Yesterday I blogged about an MBA. My friend Keith sent me the new costs of attending the University of Chicago as an undergrad. U of C is a terrific school. My eldest daughter thought seriously about going there but went to Davidson College in North Carolina. She didn’t want to go to a school her dad could bike to.
I was flabbergasted at the cost of a U of C undergrad education and I assume that all the other top schools are right there with them. $85,0000 per year.
It’s easy to see why communists like Bernie Sanders are saying college should be free, and why people latch on to it. However, it shouldn’t be free for a lot of reasons. The biggest reason is if it is free it will have no value.
I went to college in 1980. I was recruited by Ivy League schools, specifically Columbia, and one major reason I didn’t attend was the cost. Sorry Seth. No scholarships in the Ivies and I was one of three kids. My parents couldn’t afford it and my dad didn’t want me in debt. It would have been $14,000 per year all in back then. I went to an inflation calculator and in 2022 dollars, it would have been $50,428.
$85,000>$50,428……an almost 69% increase.
Funny life fact. In my first summer between my freshman and sophomore year of college the CFO of the firm I was working at pulled me in his office and told me to go to U of C after I graduated from community college. I didn’t. University of Illinois women were cuter.
My acquaintance Albert has blogged about education from time to time. Albert is decidedly on the left. He also has a unique life experience because he was a foreign student that came to the US to study. He is concerned about the cost of collegiate education too.
I have some thoughts and they relate back to the MBA post. What is also interesting is my daughter’s experience. She went to Davidson undergrad and then Northwestern Law school. Going to Davidson didn’t give her a leg up to get into Northwestern. On paper, she might have been better off going to a less rigorous undergrad and having an easier time getting top grades.
But, the other interesting thing is the job market on graduation. None of the Big Law firms hire kids in bulk unless you went to a Top 15 law school. They hire singly from lesser law schools but the rule of thumb is to attend a Top 15 if you want to work in Big Law.
The best way to look at undergrad education is to use pure microeconomics to understand what is going on.
First, pre-1989 the market for students was a lot smaller. The demand line shifted up after communism fell. At the same time, China decided to open and it began sending students to the US in bulk. That further increased demand. Here is what happens graphically, but with no increase in supply, increased demand means higher prices.
By the way, that works for other products too. One reason gas prices are so high is expected future supply is expected to be lower due to Biden’s policies.
A few other facets increased demand as well.
The federal government increased subsidies to go to college, and increased subsidies to the colleges themselves.
Data compiled from economic studies showed that people who went to college and graduated with any degree did better financially than people who didn’t. Interestingly this extends to divorce too. If both spouses went to college they have a lower probability of divorce than if they didn’t.
The economy was doing a lot better from 1982 on due to the Reagan Revolution, so more people decided to spend the money to attend college. It ceased being a luxury good.
But, why is U of C $85k per year, and a school like Northern Illinois University $10k per year. Is U of C undergrad worth the $75k? It’s not just U of C, it’s any elite school. The Ivies, and the preppy small colleges like Amhearst etc are similarly priced.
The answer of course is, it depends.
If you know you are going to grad school, it’s hard to make the case that going to the elites is better when you know you will be out another $200k to $250k for grad school.
It’s tougher if you are only going to do undergrad. If you are going for a degree that doesn’t have a high probability of a high payoff on graduation, like sociology, hard to justify the high price. But, it’s awfully hard to know who will make money and who won’t. I see a lot of poli sci majors that went to high-powered schools that are venture capital partners.
That’s the other factor. If you look at certain occupations, the people that fill them went to elite schools as both undergrad and grad. That sends signals to the market.
There are ways around it.
You can go the junior college route. You save dough, go to the elite school your last two years provided they take transfers and you still have the degree saving the first two years of cash. This also works with going to a non-elite school and then matriculating to grad school.
I predict more and more kids will choose this path since there is little perceptible statistical difference between kids that went JC-College grad and just College grad in outcomes.
The other thing employers can do is hire from non-elite universities. That would send a market signal. However, there are strong social reasons that certain occupations leave those unspoken standards in place.
Other fixes are less politically popular. The government ought to taper back or end the subsidies it gives to colleges and students. Prices would drop because demand would cool.
The accreditation process for starting a college is a regulatory thicket no one wants to travel through. We ought to look at that thicket so supply can increase.
More transparency on what tradespeople earn in income, and how they can increase their income might change the market. A lot of contractors I know started in the trades and have done very well.
We ought to look at how many foreign students we admit and from where we admit them. Having foreign students at US colleges is actually a good thing, and have similar network effects that immigration does. However, should be in the business of educating students from countries that are hostile to us while sending them back. Maybe there should be a “burn the boats” strategy where those students are put onto a path for US citizenship.
Lastly, in the tech world, often just posting code on a website like GitHub can get you a great job. With the rise of tech, many high-paying occupations don’t need the imprimatur of a college degree.
There’s another aspect to this, which is that the listed tuition is a notional maximum tuition, paid by only a few, with most paying far less. All students at my son’s private college receive at least one scholarship, and the real tuition is significantly below the listed one. I think there is a marketing benefit for it to have the higher tuition listed — makes the school look elite— instead of making it look mediocre. Maybe the Chi-Com kids are paying full tuition at places like Chicago, but few others are, at least not at the undergraduate level.
My daughter just graduated from the University of Rochester. The cost was the same as U of C. She completed 2 semesters at home taking classes online thanks to Covid. The school did not offer any tuition breaks for online courses. The quality of the online classes was a poor substitute for in person teaching.