College degrees may no longer get you a job, but tuition costs continue to rise and student debt continues to accumulate.
I spent 4 years at a private liberal arts American college where the cost of tuition and board was about $35,000 per year (for the current academic year, the amount is $55,450). I then spent two years in India, pursuing a masters degree, where the total cost was $1,200 per year.
Both schools provided me with an excellent education, but one was 30 times more expensive. Sure, the facilities at my undergraduate college were much better, but was it worth more than half of my parents’ combined salary? In reality, I actually only paid about a quarter of the full tuition because of various grants made possible by the college and the Federal Government. And then there were loans. By American standards, I was fortunate to walk away from college with only about $15,000 in student debt.
Every year, the Federal Government provides more than $150 billion in post-secondary financial aid – mostly through low interest, easy to get loans. Sound familiar? Government backing makes it very easy for students, many of whom are not ready to take on such a burden, to access large amounts of credit. As of last year, Americans had more student loan debt ($867 billion) than credit card debt ($704 billion). Even more modest calculations show a huge (511%) increase in tuition in just over a decade.
In the previous post, I described how a college degree is still the best way to get a good job, but no longer a guarantee for one. Some folks believe that the cost of tuition has finally reached a tipping point and that it is no longer worth it, even for a job. Peter Thiel, co-founded of PayPal, started the Thiel Fellowship, which pays 20 students (all under 20 years of age) $100,000 to not attend or drop out of college and pursue their entrepreneurial ambitions. Peter Thiel and I may not see eye to eye on most things political and economic (here’s why), but I think we both agree that $200,000 is too much to pay for college.
Attending a four year private college is tantamount to undertaking a mini-mortgage for most students. There are some unnerving similarities between the housing mortgage crisis and our current education system:
- cheap government-backed credit encourages unreasonable and unsustainable increases in price.
- if the public/market decides that a product is overvalued, then the correction for overvaluation will be painful – yet another round of defaults, bailouts and hindsight finger-pointing.
- folks were given far too many incentives to make purchases and undertake loans that they were not able to afford.
In Part 3, we will look at whether or not our undergraduate colleges actually teach students anything.