Wednesday, January 29, 2014

Why Is Going To College So Expensive?

Author's Note: This blog post was originally published in my previous (and less successful, and now defunct) blog in 2010 while I was still living in the United States.  Though the data, where applicable, might be a little dated and the references are US-based, the main points are still relevant today not just in the United States, but in Korea, too.

A college education seems to be one of those things that most everyone wants. Parents want it for their kids, employers want to hire those who have had it, a lot of college students think that it ought to be a right, and politicians extol its virtues.

Getting a college education is indeed a good thing. In my own experience, I can tell you that it has helped me to understand complex ideas and philosophies and especially because I studied the social sciences, going to college has helped me to reaffirm some of my own beliefs, changed some of my opinions and has also helped me to understand ideas that I do not agree with. My college life, with everything else that came along with it, was a wonderful journey and it’s a memory that I will forever cherish, even if I do not remember some of those nights.

This might have had something to do with it.
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Now there are several government aid programs that allow students to pursue higher education.

As for the GI Bill, it allows enlisted men and women in the armed forces to pursue an undergraduate or graduate degree at a college or university, a cooperative training program, or an accredited independent study program leading to a degree. It is the least that the men and women of uniform who have fought for their country deserve. On the other hand, the Free Application for Federal Student Aid (FAFSA) ensures that all eligible individuals can benefit from federally funded financial assistance for education beyond high school. The stated intentions of those two services are difficult, if not impossible, to argue against.

Now that I have gotten all the niceties out of the way, it’s time to rip them a new one.

The GI Bill was established in 1944 and it was the first of the federal government’s many forays into higher education. It wasn’t until 1958 that the National Defense Education Act, which was the precursor to the Federal Perkins Loan program, the very first federal student aid program for low-income students, was passed by Congress. Before 1944, politicians in the federal government did nothing to subsidize or regulate education.

Conventional wisdom dictates that the GI Bill and FAFSA (and all of its successors) allowed countless students to afford a college education; and had those services not been enacted by Congress, the United States would be lagging far behind other industrialized nations and could not have achieved the rate of economic growth that it has experienced since the end of the Second World War. What we have to ask ourselves is whether or not that conventional wisdom is actually correct.

The philosophical argument that is given in support of getting a college education is education itself. Education is indeed a journey that begins at birth and ends with death and the more educated people are, the better off everyone’s lives is.

But what is the practical argument that is given in support of getting a college education? I can think of only one – to be eligible for a better paying job. For that reason, many people who support the subsidization of education claim that the GI Bill and FAFSA have allowed for many people to escape from the drudgery of manual labor to become doctors, engineers, accountants, lawyers, etc.

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Don’t get me wrong; I’m certainly not against higher education. However, the problem is that many people seem to make the mistake of judging the GI Bill and FAFSA to be good because of their stated intentions rather than their results.

If the only argument in support of the GI Bill or FAFSA is the philosophical one, then my argument would be merely philosophical as well – as much as I agree that having an educated populace is a desirable thing, I do not think that the government subsidizing education is the best way to approach that goal. The thing about philosophy, however, is that it is something that people are free to, and do, disagree with ad infinitum. However, once people try to make the practical argument in support of the GI Bill or FAFSA, then my argument becomes more fundamental – has it worked?

Case in point, how many new college graduates do you know who deliver pizzas or bag groceries or sell insurance over the phone or bartend or work entry-level jobs of one kind or another? In other words, how many new college graduates do you know who work jobs that really do not need 4-year degrees to accomplish? How many college graduates do you know who absolutely needed the on-the-job training that they received from their employers because the four years that they took to major in English or Music Education or Communication or Political Science did not teach them anything about escrow?  Or how many times have you personally not been able to apply for a job because one of the job requirements is work experience and that seems to be the same requirement that all other businesses require?  I know many such people and considering my readership, chances are that you are one of them.

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Considering the fact that less than 30% of college graduates get into professions that are related to their college majors, basically, by subsidizing college education as heavily as it has done for the last several decades, the federal government has turned the college degree from a mark of important personal accomplishment into just another credential that doesn’t necessarily mean anything except that the student managed to accumulate enough college credits.

It’s true that many employers now require a college degree as a job qualification. But how many of those jobs actually require particular skills or knowledge that an applicant could have acquired only in college? The vast majority of the time, the college degree requirement is generally used by an employer as a screening device to keep from having to interview applicants with only a high school diploma or less even for the most mundane jobs because of the perception that those with only high school diplomas are less reliable than those with college degrees. Then the question that arises is that if a college degree for the most part acts as merely a screening device rather than a sign of acquired knowledge that is in need, is that expensive college degree worth it?

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But what does the cost matter to the recipient of government aid to go to school? He/She is not paying for his/her education; not directly out-of-pocket anyway. It matters for two reasons.

Firstly, nothing is for free. Just because the recipient of the GI Bill is not paying for his/her education doesn’t mean that taxpayers aren’t paying for it. And is it right for taxpayers to be forced to pay for an education whose value is not worth the price tag?

Secondly, it matters because after the government began meddling in education, it has arguably cheapened education. The GI Bill was signed into law in 1944 in order to reward the millions of soldiers who were forcibly drafted into the Second World War. Originally, it was not meant to go on after all of the military personnel who participated in the Second World War who could take advantage of the program had chosen to do so. It was supposed to be a temporary thing but then came the Korean War, the Vietnam War and so on and so forth and so not only did the GI Bill remain, it also got a post-9/11 makeover.

As Dr. Milton Friedman once said, it just goes to show you that there really is nothing as permanent as a temporary government program.

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However, people do argue that government needs to subsidize education because it is so incredibly expensive. “Think of the poor,” they say. But they are not asking the important question – why is college education so expensive?

Since 1985, overall inflation in the US has been about 107.05% whereas the inflation rate for college during the same timeline has been around 466.8%.

When something makes no mathematical sense, it’s usually because government is involved. If you are a recipient of the GI Bill’s benefits or that of FAFSA loans, think of how readily the bursar at whatever university or college or accredited school you attended accepted those checks without ever asking you a lot of questions. And why wouldn’t they? Those checks are never going to bounce. After all, it is guaranteed money by the government – it’s free money, money that has either been taxed or practically freshly printed, or in some cases, yet to be printed.

When there is subsidization and guaranteed money involved, two things happen.

Firstly, subsidization inevitably always leads to overproduction. Just ask the Iowa corn farmers.

Secondly, guaranteed money inevitably always leads to higher prices. If I can charge any price I want for the product that I am selling and I am guaranteed to be paid no matter what, what reason would I have to not increase my price? The same logic applies to colleges. If the GI Bill allows you to go college for up to $100,000 or if FAFSA allows you to borrow up to $100,000 in student loans, then like magic, the cost of going to college goes up to $100,000. Never mind the fact that the value of your education might not be worth $100,000.

By subsidizing education, the government has transformed the college experience from being one of expanding the mind to becoming a mere credential to get an entry-level job for which people are mostly over-educated. It has raised the cost of going to college so much so that very few people can now go to college without the GI Bill or FAFSA thus creating a vicious never-ending cycle. And it has allowed the marketplace to be so saturated with college degree holders that despite the fact that so many young people are in serious debt, many young people can only find work in entry-level jobs that pay peanuts, which in turn compels people to support higher minimum wage rates, which in turn exacerbates things even further.  It's a vicious cycle.

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So the next time you hear someone say that education ought to be a right that the government ought to help pay partially for or fund outright, people ought to be reminded to think of one very important thing – that famous road to hell that has been paved with the purest of good intentions.

As for that future bubble burst, the Education Bubble, that is the direct result of more and more students not being able to repay their student loans that is going to pummel the economy yet again, well, that’s a nightmare scenario that I don’t even want to think of right now.

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  1. I'm from the UK where tertiary education was free up until 1996. One could attend Oxford and Cambridge and not have to pay a single penny towards tuition for the entire duration of their tenure at the university.

    The first payable tuition fees were capped at £1000. In under a decade that tripled to £3000, and less than a decade after that, students are now paying £9000 per year just for tuition alone. I must admit that the government has always and continues to subsidize the tuition fees for every student classed as a 'home student' (i.e. British citizen), but it is obvious that the fees being payed by students will continue to balloon in the near future given the recent trends.

    Tertiary education MUST be wholly subsidized and supervised by a country's government for its citizens, afterall...the country's future depends on it.

    Schools have now become businesses rather than institutions in the pursuit of knowledge, and as any business that wants to be successful, they find ways to cut operating costs while maximizing profits. This could be by reducing staff numbers, hiring less qualified instructors researchers and professors, reduced spending on facilities for research etc, accepting students based on their family's bank balance rather than the student's academic ability etc.

    I know this is comparing the US system to the UK system, but I still believe they are being plagued by the same virus - greed and the love of money.

    The decline in tertiary education is not because the government got involved, the decline is because the government allowed business culture to evolve in institutions of higher education.

    1. Hello, Anonymous. Firstly, I know very little about the UK education system so I shan't go into too much details about that.

      If your argument is that tertiary education must be wholly subsidized because the country's future depends on it, then I must ask a few questions. Firstly, what future are we talking about? The country's economic future? Businesses and individuals can read the tea leaves faster than any government can.

      Or is because you think that publicly funded education is inherently good? If your argument is that education ought to be subsidized because it helps to move the country forward, then do you think that the government ought to have subsidized Henry Ford or Microsoft or Apple or Samsung? Automobiles, microcomputers, and smart phones have definitely moved the whole world forward, no?

      And who decides which direction is forward anyway? Society? We have to remember that society is nothing more than an artificial political entity. Society, as such, doesn’t have goals. People have goals. And it turns out that people have very different goals.

      And do you trust bureaucrats to know what is good for the country? If recent history is anything to go by, every political leader that steps up to the plate seems to be worse than the last bum that was thrown out.

      We also have to remember that the government doesn't have any money of its own. All the money that it has it gets through taxation. Or it just prints new money, which is an indirect form of taxation. In other words, the citizens subsidize education (as well as everything else that is being subsidized). Let me ask you in a different way. Let us assume for a moment that you have not gone to university and would like to attend a university. If you make such a decision, is it fair that you pay for going to university or that a group of strangers whom you have never met foots the bill?

      Furthermore, I think you are taking for granted the belief that the government would pursue a pro-education policy with a concern for the quality of the education that the people will receive. Considering the amount of money that governments have spent on education, you’d expect a disproportionate number of the world’s Nobel laureats to come from publicly-funded universities. Of course, that is not the case. How would you account for this discrepancy?

      Considering that, we have to keep in mind that, I’m sure, even when college was free before 1996, not everyone could attend Oxford or Cambridge. The same is true in the United States and Korea. Despite the government subsidization of education, not everyone can attend Harvard or Yale or Seoul University. When money stops being a factor, then other factors such as political influence, prestige, and personal pull come into play.

      So what that means is that, though the person who has been subsidized to go to Oxford or Cambridge would certainly gain a great deal from the education he/she receives, the cost of having sent that person to college would have been borne by the rest of the citizens, most of whom does not possess the political influence, prestige, or personal pull of the person who had attended the said university. Quite an unfair and regressive tax, I should think.

      And if schools should not be run with a “business culture,” then what is the alternative? Go back to past models. They were abandoned for a reason (financial sinkhole). Furthermore, why shouldn’t schools run like businesses? Are you trying to tell me that college graduates don’t use their capacities in the direction which is influenced by the incomes they can earn?

      Though it is not the chief primary motivator, everyone is motivated by income. It is quite hypocritical to say that when we are motivated by it, it’s just to make a living; but when someone else does it, it’s greed.

  2. Here you go again with your libertarian, free market whine and cheese fest. If the government gets involved it must be bad. You do realize that the government subsidies all forms of education, not just higher education in the U.S. You like to simplify everything and skew it in the direction of government bad, free market good. You are right about one thing, nothing is ever free, but some things don't have to be a zero sum game. Some things will cost actual money and the cost must be absorbed by society. Why, because we decided that we will not live like the other animals. People like you want us to go back to a "food chain" world. A place where accident of birth or the whims of fate determine whether you live or die. You don't know that's what you are talking about because you think it's about "self determination". Only people who have been exposed to even a little freedom even understand the concept of self determination. You think a free society should be the equivalent to a free market but it's not. People aren't born free. Society gives them freedom or not. Your free market utopia isn't free either, it's governed and regulated the same as our bodies. It wouldn't surprise me that you'd suggest any regulation of the free market corrupts it's purpose. It would, but free market ideology is just that, an ideology, a theory, a practice, a discipline, it's just an idea. It isn't provable like gravity. It isn't some divine edict carved in stone by the finger of god. The problems with the cost of higher education cannot be solved by eliminating government intervention. Government intervention worked in this country for many, many years. It was the direct reason for the rise of the middle class in this country and the G.I Bill was one of the stepping stones. The free market didn't give rise to the middle class in this country, self determination didn't either, it was a direct decision by the people to enact laws and policies to even the playing field. Use that good brain of yours to see things as they really are not the way you'd like to see them.

    1. Hello, TT. It’s been a while. :)

      Firstly, it has always been my position that if the government gets involved in any field that it does not belong in, it is almost always bad. I’d like to think that perhaps a part of my readers might be disappointed, or at the very least concerned for my health, if I did not think that to be the case.

      Yes, I do realize that governments subsidize all levels of education. I do not celebrate that. In fact, I’ve spoken about this very same topic with other bloggers (recently as well as a long time ago before I was the “Korean Foreigner”) and I have mourned that fact each and every step of the way. And TT, I have never said “government bad, free market good.” I said “free market is better than the government.” There is a difference. :)

      It’s interesting that you brought up “zero sum game.” I never thought that the free market was a zero sum game. Case in point, a rich man does not become or stay rich at the expense of my being poor. Anyone who wants to claim otherwise ought to provide evidence.

      But you said “Some things will cost actual money and the cost must be absorbed by society.”

      Why? I’m not questioning why some things will cost money. I’m questioning why it must be absorbed by society. Who is society? I have said this many times but society is nothing more than an artificial political construct. A society consists of numerous different individuals who all have different goals. So why must different people pay for other people’s expenses? In other words, if I decide to buy something, why should you have to pay for it?

      Because we will not live like other animals? What does that mean? Are you saying that as humans, we must cooperate with others regardless of our choices? I think you’re being unfair to me in assuming that I don’t want to help others at all. Have you ever heard me say that I want human society to go back to a "food chain" world or that fate ought to determine whether people live or die? That is quite the mistaken view. To paraphrase Frederic Bastiat, simply because I am opposed to a thing being done by government, does not mean that I am opposed to the object being done at all. Just because I disapprove of state education does not mean that I am opposed to any education.

      Unlike other animals, we have the the ability of volition. Why do you want to subordinate it?

      Now what does self-determination mean to you? To me, self-determination means to use the freedom one has to make rational choices for the benefit of one’s own life. You will notice that I never even implied that there is a guarantee of success. Now if you thought I interpreted “freedom” or “self-determination” as “pulling yourself up by your own bootstaps and damn everyone else in society,” well, then perhaps it was you who caricatured me, than the other way around.

      The one thing that I agree with you is that people are not indeed born free. Even those who are born in democratic republics are not born entirely free. So is that the excuse that you give people for their mediocrity? I’m not going to pretend to be something that I am not, TT. I am quite fond of individuals for the possibilities that they are able to achieve; but I loathe humanity for its failure to live up to these possibilities. But I will always give individuals a chance to prove themselves worthy before I choose to no longer think about them. Are you telling me that you will remain satisfied with people being mediocre and being stuck in their ways simply because they weren’t born free? If so, then why expect anything besides disappointment and self-loathing?

    2. Of course the free market is governed and regulated by other things besides bureaucrats. When bureaucrats are not in the picture (now there’s a fantasy right there), the free marker is governed by (proven) rules such as supply and demand, diminishing marginal rates of utility, opportunity cost, etc.

      But my question to you is “Are you implying that gravity is a divine edict carved in stone by the finger of god?”

      Now did I ever say that the cost of higher education would be solved by eliminating government intervention? I don’t believe I ever said that the end of government involvement, and thus the free market alone, would be the miracle cure that would end all diseases. I may be an advocate of the free market, TT, but do not make the mistake of thinking that I am one of those Glenn Beck-worshiping idiots. It will not solve all problems. But at least it will create manageable problems and manageable solutions..

      But the last thing you said requires proof. Give me evidence that subsidizing education led to the rise of the middle class in the US. Give me evidence that it was The People that decided to enact these laws that you speak so highly of.

      By the way, I noticed that you did not challenge me on any of the reasons that I gave as to why higher education is so expensive.

      Lastly, and this is my own personal thing, though you got the free market part right, I’m really not a libertarian.

  3. Hi John. I have to admit that I'm a bit too lazy to refute every one of your points. I've also been on the computer all day and my eyes are giving out. I have to correct you now because I didn't say that the G.I. Bill was solely responsible for the rise of middle class America only that it was one of the stepping stones. I think a lot of people would say the rise of unions, implementation of the social safety net, progressive taxes and even war helped contribute. I've been reading a bit about our current problems with higher education and the point I was really trying to make is that government intervention isn't the only factor that has contributed. Certainly it has less responsibility for the rise in tuition costs experienced by private universities. One issue I have seen written about is the blooming in size of university administrative staffs. Many colleges now have admin staffs that vastly outnumber teachers. This is a change from how universities were run 30 and 40 years ago. I'm not a fan of mediocrity but I don't advocate a meritocracy either. In order for that to work everyone would have to be born equal, educated equally, and given the same opportunities which isn't realistic. You question why "society" should absorb certain costs. You say "why should I pay for what someone else wants", fair enough but someone has at some point paid for you. They might have done so freely and voluntarily, like your parents. They paid. Paid for your food, a dwelling, perhaps your education. The only way to avoid paying for someone else or being completely autonomous is to live alone, gather your own food, build your own dwelling, start from scratch like a cave man. Even early man decided it was more advantageous to live together than apart. I will look at the post again tomorrow and see if I do have any point to make. I still enjoy your blog even though I often don't agree with you.

    1. Good morning, TT. Pleasure to start the day with another round of debate. I don't know about you but I really do love this.

      Now I would have to say that those people who say that the rise of unions, implementation of the social safety net, progressive taxes, and war helped to contribute to the rise of the middle class are wrong. But that's a whole other set of subtopics that are too numerous to tackle at once in a blog forum. I think, for both of our sake, we should try to limit our discussions to one topic at a time.

      Your point about the government having less responsibility for the rise in tuition costs in private universities is a mistaken view. Though the government was not directly involved in the decision making process in those private universities' boardrooms, you have to keep in mind that the government is a significantly large player in the education industry, And because of its gargantuan size, the moment the government got involved, it effectively became the price setter. Even if the price setting was intended only for the public schools and universities, well, there are intentions and then there is reality.

      Now, as you said, the increasing bureaucratization and the increasing number of administrative staff in universities has certainly contributed to a rise in college tuition fees; and that this is certainly different from 30 or 40 years ago. But you're not questioning why this happened. What happened 30 or 40 years ago (about 35 years ago to be a bit more precise) that allowed for this sudden tumorous growth of administrative staff in universities? The answer: easy money (already existing government programs to fund education near ad infinitum) made even easier in the form of the federal Department of Education, which was created in 1979.

      Why would everyone have to be born equal, educated equally, and given the same opportunities for meritocracy to work?

      And no, the only way to avoid paying for someone else is not becoming a mountain man who hunts for raccoon meat in Wyoming. And you will also note that I never said that people ought to live apart from one another.

      Now you brought up the fact that my parents paid, and they paid dearly, to raise me. But you also brought up the fact that they did so freely and voluntarily. Now that's the important part - "freely and voluntarily."

      If people volunteer to help pay for other people's wants and needs, whether those other people are their own offspring or the offspring of random strangers, I don't see any moral or practical reason to tell them that they shouldn't. But I don't see how it is moral to force people to pay for the wants and needs of others.

      And TT, though often I don't agree with you, I, too, enjoy our discussions. Who knows? Some day, I might even get you to see things my way. Oh, but don't worry. I won't hold my breath. :)

    2. Oh and one more thing, TT. One of the things that you wrote that caught my attention was "One issue I have seen written about..."

      Are you a fellow K-blogger, TT? If so, I'd like to know which one you write.

  4. Nope not a Kblogger or any other type of blogger. I just became interested in Korea about a year ago. I used to be a solid politics junkie but it was making me crazy so I backed off for awhile. I guess you wouldn't be surprised if I told you that for 9 years I had been an executive officer in my local union. I just declined to run again this August and gave up my position. I'm burnt out on activism for the time being.

    I'm not very educated but I used to read a lot. I used to love terrible fiction and true crime. I'm also a huge TV and movie junkie. I think it's my age. I grew up in front of the television. I was a bit of an Anglophile for awhile and finally got tired of all things BBC. I'm a music lover but not a high brow music lover, more of a rock fanatic and now I listen to rap. Believe it or not. Don't even ask me what I think of Kpop. One Sunday afternoon I turned on my cable and watched a Hong Kong film by Wong Kar Wai, Ashes Of Time. I had never been interested in Asian films. One Jackie Chan movie and two Bruce Lee films kind of spoiled me for the experience. I just wasn't interested. I never even bothered to watch films like House of Flying Daggers or Ran even though both films had a lot of buzz in the west the years of their release. I had Asian mental block. I thought everything was about martial arts and silly stunts. I was really surprised to find how much I loved that movie. So, like anything else I want to know more about I sat down at my computer and did a search on Asian films. Unsurprisingly a lot of Korean films came up. After watching dozens of Japanese, Korean, Hong Kong and Taiwanese films I decided I liked Korean films the best. There was something familiar about them that I couldn't explain right away. I'm still especially partial to a good Korean gangster film.

    So that's how I got introduced to Korea and why I kind of fell in love with all things Korean. It didn't take me long to realize that a lot of Korean entertainment is modeled not just on western entertainment but American entertainment in particular. Understandable considering Americans have been sharing a certain amount of space with Koreans for over 50 years. Films lead to an interest in Korean history, culture and politics. I justify my interest to my friends and family by saying that ROK is an American ally and a important player in our history and politics. When it's really just me being single minded and obsessive about the things I find interesting. It's funny but 15 years ago I took Tae Kwon Do for about a year and still never got interested in Korea. I guess it was Kim Ki duk and A Bittersweet Life that changed my mind.