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| Home Front Economy |
| Is Tuition the Next Bubble to Pop? |
| 2008-10-02 |
| The credit bubble fueled a lot of bubbles, one of which was steep hikes in college tuition. Remember that queasy feeling you got whenever you heard someone advise you that, "In 20 years, the cost of a four-year private college education will be a half-million dollars, so start saving aggressively!"? Those scary predictions weren't pulled from thin air. Between 1989 and 2005, college costs increased at double the rate of inflation, according to American magazine. At that rate (about 6%), compounded over 20 years, annual tuition at private institutions George Washington University and Sarah Lawrence College, for instance, would end up being $129,543 and $126,521, respectively, by 2028. But let your tummy settle, because that's simply not going to happen. Here's why College tuition skyrocketed in the past 10 years or so, largely because of the convergence of rapid technological change, the increasing need for a college degree in a service-based economy, and cheap and easy credit. Colleges frequently cited "infrastructure" and "technology" improvements to explain the 6% annual tuition increases. But now that colleges are largely wired and wireless, it's doubtful they'll be able to keep using those reasons. Additionally, if the credit markets do in fact dry up as much as some believe, families will simply be unable to secure those enormous loans for school. According to FinAid.com, about two-thirds of college students use loans to pay for college, leaving them with an average debt load of $19,000. The recent turmoil with credit markets has to be disconcerting for parents with kids currently or soon to be in college. Even if the credit markets are fully restored by 2028, there are still very few people who have the means -- or desire -- to fork over a half-million dollars for their child's education. And even if they could come up with $100,000, there's little chance they'd be able to secure a $400,000 loan. Lots of people can't get mortgages that big. Bright flight Along this line of logic, bright students who had previously been vying to get into highly regarded private colleges, only to find out they couldn't afford tuition, may start flooding the less-expensive state schools. As a result, the average test scores of private schools may suffer, while those at the public schools improve, thus putting costly private education in less demand. Harvard University has already begun taking steps to keep the top students coming through its doors. In December, armed with its $37 billion endowment fund, the university announced that it would spend an additional $22 million a year to slash tuition costs for middle- and upper-middle-class families, in some cases reducing tuition from $30,000 to $18,000 for a family making $180,000 a year. Unfortunately, not all private schools have such a large endowment to tap when things get rough. Finally, at some point, the return on investment for an education with a large price tag becomes negative, and people will find alternative routes to higher education, whether that be trade school or local community colleges (both very respectable choices). See, the math for continuous 6% tuition hikes just doesn't add up. In good times, the annual starting salaries for college grads will likely increase by just 3%-4%. Eventually, it won't make sense from a career standpoint to attend expensive four-year colleges. What this means for you At some point, the tuition bubble has to give. It's simply unsustainable for universities to continue to raise tuition 6% per year, and it's a situation that college presidents need to address immediately. Now, this doesn't mean that you should be saving any less for your kids' college tuition, but it does mean that you may not need to be taking undue, overly aggressive risks with the kids' investments. |
| Posted by:Zhang Fei |
| #8 Our college graduates are in high demand. Many of them are "supersizing" meals even as we speak! |
| Posted by: flash91 2008-10-02 19:29 |
| #7 Or you find the little hidden schools that the corps try to avoid advertising so they can keep a lock on grads. I go to Tennessee Technological University, tuition is about $2800/semester. It's a science heavy engineering school, and I have never heard of one of our engineering graduates having trouble finding a job. Heck, our profs get requests for 50% more grads than we have in my program. It's a small school, less than 10,000 students in a town of 35,000. But it'll shove a good education in your head that will get you a job with a minimal amount of liberal insanity. Heck, they still play Christmas music in the Student Center during the holidays. And while we may not have a big huge artillery piece for our Football games like Texas A&M or University of Texas, we do have a neat little 3 pounder that was actually used during the civil war that they fire off when we score. |
| Posted by: Silentbrick 2008-10-02 17:23 |
| #6 Yeah, you wanna major in psychology? Sociology? English lit? Political science? Journalism? Liberal Arts in general? A complete waste of time. Another waste is the duplication of curriculum between the last two years of high school and the first two years of college. It simply takes too long to get educated. If you go to college right out of high school and do it in four years (rare these days) you'll be 22 before you're able to start looking for a real job...if you're lucky and don't have to go back for some kind of specialty or because you chose a worthless major. If you go into the military first you'll be what? 25? 26? 30? Yikes! Sorry folks. But I was bored as hell with school until I got into the upper division and started learning things that I didn't already know and would be useful for actually earning a living when I finally graduated. But you're right about the community colleges. If you're gonna waste two years you might as well do it some place that isn't gonna break your parents. |
| Posted by: Ebbang Uluque6305 2008-10-02 15:06 |
| #5 Why do people have to go to high-priced colleges to get the imformation and skills needed for a good job? People can and should go off shore for quality education. India can give you a great education at a great price. Another way to endrun the financial beaing you get from mortar and brick schools is on line schooling. As long as the system loans the money, people will make stupid choices. |
| Posted by: Richard of Oregon 2008-10-02 15:02 |
| #4 I wouldn't say "tuition", I would say "college education" is the next bubble to pop. This is because only a percentage of degrees actually contribute to student success later in life. The rest are fluff, that actually wastes four of their most productive years. |
| Posted by: Anonymoose 2008-10-02 13:48 |
| #3 One other effect - more students working their way through school. Via internet, or alternating semesters, or part-time, or .... you get the picture. Once the kids get out of their insulated bubble of pampered princes and princesses and decide to take 'real' jobs and do 'real' work for competitive prices we should see them take the places in the work force of some of the aging boomers and of the illegal immigrants - but first somebody has to pop their bubbles. My father cleaned septic tanks in college, I made boxes at a perfume factory, my kids did nothing or tutored athletes. |
| Posted by: Glenmore 2008-10-02 13:14 |
| #2 Really ?? Do you ever check prof's salaries ? How about coaches ? These are both way out of line. Prof's (some) are among the brightest, but they are far overpaid. If they want money, let them quit their cushy jobs and become entrepenurial. Big risks, big returns. On a salary, way too much. Coaches are among the dumbest(most) and don't deserve anywhere near the bucks being paid. No McDonald's I know of is in that pay range. And, most of them would be there, were they not on university pay. |
| Posted by: Woozle Elmeter 2700 2008-10-02 12:35 |
| #1 Just a few thoughts..... Next excuse for the college tuition hikes will be their employee benefits. You wouldn't believe how underfunded a lot of public pension funds are, and there's a bunch of employees very close to retirement right now. It will not be pretty ten years from now. Also, 19k in student loans at graduation seems low to me. I know several that are close to 100k, and these loans can't be discharged in bankruptcy like virtually every other debt. There's all kinds of cute ways for them to raise the debt level after graduation, too (forbearance, variable rate changes, etc.) |
| Posted by: Cornsilk Blondie 2008-10-02 12:35 |