Posted on 03/11/2006 12:56:51 PM PST by Dark Skies
Asset classes--stocks, bonds, real estate, collectibles--are always competing with one another. Each clamors for our spare dollars. For periods we favor one asset class over others (e.g., stocks from 1982 to 2000). But when a collective judgment is reached that a particular asset class has been bid up too high, dollars are pulled and the asset class shrinks in value. Real estate may now be at that point.
I can think of only one asset class that in my adult life has outperformed GDP growth plus inflation yet has been blissfully immune from busts--any busts at all. That is the value of a four-year-college degree. When I graduated from college in 1976, our class joker had T shirts made up that said “$24,000 for one diploma and a lousy T shirt.” Actually my diploma and shirt cost only $12,000, as I had transferred from a community college where I’d been on a track scholarship. Those Adidas spikes, pricey at $24.95 in the early 1970s, were a great investment.
Today it costs $175,000 to send your kid to my alma mater. Yep--that’s the market price for four years of tuition and expenses at any elite private college. Did I say elite? Sorry. The second- and third-tier private colleges have also learned this economics game. They, too, are charging north of $100,000 for a four-year degree. And parents are lining up to write checks. Special Offer for Forbes.com members -- receive a Free Trial Issue of Forbes Magazine... no risk... no obligation! Click here for your Free Issue!
Do you suspect that this asset class--a four-year-college degree--might be overpriced? I do, for three reasons:
# Search engines such as Google have ushered in the era of open-source learning. Society is rapidly progressing to the point where any Googler is on equal footing with a Widener Library pass-holder.
# Most of today’s higher-paying jobs go to those who exhibit a combination of adaptable intelligence, numeracy, communications skills and a strong work ethic, as opposed to evidence of specific knowledge.
# Which leads to a third, and no doubt controversial, point. Society once counted on universities to imbue students with the traits named in the paragraph above. It was once assumed, for instance, that a liberal arts degree holder was numerate and literate and knew how to draw lessons from history, weigh evidence, think, write, speak, debate and learn. Or so Larry Summers, the ex-Harvard president, innocently imagined. He thought undergrads should learn about the math-and-science-driven world they’d be entering as adults. This belief conflicted with the postmodern professoriat that prefers cutting rap records to teaching--or, if forced to teach, teaches liberation theology over the American Revolution. Summers lost the battle.
My prediction is that parents who risk their own financial security shelling out $100,000 to $175,000 for a four-year degree will lose, too. History will show that they could have achieved far greater returns for themselves and their children in other asset classes.
Why does the price of a four-year degree keep rising? Past performance is one reason. The cost of college degrees earned in the 1940s--tuition at Yale was $450 in 1940--through the 1980s looks like a bargain compared with the cost of those today. The return on investment for older degrees has been spectacular. Take a well-known statistic: As recently as the 1970s, there was little difference in the lifetime earning potential between a high school grad and a four-year-college degree holder. But in just one generation the four-year degree holder has leaped ahead in the earnings wars. In 2003 he could have expected to earn 62% more than the high school grad.
But there’s no guarantee the present trend will hold. It might even reverse. The same forces--technology and globalism--that quelled the wage growth of blue-collar workers may do the same to white-collar workers. Already software writers feel salary pressure from India, cartoon animators from China, classified ad salesmen from Ebay and so on. Despite this, you may conclude that my opinion of the worth of a college degree is nonsense. Degrees have always gone up in value, you think, and always will.
Degree Is Just a Proxy
Okay. Allow me to pose a question. Suppose you are an employer and are filling jobs for which no credential is required. In other words, for typical white-collar jobs--product design and engineering, sales, marketing, non-CPA accounting work and so forth. Would you pay a steep salary premium for a four-year degree holder versus a high school grad? You might. Perhaps you’d think the four-year degree speaks to the job applicant’s intelligence, along with a certain facility to set goals and finish them.
But what if you could guarantee those qualities in other ways (military service, missionary work, etc.)? See, I think the Harvard or Yale degree is worth plenty, not because of what Harvard or Yale teaches--the postmodern university can do more harm than good; witness Yale’s admission of a former Taliban spokesman. The degree simply puts an official stamp on the fact that the student was intelligent, hardworking and competitive enough to get into Harvard or Yale in the first place. May I present to the jury Bill Gates? He was smart enough to get into Harvard. Then he proved his financial intelligence by dropping out to start a company.
Okay, enough Harvard/Yale whipping. Like oceanfront property, their degrees will always command a premium and will probably pay out a terrific ROI. The same is true of degrees from 10 to 20 other private colleges. But beyond those 10 to 20 schools, I suspect the price of a four-year, private college degree--$100,000 to $175,000--will be money poorly invested.
You mean the place that hired a "professor" that would rather spend his time making rap albums than what he is being paid
to do, like "teach". What was Princeton thinking?
The problem are the "trustees" that let schools get away with crap like that.
Oddly, students from all over the world have no problems with our universities. Nearly every country on the planet sends their best and brightest to America for an education...
I wish you well, but I don't think I'd want to be in that field today. I understand that "liberals" (i.e., Leftists) outnumber conservatives by something like 20 or 30 to 1 in history departments. Maybe not at your school, but nationally.
Unless I've been misled, I think you will have a hard time getting hired and tenured if you let your conservative views be known. Then again, maybe things are finally starting to change. For your sake, I hope so.
I picked this field because it is what I've wanted to do since I was 13. I can't stand revisionist historians and I decided that I was going to be a different kind of history professor.
Though I should be able to break into banking eventually, it may take several more years for me because of this.
I think that a four-year degree will continue to be vital to success -- especially if it is from a top Chinese university or from one of the Indian Institutes of Technology.
You may be correct. I posted this article because I thought it would get people thinking. The status quo needs to be challenged so that the bad parts are chipped away and the good ones are refined.
On the other hand, I hear that some of our troops in the ME (on land and sea) are continuing their education via the internet. Vy exciting time for education...
I think those institutions that think they are beyond competition should think again. Competition is a good thing...keeps us sharp.
Life is a kind of revolution.
Equivalency exams?
Who will sanction these exams, how will recognize which exams are legitimate, and which ones aren't? It'll come down to which exams are considered more prestigious, and those will be used to separate the cream from the crop. You'll have "prepatory schools" for the better exams, and someone will charge a lot of money for those--it'll be no different than the Ivy League is today.
Higher education should not be solely about choosing the correct answers on an exam. There are too many intangibles that an institution of higher learning should provide that a multiple choice exam could never duplicate.
Of these, the admission process is as effective as ever. The placement process is deteriorating, since the positions on offer are typically in a deteriorating American business and government organizations. The educational process is in the worst shape, because students are not getting the training needed to take advantage of the opportunities that actually exist.
Don't get me wrong, I agree with a lot of what this article is saying. I just think that theoretically, a classic university education should provide its students with much more than a standardized exam could ever measure. This may, or may not be true in practive.
Yes, when Donald Trump hit the Big Apple he nothing but a few million dollars, his father's contacts, and some inside deals...
True. he started out wya ahead -- but, he has grown his fortune. Another type of person could have easily blown it. He didn't. And, I have no doubt he has learned a lot along the way.
True. he started out way ahead -- but, he has grown his fortune. Another type of person could have easily blown it. He didn't. And, I have no doubt he has learned a lot along the way.
You make a good point. The exams themselves and their issuers take a premier role.
As pertains to law and accounting (can't speak to medicine), this has been going on for a long time.
In my very young days, I became a CPA without taking anything but the basic college accounting courses.
My state (which is quite rigorous) provided an exception to being an accounting grad. All the course requirements could be exempted by passing equivalency exams...and they were tough. I bought all the texts and stood the exams...and passed them all in less time than I could have taken the courses. And then went on to pass the CPA exam (in two sittings). And as any CPA will tell you...that isn't an easy test.
Bottom line...academia doesn't and shouldn't have a lock on education.
Academia should compete with the real world. Let's examine the evidence and make our decisions accordingly. Make academia compete...it will resist for all the wrong reasons.
I think one might learn more from a successful real estate developer than a professor who has never risked a dime.
Professional real estate developers do teach for him, according to him.
Sounds great to me!
Well, if you take an online course there, let me know what you think of it! I am curious about it.
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