppose) would cause the bubble to burst.
Which makes this really not a bubble at all, but a growing economic tumor.
Bingo! And again this will get blamed on the "greedy" companies (universities in this case), the government will intervene because the market "didn't work", when in reality there was never a freely functioning market in place.
My last year at Michigan was $29,400 and that was in 1996. How expensive is it these days?
edit: I should clarify that included room & board.
I assume you were out of state. It's now $58,346/year all-in for upper division (junior/senior) out-of-state. If you just take tuition and room and board, it's still $55,094/year.
The value of some college degrees is dubious already, but I would love to see how much universities make off kids that never even graduate.
We are a society that pushes kids to go to college, so that's what they do, whether or not they're prepared for it or have enough direction to complete a degree. The dropout rate is enormous at some schools. Below are the % of enrolling students who complete a degree within 4 years at a few hand-picked schools:
University of Notre Dame 89.5%
Harvard College 86.4%
Northwestern University: 85.8%
University of Michigan: 75.8%
Ohio State University: 58.5%
Michigan State University: 43.0%
Grand Valley State University: 31.4%
Western Michigan University: 24.2%
Central Michigan University: 20.9%
Oakland University: 14.6%
Eastern Michigan University: 12.4%
Wayne State University: 11.2%
We seem to perpetuate a myth of a "four-year degree" and make it out like anyone can do it; but then you look at the data and, at many universities, students either go much longer than four years or drop out with no degree (but lots of student loans).
I'm not sure how I could ever justify sending my kid to a University with such a high drop-out rate...
The only places I've seen construction over the last seven years? On college campuses. Someday it will all come to a head. I just hope the rest of our nation's economy doesn't go down with it.