The higher education bubble

but surely there must be some recognition even by idealists that there is a connection between what you learn in the classroom and your lifetime of economic productivity.

While a plumber may make more money than your friend, your friend's worklife span is both longer and more reliable. A plumber who can no longer stoop under a sink or twist a wrench because of age, injury, and physical wear-and-tear is going to leave his profession earlier than someone who sits at an office all day. An office worker can continue to be productive well-past 65, while a plumber will likely have retired earlier (with less financial resources) because, well, hard work is hard.

It's a similar economic theory that you can apply to the NFL or MBL. While the average NFL player makes $2M a year--to grab a number out of the air--he has a worklife span of maybe 10 years. After that, he will be physically unable to perform the only work he's trained and skilled to do and his earning ability will be much less.

Because I have a higher education (including a post-graduate degree) my options in the market are always going to be higher than my plumber, even if--for the moment--he makes more money than I do. I can do many jobs and apply my higher education to many pursuits, my plumber may not have those options. That's why the plumber almost always wants their kid to get a college degree so they aren't stooping under sinks for the rest of their lives.

My brother is a graduate of Colgate University and alumni there are in open revolt against the administration over rising costs. One group is attempting to amend the charter so that concerned alumni can wrest control of the school from administrators. Their website has a very intersting letter to Senator Grassley explaining their initiative. The only reason I am bringing this to your attention is that it does a terrific job of summarizing what is wrong with college administration today.

"Colgate is not much different from most public and private colleges in its governance policies. But, Colgate University may be a unique example as it ranks in the top three of the most expensive colleges in the nation. How it got there represents the most amazing confluences of all the things a college could do to override cost containment
strategies."

Google "Better Colgate" to see their website.

As a college prof, I see this and I'm concerned about it as well. I think three unreasonable things (at least; I'm sure others can think of many more) are driving up costs at colleges:

(1) College as community, experience and creature comforts: Most college students expect their college to be a self-sustaining miniature city, with the best in dorm rooms and suites, the finest in cafeteria dining, the safest in terms of security, the cleanest, etc etc. Free internet and cable is demanded. A nice exercise facility is a sine qua non. College is also about an experience, not just learning, and the things that make for that experience cost money. Basically, these things cost a lot of money.

(2) The Nero syndrome: it was said Nero started the great fire in Rome so that he could rebuild it in his image and to his credit. Many colleges are concerned for the cultural cache that comes with building projects; impressive buildings (as again we see in ancient Greece and Rome, or in any number of cultures throughout the ages) connote power and prestige. These cost money.

(3) The Research institution mentality: even smaller schools like my own are demanding more and more in terms of research and writing. This means providing funds for faculty to buy books, subscribe to journals and attend conferences. For the sciences, it also means acquiring expensive equipment and technology so that faculty can do cutting edge research.

I wish colleges, in particular, would focus on the liberal arts, on learning, on mentoring. Basically, a good undergrad education involves good faculty and eager students engaging in relatively safe and clean buildings. But most of our undergrad colleges are trying to keep up with the Ivies in terms of prestige, and the Ivies keep setting a new pace as they try to keep up with each other.

What's sad is that we have a good number of students who (1) drop out for financial reasons; (2) work full time, thus leaving little time and energy for the reason they came in the first place, to learn deeply in engaging the liberal arts; or (3) graduate with $50,000-$100,000 in debt. Sad.

The trouble with the studies that pretend to show the huge differential between earners with a college degree and those without is that they draw their conclusions from people who graduated (or didn't) 20-30 years ago and look at their current incomes relative to each other. I have not seen any research that looks at, say, people who graduated from college five years ago versus those who went directly into a technical trade. Research and projection on lifetime earnings is tricky that way.

The credentialism problem is compounded by human resource departments and the people who staff them. They have college degrees, and in order to justify their investment in them, they game the hiring system to ensure that only others with college degrees (and their associated debt) get in. Wouldn't want HR people to feel they invested their money badly on education.

Irenaeus,

I always learn something from your posts. The three causes you cited at 9:08 AM are well-phrased. I will use them in my own discussions.

The consequences you cited at the end of your post are not only sad. They suggest a deep moral rot at the core of these institutions. How can university presidents, their boards and top administrators not see the obvious here? And how can they not do something about it and still manage to sleep at night?

That's odd. I mean, my son just graduated with a degree, poor thing. I mean, five years of hard work and he's only likely to end up asking 'want fries with that?'

Well, except.. he's already got a job, got it before Christmas, and according to the 'salary wizard' site, that tells average (not starting, average) salaries, he's already going to be making about 7k a year more than a plumber. With a BACHELOR's degree.

Well, it IS in Electrical Engineering. Maybe that makes a difference.

Maybe it isn't so much 'trades vs. college' after all. Maybe its about the prospective field you will be going into. A Master's Degree in, say, History (a field I love, btw) is likely to be more.. intellectually satisfying than automatically financially lucrative. If that is, indeed, the only measure that determines if education is valuable.

One difficulty is that, whether right or wrong, many employers require a college degree even if specific knowledge isn't really necessary. Case in point, the mayor of Birmingham is having one of his appointees held up b/c he doesn't have a degree. He has very relevant work experience, but no degree; ergo, no job for him.

Joel -- depends on what sort of English or Philosophy education. I admit there's a lot of insanity (technically speaking as well -- in-sana, so it's a double entendre) in each field, but I really think the humanities matter.

I think that College has been over sold. I have a bachelors from an expensive, private liberal and I am glad for the experience, but it is not the end all and be all,I enjoyed college for the learning and not some much for the getting a credential.I still hold to the old-Liberal arts ideal. One of the most valuable block of classes I took was the large block of ceramics courses I took,I have the skills to be a potter. Which can help one, be self employed to a certain degree.

Frankly alot of so called education in this country is empty headed ,jargon loaded b.s. and schools many times frankly are credential mills, run by credential cartels in collusion with big government.Frankly most white collar jobs in this country are glorified service jobs ,that likely don't really need a college degree. The college degree is a many times a glorified high school diploma. It is just that credential cartel and the government collude to make some of this crap necessary. Just like the housing boom,again a collusion between cartels and big government. Many,people who have no business being in college are being forced into college, and frankly I think our country should have better technical education and should encourage more people to be tradespeople and crafts people. I think that the Friedman the world is flat hype, is just hype and in the end America is going to eventually revert back to making stuff and doing the basics for ourselves and having a real economy ,based on real stuff and not this ephemeral,esoteric stuff of the World is Flat,hocus pocus. The current higher education system and the way we go about training people is a house of cards,that is probile going to come crashing back down into reality,as it should. Our higher education system is a a set of delusions,in service if another set if delusions.

Oops. Looks like I forgot a tag in there.

I would speculate that a good portion of the problem is that the primary source of funding is from students (tuition) and former students (endowments). The latter wouldn't be so bad and wasn't so bad when that group was almost exclusively located within the community. When however you are recruiting 500 miles away not to accomodate the needs of a growing community but in attempts to secure donations from alumni (by getting their kids into school) and to keep the tuition money rolling in you are asking for a significant disconnect between community and school. Such is precisely what we have now.

Iraneus has a good jumping off point about buildings. I went to NYU. In the last 3 decades it went from a school of learning to a real estate acquisition proposition; that is not and should not be the mission of any school. It went totally mad buying up real estate. At the same time,most fulltime professsors either taught huge seminars in huge auditoriums to undergrads but once or tiwce a week, or farmed out the real teaching and grading and interacting with students to graduate assistants. I'd note many of the GAs are invariably foreigners witha limited grasp of English, which is disgraceful. But they work cheaper. Either way, between sabbaticals and summers, none of these professors is killing themselves but are still getting paid top dollar. Yet the price for an undergrad is over $40K. It's all well and good to wax poetic about the wonders of a college atmosphere, but it ignores the economic realities that Rod has laid out; getting into debt for a degree that doesn't by itself produce or gurantee income is craziness. And all the atmosphere and college fun and hijinks do not justify that expense. Unless you have a very specific major in a technical field or finance or are aiming to toward a graduate degree in law or medicine, there's really no reason to go to college, or at least no good reason to go to any school that expensive. And for less than academically inclined folks among us, the military, civil service or union crafts make far more sense, and the sooner the better finacially.

Thirty some years ago when I attended college you could work during the summer and earn enough money to pay tuition or help to pay it. That was when tuition at a major private university was $2,000 per annum and a new Volkswagen Beetle was about $1995. Starting salaries were in the under $10K range. One can still find affordable cars and starting salaries are not bad depending upon what field you enter. But great googlie mooglie tuition is unrealistic. There is no reason why a student today should be burdened with 100K in debt just for an undergraduate degree.

I think part of the problem is that over the years we decided more and more that a college degree was key to a job. Why else do you see police jobs requiring college credits. Does a job in real estate really require a college education?

At one time you went to a university to get an education not a study for a job

I would recommend reading Gary Becker's post on the Becker-Posner blog for April 22, 2007 entitled "The Benefits of Education". Also, the comments section notes Greg Mankiw's post for April 2007 on his blog entitled "The College Premium". Of course, this doesn't answer the question for every individual person.

College is really overrated. I went to a top-25 school. Big classes. Professors were more concerned with their research than teaching. They utilized teaching assistants who were even worse at teaching and often had tenuous grasps of the English language. It was a far worse educational experience than my excellent Dallas high school.

I had an interview a few years back for a job that I did not really want that "required" a college degree but seemed rather basic in terms of job duties. I asked the HR person why they wanted a degree, and she said that it "showed you can finish what you start." That's the fairest justification I've heard for such a requirement, but it's also ridiculous. Finishing college is not remotely intellectually difficult, but it does require showing up to a lot of classes you do not have to go to and juggling long, sometimes complicated papers and projects. If you get 30 resumes for a job that pays about $28k/yr for an entry-level job, it probably makes sense to focus on the 10 applicants who are college grads - they're more likely to show up all the time and take care of their assignments on time. So it's a fair method of sorting people, but it's also a long and insanely expensive way of doing so.

The "liberal arts" degree is romanticized, but the vast majority of my friends (I'm 27) with these have wound up underemployed. And literally 90 percent (of at least 50) end up going to law school. I cannot over-recommend nursing as a job, even for guys. Being pissed and puked on is significantly less demeaning than the bogus training, memos and buzzwords that one experiences as an entry-level worker at a big corporation.

Our creeping credentialism is out of control. We overrate education and underrate innate talent and skills. The MBA seems to be the most overrated degree in these terms.

Chris, I don't mean to dispute your principle, but you have the timing wrong.

High school should be teaching how to think critically and how to analyze. College should challenge the student to apply those skills to a topic (or sub-topic) area on the path to mastering that topic. The mastery is then applied either in furthering the scope of knowledge in that area (science) or enriching our society with a better understanding of life (humanities).

As the product of public education, married to a public school teacher (her career is 35 years and counting), and with three children (the youngest is 15), I can cynically assert that critical thinking and analysis has been deemphasized and well nigh abolished from high school because (the cynical part) indoctrination in belief systems makes critical thought an enemy of belief.

Irenaeus, your perspective may be instructive here. In your experience, has college degraded from being the next step beyond cricital thinking? Is it now relegated to teaching the critical skills because they are no longer taught in secondary ed? And, is there even that happening any more in some (many) colleges because secondary ed no longer produces students with the literacy skills to then learn -- let alone master -- the critical skills?

Sadly, the college bubble is not going to pop any time soon because college is used as a sorting mechanism both socially and by employers. People assume that if you haven't gone to college you must be stupid or lazy or both. Given this assumption, given the return on a college degree, given the availibility of student loans, given how college has been dumbed down, it's going to be the case that most smart, motivated, non-naive people will go to college. Given that most smart, motivated, non-naive people go to college, people are going to keep on assuming that if you haven't gone to college you must be stupid or lazy or both. It's a tough cycle to break out of, no matter how unfair the assumption.

Economically speaking, this is not a bubble but the Nash Equilibrium of a signalling game (as I learned in college), "equilibrium" meaning "stable".

Anne: "Sadly, the college bubble is not going to pop any time soon."

I disagree. The student loan industry is being hit very hard by the credit cruch, and the credit crunch is nowhere near being over. The Federal Government and state governments are talking about rushing in to fill the breach, but they too are running up against limits to how much they can borrow given all their other obligations (and the spreading credit crunch).

We live in interesting times.

First a quick little story. My mother went to a rural southern Ohio HS in the 50's. During her HS years she skipped every other Monday and no one cared. After graduation she managed to live in Columbus with a sister and held several jobs for a couple of insurance companies. Her last job was as a business policy rater, which was all done by hand. Jump ahead to the early 90's when she goes back to work to help put her kids through college. After a year, she is back doing the same job as she had 20+ years earlier. By the time she left, the job was mainly done on computer (they offered to send a terminal with her and let her work from home) and it required a college degree. What on earth happened? Simply put, the gov't in it's equal opportunity madness made it nearly impossible for companies to administer any sort of aptitude tests. Instead, as pointed out above, college degrees are used to winnow the field.

IMHO, what needs to be done is:

1. Companies need to be allowed to use aptitude test to screen candidates.
2. Kill most support for public universities.
3. Let companies/unions handle vocational training beyond HS(my father became an electrician through the training given by DuPont. Also Digital used to offer top notch training which surpassed anything I ever received in college)
4. Kill the notion that every kid is college material and that most kids even need to go to college. For what I do, I really don't used my college education. Yet, I could have been working far sooner without it.
5. Stop importing students from all over the world and eliminate H1-Bs which drive down professional wages. If we can't have a competent society with our 300 million, then we're doomed anyways.

You only break the equilibrium when the number of smart, motivated people who can't afford to go to college (even by borrowing or financial aid and even to community college) gets big enough that everyone stops making assumptions about people who didn't go to college.

I don't know how big that number would have to be, but it's more than just a few people falling through the cracks. Afterall, plenty of smart, motivated people have always fallen through the cracks. The number has to be big enough that a business who made assumptions would no longer be able to compete.

My dad barely made it out of high school, got his training in the military and does plumbing work in addition to the part of the trades he really likes, driving a big truck/ backhoe. He's 60, and still working. He's fallen off a house (and so one leg is shorter than the other) and suffered other physical mishaps, but he's still going. I guess it also helps that he is self-employed, so he can decide what jobs he's going to do. The physical labor (and genes I didn't get) has kept him wirey and muscular, and he's got some good abs for a 60 year old. Us office people have to go to the gym for our excerise.
Older guys hire younger guys for some of the harder labor, so the things that test the back and knees are delegated to someone else.
I have two Masters, and I don't think the first one was worth anything, except something to do while I figured out the next step. I do make more than my dad, the plumber/backhoe man, but then again the second graduate degree was for a specific job, in a specific field where I knew what the salaries were based on job announcements I wanted to apply for.

As usual, a good thread developing here, Rod. FWIW, Ross Douthat, Laura McKenna, and I all have similar pieces up right now, which might be worth reading.

Rod, it won't stop until parents realize that having dual incomes and a substantial college fund are not requirements for having and properly rearing children. Then the person becomes more important than the career and the family more important than money.

Annie, all of those items you list tend to be very vague as it relates to specific jobs. Does the fact that student #1 got an straight A's mean that he is better than student #2 who got straight B's when related to a bookkeeping job? From personal experience, GPA means zip and most employers realize it. I went to a rural school district but was lucky enough to have some pretty good teachers. In HS we had a transfer from a suburb school. The kid was bragging about how he got straight A's at his old school. He was pulling a C average by the end of the year. And no they couldn't treat one year of college as equivalent to degree completion. Human Resources, for a company of any size, has to define specifically what is required for each job. If you violate that and then someone notices you don't have enough people of type X in that position, you can kiss a load of money good-bye on the settlement because you weren't following some fixed, unbiased standard.

Connie, they haven't outlawed them specifically. But what they have done is say that if the test has a disparate impact on a protected group, the test is invalid. I'm sure there are some still hanging around. Some of the ones still around though give certain groups bonus points to prevent the disparate impact claim. Typical examples are police and fire department tests.

Thanks pb.

Rod: Calling college costs a "bubble" is just brilliant. Never thought of it that way.

Why is college so expensive? Because the colleges can charge that much. Why can they charge that much? I'll make a guess: because you are dealing with unsophisticated buyers (students) facing an emotional, big ticket decision about their future which they don't have to pay for right now (they receive money from their parents or borrow for it). I realize that parents play a restraining role on all of this, but...

Emotional, no-cash-required decision by an unsophisticated customer

That spells pricing power by the seller to me.

Higher education is not for everyone, and there are some good careers that are available without credentials. That said: As much wealth is generated as the result of intellectual properties (e.g. patents), and remaining a powerful society is contingent upon intellectual innovation, it behooves the state to encourage and sponsor higher education.

Does that mean that it is necessarily wise to opt for university as the default option after high school? No.

Personally, if I had it to do over, I would spend a year working after high school, talk to a number of different people in various occupations, (including the trades), and do some traveling. What a great time to get a practical education, and then with the knowledge and wisdom gleaned make a vocational decision. I may very well still opt for university, but I would be making that decision from a better position, with some life experience and at least some knowledge concerning what I do and don't want to do.

Return on investment: It's not just about how much money you'll make. It's also about the social status connected with your job. With the exception of artists, high status jobs are not available to those without college degrees.

I hope that this comment hasn't already been mentioned by someone. I have always been told that having a degree says to an employer that you can complete what you finish and know how to learn. It would be interesting to find out those statistics though. But on the other hand, ignorance on my part might be bliss due my inability to pay off the $23,000 in debt that I start owe but can't pay due to not having a job and not wanting one in the field that I have a degree in anyway.

I agree that getting in debt for college is a terrible idea, however it's wrong to assume that you HAVE to borrow money for a college degree. If everybody stopped proceeding on that assumption, the cost of college would eventually come down! My daughter is a rising senior and she'll be going to whatever school we can afford with scholarships/financial aid/part-time jobs, etc. Of course, this may mean community college...that's the bitter pill to take...

I'm trying to compile information and statistics about this on this YouTube video:
watch?v=cyPy--9vdFs

I fully agree with the assesment of a school bubble. A few good links:

School Experience:
http://www.nysun.com/new-york/students-know-less-after-4-college-years/62901/

College Bubble:
http://www.lawschool.com/collegehoax.htm

Correlation btwn IQ and Net Worth:
http://elearningtech.blogspot.com/2007/04/correlation-between-iq-and-net-worth.html