<del>Real estate</del>education is always going to be valuable. <del>Buying a house</del>Getting an education is an investment in your future. <del>Since real estate always goes up</del>education always results in a higher salary, you'll regret not buying and you'll miss out on the opportunity of a lifetime.
Here a post on the student loan/education bubble.
So the questions we should be asking ourselves is why we continuously get into acquiring oversized and overexpensive whatever just because "the world has changed" or whatever the excuse is.
Student loan bubble
I believe a good education is extremely important in the modern world. What I have an issue with is the inefficiencies built into the present system (The End of Tenure?).
I believe these inefficiencies exist because most professors have never had to "meet a payroll" in their life. Instead, they spend their time arguing with each other about who has the most academic prestige. The idea that students and their needs come first is a foreign concept to them. The result is higher costs that never get cut because there is no feedback loop that drives inefficient schools out of business (as happens in the corporate world -- you either make a profit in the world of commerce or your assets get redeployed by companies who are able to use them more effectively).
The system is structurally flawed and until changes are made at the societal level, college costs will continue to increase faster than inflation and the government will continue to back student loans to people trying to get a higher education. It's a case of group think on a massive scale.
If people were to learn financial literacy at an early age, they would realize that the secret to financial survival is to live well below their means and intelligently invest the rest. Once they achieve financial freedom, they have lifestyle freedom and can afford whatever kind of additional education they wish to get. They'll also know how to shop around and get the best deal at the best price. Colleges will either compete for the business or go out of business if their costs are too high in relation to what they can deliver.
I believe these inefficiencies exist because most professors have never had to "meet a payroll" in their life. Instead, they spend their time arguing with each other about who has the most academic prestige. The idea that students and their needs come first is a foreign concept to them. The result is higher costs that never get cut because there is no feedback loop that drives inefficient schools out of business (as happens in the corporate world -- you either make a profit in the world of commerce or your assets get redeployed by companies who are able to use them more effectively).
The system is structurally flawed and until changes are made at the societal level, college costs will continue to increase faster than inflation and the government will continue to back student loans to people trying to get a higher education. It's a case of group think on a massive scale.
If people were to learn financial literacy at an early age, they would realize that the secret to financial survival is to live well below their means and intelligently invest the rest. Once they achieve financial freedom, they have lifestyle freedom and can afford whatever kind of additional education they wish to get. They'll also know how to shop around and get the best deal at the best price. Colleges will either compete for the business or go out of business if their costs are too high in relation to what they can deliver.
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jacob
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In terms of meeting payroll ... it so happens that whenever there's a cash squeeze that businesses or whoever else is supplying the money (businesses applying pressure through the politicians they paid for) increases the discount rate and focuses on projects with short term pay-offs.
There's a continuous decision process between allocating resources to development (short term low-risk payoff) and research (long term high risk payoff). For the latter, you pay a bunch of professors in the hopes that one of the many will turn out to be the next Einstein---we can argue whether the money is best spent on paying the tenured professors (managers) or the grad students (talent). Who do they pay in college football?
What universities really need to get away from is the confusion between a "degree" and an "education". A degree is something you pay for, whereas an education is not a product. It is something each student builds on their own. Most students these days are not willing to accept that they have to work for their education.
Since they (or their parents) believe that
1) Education is a product,
2) Education = degree,
they will treat their education as a business decision aiming for the highest return on effort which typically means the minimum amount of effort.
This produces uneducated by degreed graduates. Since you don't need an education as much as you need a degree to "get a job", at least for a great deal of jobs, this attitude does not conflict with the university model. They can simply dump their levels and take in more students to increase their profits.
There's a continuous decision process between allocating resources to development (short term low-risk payoff) and research (long term high risk payoff). For the latter, you pay a bunch of professors in the hopes that one of the many will turn out to be the next Einstein---we can argue whether the money is best spent on paying the tenured professors (managers) or the grad students (talent). Who do they pay in college football?
What universities really need to get away from is the confusion between a "degree" and an "education". A degree is something you pay for, whereas an education is not a product. It is something each student builds on their own. Most students these days are not willing to accept that they have to work for their education.
Since they (or their parents) believe that
1) Education is a product,
2) Education = degree,
they will treat their education as a business decision aiming for the highest return on effort which typically means the minimum amount of effort.
This produces uneducated by degreed graduates. Since you don't need an education as much as you need a degree to "get a job", at least for a great deal of jobs, this attitude does not conflict with the university model. They can simply dump their levels and take in more students to increase their profits.
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AlexOliver
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NPR has a good blog post providing a couple possible reasons for the high cost of education:
http://ww.npr.org/blogs/money/2010/09/0 ... -expensive
I personally believe it's a matter of (1) colleges don't compete on price and (2) easy availability of student loans. This allows universities to be inefficient and bloated with relatively little pressure to contain costs for students.
Having spent quite some time in universities and knowing friends/relatives employed by universities, I've noticed that (1) they are very inefficient on administrative staff and may tolerate staff members who would have been fired long ago at any for profit institution, (2) overhead rates are humongous. At many research universities overhead rates of 60% would not be unusual. What this means is that for every $100 spent on research another $60 is spent on support. Hiring a graduate student for a 20K stipend/year ends up ultimately costing the public $70k.
Another blog post at
http://www.huffingtonpost.com/bob-samue ... 62906.html
claims that half of the tuition costs at universities are going to subsidize "the high salaries of administrators and faculty not involved in undergraduate instruction. "
http://ww.npr.org/blogs/money/2010/09/0 ... -expensive
I personally believe it's a matter of (1) colleges don't compete on price and (2) easy availability of student loans. This allows universities to be inefficient and bloated with relatively little pressure to contain costs for students.
Having spent quite some time in universities and knowing friends/relatives employed by universities, I've noticed that (1) they are very inefficient on administrative staff and may tolerate staff members who would have been fired long ago at any for profit institution, (2) overhead rates are humongous. At many research universities overhead rates of 60% would not be unusual. What this means is that for every $100 spent on research another $60 is spent on support. Hiring a graduate student for a 20K stipend/year ends up ultimately costing the public $70k.
Another blog post at
http://www.huffingtonpost.com/bob-samue ... 62906.html
claims that half of the tuition costs at universities are going to subsidize "the high salaries of administrators and faculty not involved in undergraduate instruction. "
"So the questions we should be asking ourselves is why we continuously get into acquiring oversized and overexpensive whatever..."
Hayek would say that this happens in any area where there are government subsidies, especially subsidies in the form of cheap credit.
The three areas of government credit subsidy that come immediately to mind are home mortgages, higher education, and construction of arenas and shopping areas.
@Cashflow
The problem with eliminating tenure is that it's an economic benefit provided to faculty that is relatively easy for stable institutions, such as universities, to provide. If you eliminated tenure you'd need to compensate them more in some other area (probably wages) to maintain parity, at least for the ones you want to keep.
Hayek would say that this happens in any area where there are government subsidies, especially subsidies in the form of cheap credit.
The three areas of government credit subsidy that come immediately to mind are home mortgages, higher education, and construction of arenas and shopping areas.
@Cashflow
The problem with eliminating tenure is that it's an economic benefit provided to faculty that is relatively easy for stable institutions, such as universities, to provide. If you eliminated tenure you'd need to compensate them more in some other area (probably wages) to maintain parity, at least for the ones you want to keep.
Here's an argument as to why you should pay big bucks for a big named school "Look at your 5 closest peers in your life. You will probably be very similar to them."
So, if you go to say Harvard Law and drop $100k on your education, you and your 5 closest contacts have a high chance of earning millions and being rich (in terms of income not assets). You probably also stand a high chance at spending lots on dress shirts with big collars, cuff-links, coke and prostitutes to blow it off of... oh yeah, and you stand a high chance of having a really shitty job red-marking contracts all day and writing down notes of other's people's meetings. But I digress.
Network effect, geographical presence effect, influential contacts, etc...these are things that can be *bought* instead of *earned* by paying to attend a top-notch school and meeting the right people (presuming they aren't capital I INTJs and are able to talk to people).
On the flip side... isn't the real problem with parents and how we treat teenagers and their capacity to contribute to the working world??? Once upon a time, in one's teenage years you apprenticed for a skill and learned something useful so you could make money. Probably your dad or an uncle or somebody who was close to you taught you, or your parents paid for an apprenticeship. If teenagers graduated high school with work experience and a real employable skill or two you feel like they'd actually have a choice about doing more school or not. BTW - one of my favourite essays closely related to teens and apprenticeships "Why Nerds are Unpopular" - http://www.paulgraham.com/nerds.html
Case in point - Bill Gates, Mark Zuckberburg, Linus, etc - all of them were accomplished programmers coming out of high school, and subsequently dropped out of university (I am sure there are relevant examples outside of programming... I just don't follow those areas).
So, if you go to say Harvard Law and drop $100k on your education, you and your 5 closest contacts have a high chance of earning millions and being rich (in terms of income not assets). You probably also stand a high chance at spending lots on dress shirts with big collars, cuff-links, coke and prostitutes to blow it off of... oh yeah, and you stand a high chance of having a really shitty job red-marking contracts all day and writing down notes of other's people's meetings. But I digress.
Network effect, geographical presence effect, influential contacts, etc...these are things that can be *bought* instead of *earned* by paying to attend a top-notch school and meeting the right people (presuming they aren't capital I INTJs and are able to talk to people).
On the flip side... isn't the real problem with parents and how we treat teenagers and their capacity to contribute to the working world??? Once upon a time, in one's teenage years you apprenticed for a skill and learned something useful so you could make money. Probably your dad or an uncle or somebody who was close to you taught you, or your parents paid for an apprenticeship. If teenagers graduated high school with work experience and a real employable skill or two you feel like they'd actually have a choice about doing more school or not. BTW - one of my favourite essays closely related to teens and apprenticeships "Why Nerds are Unpopular" - http://www.paulgraham.com/nerds.html
Case in point - Bill Gates, Mark Zuckberburg, Linus, etc - all of them were accomplished programmers coming out of high school, and subsequently dropped out of university (I am sure there are relevant examples outside of programming... I just don't follow those areas).
I agree that granting a "senior professor" tenure is a good thing because it means the person has job security and academic freedom without having to worry about getting fired for having a point of view that may be unpopular with the rest of the world.
The same logic applies to federal judges. Once on the bench, they have the freedom to provide accurate legal opinions without having to worry about political correctness and running for re-election.
Both groups of individuals can be removed only for cause and the removal process has been made intentionally hard to do: revoking tenure and tenure and salary of a federal judge
Our society has decided to grant these groups of individuals lifetime employment to encourage their independent thinking, even if it means they also have a license to stand in the way of progress when changes need to be made.
The same logic applies to federal judges. Once on the bench, they have the freedom to provide accurate legal opinions without having to worry about political correctness and running for re-election.
Both groups of individuals can be removed only for cause and the removal process has been made intentionally hard to do: revoking tenure and tenure and salary of a federal judge
Our society has decided to grant these groups of individuals lifetime employment to encourage their independent thinking, even if it means they also have a license to stand in the way of progress when changes need to be made.
Mark Twain said "never let school interfere with your education."
In ideal terms, Twain is right. Education is a lifelong process that includes both formal (school) and informal (experience) ways of learning.
In practical terms, a degree is a ticket to enter into a career because rightly or wrongly, so many careers require a degree as a condition of getting hired. Some people can get around this requirement by being entrepreneurs and starting a business (e.g., Henry Ford, Steve Jobs, Bill Gates, Larry Ellison).
Perhaps society will change, or perhaps we will enter into a golden age for entrepreneurs -- the Internet is so empowering when it comes to acquiring knowledge and running virtual businesses (i.e., keeping your core competency in house and outsourcing everything else to subcontractors).
In ideal terms, Twain is right. Education is a lifelong process that includes both formal (school) and informal (experience) ways of learning.
In practical terms, a degree is a ticket to enter into a career because rightly or wrongly, so many careers require a degree as a condition of getting hired. Some people can get around this requirement by being entrepreneurs and starting a business (e.g., Henry Ford, Steve Jobs, Bill Gates, Larry Ellison).
Perhaps society will change, or perhaps we will enter into a golden age for entrepreneurs -- the Internet is so empowering when it comes to acquiring knowledge and running virtual businesses (i.e., keeping your core competency in house and outsourcing everything else to subcontractors).
Henry Ford, Jobs via Wozniak, and Gates are all great examples of the "young apprentice" education model working amazingly. Ford was apprenticed as a watch repairman at like 12 and a machinist at like 16. Wozniak and Gates were experienced programmers before they went to school. I think Malcom Gladwell has a one-word book about the whole 10,000 hours thing that talked about Gates/Wozniak explicitly.
"Why we continuously get into acquiring oversized and overexpensive whatever"
I think it is because society is "right". Even when the crowd is fundamentally "wrong", mass hysteria of belief tend to make something "true". Look at any large company and you will usually notice that the conformist cookie cutter employee with degree and conformist attire does well and all this is also usually required before being hired (ok, it also usually involves some conformist A$$hole nature to move up as well:)).
Unfortunately, the fact remains that besides the awesome exceptions (Gates, etc.) most people do better following the mold than taking steps aside (except maybe the extreme savers willing the live in the back of a semi).
I think it is because society is "right". Even when the crowd is fundamentally "wrong", mass hysteria of belief tend to make something "true". Look at any large company and you will usually notice that the conformist cookie cutter employee with degree and conformist attire does well and all this is also usually required before being hired (ok, it also usually involves some conformist A$$hole nature to move up as well:)).
Unfortunately, the fact remains that besides the awesome exceptions (Gates, etc.) most people do better following the mold than taking steps aside (except maybe the extreme savers willing the live in the back of a semi).
@The Dude - besides the awesome exceptions (Gates, etc.) most people do better following the mold than taking steps aside
I agree "the nail that sticks out gets hammered down" (which is a common expression in Japan).
One way to work the system is to fit in as much as possible (without spending too much money) while you are building wealth. Then once you have achieved financial freedom and are working as a freelancer, you can afford to be more choosy about what you do and don't do.
When I started working as a contractor back in the 1990s, my friends asked me if I was going to do temping until I could find something more permanent. I responded that what I was doing was permanent, and no one could understand what I meant.
I eventually stopped trying to convince people that temping was a better way to go than being permanent (because it was like trying to explain a television set to someone who had never even seen a radio before). When someone accused me of being "just a temp," I responded that I would be the first one out the door if there ever were layoffs. I became their friend as a result.
When layoffs actually happened, however, I was often not the first one out the door. As a temp, I know that my last paycheck may really be my last paycheck, which keeps me on my toes to stay current in my field. Employers know who gets the work done in their companies and layoff priorities during a business slowdown reflect that knowledge.
I agree "the nail that sticks out gets hammered down" (which is a common expression in Japan).
One way to work the system is to fit in as much as possible (without spending too much money) while you are building wealth. Then once you have achieved financial freedom and are working as a freelancer, you can afford to be more choosy about what you do and don't do.
When I started working as a contractor back in the 1990s, my friends asked me if I was going to do temping until I could find something more permanent. I responded that what I was doing was permanent, and no one could understand what I meant.
I eventually stopped trying to convince people that temping was a better way to go than being permanent (because it was like trying to explain a television set to someone who had never even seen a radio before). When someone accused me of being "just a temp," I responded that I would be the first one out the door if there ever were layoffs. I became their friend as a result.
When layoffs actually happened, however, I was often not the first one out the door. As a temp, I know that my last paycheck may really be my last paycheck, which keeps me on my toes to stay current in my field. Employers know who gets the work done in their companies and layoff priorities during a business slowdown reflect that knowledge.
I was talking about this with a friend a while back and we sat down to crunch some numbers using figures we found for average annual earnings for a HS vs. college grad. We calculated that for the average college grad, if you went to an expensive ($50k/year) school and borrowed half the money required to go there, then worked continuously until you were 60, the actual increase in money you would get to keep over your lifetime would be quite small, since you would pay the $200k cost of the education, interest on the loan, and increased income taxes once you finished college. Since jobs requiring a college degree are also more likely to be in expensive areas (plumbers can live anywhere but there are only so many jobs for religion majors) and require a "nice" work wardrobe, the economic difference between one and the other is quite likely negligible. It seemed like the only way to make a college education economically beneficial was to go to a cheap school and/or major in something that would likely guarantee relatively high wages (i.e., engineering) and/or graduate in less than 4 years, if possible. Given that the majority of students at universities are not majoring in engineering or leaving in three years, and an increasing number of students are taking on large amounts of debt ($100k is on the high end but increasingly not unheard of), it seems like we are due for a wake up call soon.
I'm not sure about debt-free, but certainly very low debt can be done. However, it depends on your state (state college tuitions can vary widely), what kinds of AP offerings are available at your HS, what jobs are available in your area when you are in HS/college, whether your parents are footing any of the bill, etc. If you take a lot of AP courses in HS you can place out of about a year of gen ed requirements at many state colleges, which would allow you to graduate in 3 years (interestingly, many of the more expensive colleges limit how much AP credit you can get much more severely). If you are doing something like engineering, the summer job options these days after your 1st or 2nd year are usually pretty good in terms of pay. Also, if you live in a dorm you can often apply to be a resident assistant, and if you are accepted, your housing and meal plan costs are usually covered. So if you managed to score a small scholarship, live in a state with cheap tuition, graduate in 3 years, work all summers, and do something like RA during the school year, you can potentially pay very little for your education (had I been smart enough to do this my degree would have cost under $30k, total).
I think there is still enough difference in lifetime earnings that getting a degree in something that teaches marketable skills at a cheap school is generally very much worth it. I do not regret my bachelor's degree at all from a financial standpoint, though I probably could have worked things to make it even more of a financial win, I'm pretty sure I am coming out ahead of not having gone to university at all. Getting a degree at a cheap school in something with less marketable skills is probably less worth it but still not a totally stupid decision. Getting a degree at an expensive school, however, is only worth it if you can avoid taking out many loans (either by being poor enough to get a great financial aid package or rich enough that it doesn't matter) or if you have a specific career path plan where having the name of a prestigious school will provide you with a demonstrable financial benefit. I think most 18 year-old students don't have that kind of clarity in their plans.
I think there is still enough difference in lifetime earnings that getting a degree in something that teaches marketable skills at a cheap school is generally very much worth it. I do not regret my bachelor's degree at all from a financial standpoint, though I probably could have worked things to make it even more of a financial win, I'm pretty sure I am coming out ahead of not having gone to university at all. Getting a degree at a cheap school in something with less marketable skills is probably less worth it but still not a totally stupid decision. Getting a degree at an expensive school, however, is only worth it if you can avoid taking out many loans (either by being poor enough to get a great financial aid package or rich enough that it doesn't matter) or if you have a specific career path plan where having the name of a prestigious school will provide you with a demonstrable financial benefit. I think most 18 year-old students don't have that kind of clarity in their plans.
One thing to keep in mind is that students and their often parents don't choose schools on the basis of what will earn the most money in the shortest time and allow them to ERE. For example, one friend of mine went to a pricey undergraduate school because it would guarantee him admission in that schools pre-med program. Many other students probably have similar thoughts -- I will go to this high ranked private school because it will maximize chances to get into graduate program X.
If you think about your career in more than financial terms, then spending additional money on private schools may actually make sense.
If you think about your career in more than financial terms, then spending additional money on private schools may actually make sense.
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jacob
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In myCountry, universities get paid by the government according to how many students(*) they graduate. Consequently, we were told to study what interested us most. Presumably one is more likely to complete a study one is interested in. I don't recall ever being told to consider placement ratios, employment stats, or whether a particular study was otherwise worth it.
(*) The admissions standards are much higher though, so maybe it's better compared to getting a scholarship in the US.
(*) The admissions standards are much higher though, so maybe it's better compared to getting a scholarship in the US.