The Cost of Higher Education

Stei111202Higher education is fast becoming essential for a comfortable future life, and it is even faster becoming unaffordable except for the rich. Horror tales abound of students graduating with crushing debts. Just today there was a story of a student approaching graduation with a good degree in a STEM field but with $190,000 in debt. When asked about her feeling about the future, she answered succinctly, “I am scared.

However there is a problem with this picture. In fact, overwhelming debt is not the price of a good education. It is the cost of poor choices. This might be excusable if the information needed to avoid this problem were hard to find, but it is not. Can you use a computer to search the Internet? If not, you aren’t prepared for college anyway. But if so, you can easily find excellent colleges that are relatively affordable, at least in the sense of minimizing your debt load.

There are good schools, with representatives in virtually every state, where a high quality education can be obtained for less than $11,000 per year, and many for much less than that. I picked this limit for discussion because it results in a workable debt load while truly opening the field for a quality education in any field of interest. This is the “net cost of attendance“, which is a far better measure than the published tuition and fee costs.

Total cost of attendance” is the yearly sum of tuition and required fees, books and supplies, room and board, and incidental expenses. The net cost subtracts from that the average amount of federal, state/local government, or institutional grant or scholarship aid. Even accounting for inflation, this may result at worst in a large but manageable debt, especially if the college major is chosen with a judicial eye on earning potential. And this doesn’t even account for any contributions that a student can make from work or savings.

This claim is not an idle boast. Here are just a few examples. The University of Massachusetts – Boston, actually in Amherst, has a national recognition and vast resources. Its net cost is $10,575. University of North Carolina – Charlotte has a similar academic reputation to the better known campus at Chapel Hill and is the state’s principal research university. Its net cost is $10,442. Stanford University is one of the nation’s elite universities and it deserves this reputation. Its net cost is $10,109. San Diego State University is well-regarded and is considered by Forbes to be among our most entrepreneurial universities. Its net cost is $9,856. Indiana University – Kokomo is smaller than its Bloomington counterpart but offers a similarly top-class education, with a student-to-faculty ratio of just 18:1. Its net cost is $9,834. As I’ve said, this just scratches the surface.

Advanced degrees, often almost essential in certain fields, entail more than the standard 4-year course of study and hence add to the debt burden. However it is usually possible to obtain graduate fellowships or other university-sponsored work that will minimize this cost. Moreover, there is the possibility of using the baccalaureate degree as entrance to your field in a company that helps sponsor graduate education for its employees.

If you are a good student with the grades and resume that can gain you entrance into our elite universities, the picture is even rosier. Both of the two top 10 universities that I attended make a firm offer that no qualified applicant will be unable to attend for purely financial reasons. They will make up the shortfall no matter how large, with the understanding that the student and her parents will contribute what they reasonably can.

The bottom line is that, as is often the case, financial difficulties are often self-imposed. But there is a hidden but important issue. Don’t just assume that this major investment of money and time will necessarily lead you to a life of plenty and the ability to support a family. A major in Elizabethan literature is its own reward but not likely in financial terms. Even some STEM majors are now at risk to technology advance, as I have discussed before. Make smart decisions.

Wealth Inequality: Causes and Remedies

Economists at the Federal Reserve are constantly investigating diverse aspects of our economy. One of their recent results reveals interesting aspects of the impact of education on wealth disparity. Much is currently being made of the increasing inequality in wealth between the top and bottom segments of our population. In fact this is the defining issue on the Democratic side of our presidential contest. But remedies, assuming they are appropriate, need to be based on facts rather than ideology or surmise. Look at this comparison of how education affects the accumulation of wealth by different segments of our population. But keep in mind that for Asians and Hispanics, these data don’t discriminate between recent immigrants and those whose family heritage is now mostly native American.


The broad picture is unsurprising, but if you look below the surface it tells us quite a lot. The quality and availability of education varies significantly between the affluent and the poor. Whites and Asians preponderate in the former, while Hispanics and Blacks constitute most of the latter. But even when higher education is achieved, the poor don’t appear to benefit as much as the affluent. Education helps but it isn’t a cure-all. In fact, for Blacks in particular, it has at best marginal impacts. On average, Blacks with a college degree have lesser prospects than Whites with only a high school education. While not ignoring this useful aspect of life, we must look elsewhere to achieve major changes.

Notice the small dispersion of the results for Whites, as represented by the narrow confidence bands. For them, the level of education is almost a perfect indicator of their prospects for prosperity. This explains why intellectual leaders, almost wholly White, grasp for this method of equalizing wealth for everyone. The results for Asians vary widely at any level of educational attainment. I think this derives from the diversity of our Asian-American population. Quite likely, those of Chinese and Japanese ancestry fare better than some from other East Asian regions because of differences in family resources. The odd reduction in prospects for those who only attain an Associate degree is a bit of a puzzle, although I could hypothesize an explanation based on resource limitations preventing further education and variations in innate individual capabilities.

Once the kick-start of education is passed, differences in life and work experience continue to affect wealth prospects. Getting off to a good start is important, but as with education apparently other factors are crucial. Look at this examination of the effects of age and experience on attaining the same marker for prosperity.

IMG_0425Once again, Whites and Asians are better situated to exploit their initial advantages. For many Asian-Americans this effect is even more significant. But for Hispanics and Blacks, their prospects not only don’t increase but appear to erode as they grow older. Those advantages some initially derived from higher education disappear as opportunities are blocked and/or hopes wane. Of course, another factor is that improvements in the prospects for the poor in recent decades haven’t helped our current older population. Thus, perhaps this disappointing trend will diminish in the future.

The Dismal Science and Uncomfortable Truths

The day after Christmas, Bernie Sanders posted on Twitter: “You have families out there paying 6, 8, 10 percent on student debt but you can refinance your homes at 3 percent. What sense is that?”

I can’t imagine a more representative comment from the Dunderhead School of Economics (DSE). Is it possible that he really doesn’t see why there is a difference? Suppose he was making such loans from his own pocket, and not as a charitable contribution. Would he really charge the same rate for a secured loan to someone with a solid financial rating as he would to a young person with no resources and uncertain prospects? If so, he wouldn’t do it for long. And soon it would be he who would need to find a charity to buy his “three hots and a cot”.


If we are speaking of charity, why charge any interest rate at all? Why not take these loans out of private hands and dispense the funds directly from government coffers. After all this is an investment in one of our most precious resources, one that could return a large profit to the community in years to come.

But then one might ask if that is really the best use of our finite resources. Should we invest in the relative few who are educating themselves for a likely prosperous life or should we provide vital support to the many in dire need of food, housing and medical care? If you say we should do both, I can safely assume that you are also an alumnus of the good old DSE. Try taking a short refresher course in Opportunity Cost. Or better yet, read the original source material in Austrian economist Friedrich von Wieser’s book Theorie der Gesellschaftlichen. I am sure an English translation of this classic is in your local library.

Teaching The Underprivileged

student_desk_booksWe know that the underprivileged are badly served by their schools, and that this contributes significantly to their inability to rise in society. This wasn’t always true. In big city slums during the great influx of migrants during the early 20th century, the schools were often far better than their counterparts today. Not that they were lavishly appointed or funded, but that they were served wonderfully by many skilled and dedicated teachers.

Upgrading the teaching cadre for those who need their help so badly is crucial. One part of this is devoting more money and using these scarce resources more effectively to attract and retain skilled teachers. But that challenging problem is for another discussion. First we must acknowledge that hiding behind this barrier is a real conundrum that has never been fully acknowledged.

Teaching involves more than skill and subject matter mastery. It also involves being able to connect with the students on a personal level. This is usually interpreted as requiring a cultural and historical affinity. That leads to the belief that we must have mostly black teachers in predominately black schools, and the equivalent rule for mostly Hispanic schools. For mixtures of minorities, the rule is unclear, but in any case whites are deemed fundamentally incapable of making the necessary connection. There is some dispute about this analysis amongst academicians but this remains the prevailing view at present.

But here’s the rub. Where are you going to get the skilled and motivated teachers? There are pockets of excellence in academia where these are available, but at least now they are overwhelmingly white. This is a “chicken and egg” problem. Without the flow of minorities through good schools into good teacher training, there will never be the kind of cadre that is needed.

There was an alternative that was tried and found wanting for many reasons. We hoped that busing students to break the effects of housing segregation patterns would solve this problem. This would put minority children in schools environments that obviously served white children better. While well-meaning, this is in direct opposition to the whole idea of cultural affinity. Both concepts can’t be simultaneously valid.

The Higher Education Myth

Abandon-HopeThis is how the story goes. Higher education has been shown to be a path to prosperity. Those with college degrees historically earn more and have more stable and productive lives. Moreover, good citizenship depends heavily upon a knowledgeable electorate. The more young people who go through this process the better and it is a worthwhile government investment to facilitate this. In particular, children from less prosperous backgrounds with no family history of college education particularly need a helping hand. If some is good, more must be better.

Doesn’t that sound reasonable? Indeed, in principle it surely is. But, as with so many ideas, the devil is in the details. One problem arises from the belief, or perhaps it is the wish, that everyone can benefit from college. If we ignore cost-benefit analysis, no doubt that is largely true. But for many the hard fact is that it just isn’t a practical investment of time and resources. Moreover, and this is the crucial point, trying to fit square pegs into round holes has already done enormous damage to the higher education process. Those who could really benefit have suffered as the process has been degraded to accommodate the unqualified and unmotivated. The elite, highly selective schools remain largely undamaged and continue to provide educational experiences unsurpassed anywhere in the world. But many colleges have become Potemkin villages, providing fake students with fake educations leading to fake degrees, if they complete the process at all.

We have confused correlation with causation. Higher education doesn’t make people successful. Successful and intelligent people are more likely to seek and complete higher education and thereby to continue their success in life. Attempting to replicate this situation for the unqualified is to imitate a Cargo Cult.