Higher Education: Higher Costs
#175 Year 4 Week 28
Dear Friends,
Like most people, my wife Lynn and I believe a strong K-12 education is critical for all kids, and higher education is valuable for those with certain career goals. I was fortunate to attend a highly respected private university. I gained admission by the skin of my teeth, and my parents heavily subsidized the cost of tuition, room, and board. Lynn paid for her education at one of our wonderful state schools by working jobs in the summer and during the school year and by taking out student loans, which were quickly paid off after graduation. That was enough 40 years ago. We both secured good jobs directly related to our college degrees, despite a competitive market and a challenging economy. Today, attending university is a much heavier financial burden and the job results are not as certain. No surprise that some are taking a pass on the college experience.
The U.S. Bureau of Labor and Statistics shows that the number of high school seniors enrolling in college rose steadily from 1959. By my time, in the late 1970s, 49% of American high school grads went on to college. Enrollment peaked in 2009 at 70%, then began to slide. In 2021, just 61% of American high school seniors enrolled in college, a disturbing trend.
One obvious reason for this trend is that the cost of college has become prohibitive. Bankrate.com suggests that college tuition costs have climbed 153% since 1980, well above the increase in overall inflation. CBS News reports tuition at the top 50 most expensive US universities runs more than $73k per year. Add to that room and board, and multiply by four. Or five. Locally, less expensive, high-quality schools like Marquette and Carroll come in around $46k and $35k. Wisconsin is blessed with a wonderful state school system, where tuition is less than $11k per year; a blessing by comparison, but not a bargain.
Another issue in declining enrollment is that the financial rewards for a college degree have not kept pace with the cost of college. I rarely include graphs in these pieces, but this may be the most telling graph I’ve seen in years. The message is quite clear.
The total cost of my college tuition was roughly one-third of my first-year salary in 1980. If I attended that same school today, a starting salary worth one-third of my tuition would need to be in the 200k range. First-year salaries in that range are simply not a reality, even for the best and brightest grads in the most demanding fields. Investing more, in this case, does not guarantee immediate payback. Nobody would dispute that the earnings potential for college graduates is generally higher, however the dynamics of the return on your investment change as costs rise relative to return, and should be a consideration.
Spending more on tuition may, however, lead to substantial debt. Bankrate reports U.S. students collectively owe almost $1.8 trillion in student loans, a worrisome burden on this generation. To fund the American dream of a college education, students will continue to rely on debt. Because their post-grad pay does not increase in proportion to their college costs, they may be saddled with larger debts that are repaid over a lifetime. Think about it as a mortgage for your higher education.
So how do we address this problem? I have a few ideas to get the conversation started.
Financial illiteracy is a challenge. We need to teach young adults in high school about the dangers of debt (and other basic financial concepts). Ignorance is not an excuse for making poor choices, but we need to make sure young people are prepared to make better financial decisions, beginning with their choice of higher education.
Regulate lending institutions to avoid over-leveraging college students. We saw in the financial crisis how banks exploited mortgage holders. Just because you can get a loan doesn’t mean you should. The lender needs to be held accountable for making sure borrowers meet certain qualifications. Holding the lender accountable doesn’t free the borrower from responsibility, but ensures both parties share the burden of making good debt decisions.
Recognize that not everyone needs to attend a 4-year college. There are wonderful, decent-paying career paths that don’t require a four-year degree. We need carpenters, health care workers, plumbers, and policemen; careers that don’t always require a 4-year degree. We err on the side of sending unprepared or unmotivated kids to 4-year college and absorbing that financial burden. Encourage kids to take a gap year. Encourage kids to go to the junior college or community college. Encourage kids to live at home the first year. Explore alternative paths that lessen the financial burden until the student is committed.
Scale your investment in college to your means or anticipated financial expectations after graduation. My daughter was a teacher. There are few more noble professions than teaching our kids. But we pay our teachers poorly (a future topic perhaps). If you choose to be a teacher, don’t pick the most expensive college; it doesn’t make sense financially. If you think you might pursue a graduate degree, choose a more affordable undergraduate education. College is an investment, we should analyze the economics of college in that way.
Government spending should be geared toward preventing the problem, not addressing the symptoms on the back end. Rather than write off loans that have overburdened students and will never be repaid, put those resources into helping qualified students access education more economically. Increase scholarships for needy students. I love the idea of free community college for qualified students. Have expectations for qualified students, but give kids the chance to succeed, without facing decades of financial misery.
It’s easy when analyzing a problem to get distracted by searching for a scapegoat. On the topic of student debt, everyone can share the blame. Universities, lenders, students, and our government are responsible for the burden. To solve the problem, we all need to be part of the solution.
I understand that the rewards of higher education cannot be fully measured in financial terms. I get that. However, the financial implications need to be addressed more responsibly.
In the CBS report cited above, Harvey Mudd in Claremont, CA is named the most expensive college in the country. If you can afford to go there or send your kids there, consider yourself blessed. But for the rest of us, we can make better choices and avoid the burden of excessive college debt.
Stay in touch
brian