The Real Cost of College
I often debate the merits of higher education with myself and my surroundings. On one hand there is no doubt that educational keys unlock the doors to power and success. On the other hand there is the increasingly astronomical cost of higher education, sentencing the recent grad to his or her student loan payment prison.
Though this community is far more cognizant of the values of top notch diplomas, I wonder if everyone here is aware of the real costs of attending college. I urge you guys to think twice about how much you really want to pay for that piece of paper. It really may not be worth the pulp it was printed on soon enough...
Welcome to 21 Dump Street
The above link highlights twenty one scary facts about the implicit and explicit costs of higher education today. I will highlight a few of my favorites, with eyes widely open and head steadily shaking:
#1 Since 1978, the cost of college tuition in the United States has increased more than 900%. Meaning that the my favored Plumber>Banker argument may yet reach its full practical potential.
#4 Americans have amassed over $900,000,000,000 in student loan debt. That figure is higher than the total amount of credit card debt in the United States. Can you globalization advocates please stand up? Do you really need the argument made or can you infer what will happen when embattled unemployable fine art and history grads begin going the way of the defaulting home owner?
#7 Today, college students spend roughly half the time studying than U.S. college students did just a few decades ago. Why would this be a shock to anyone? Higher costs force students to choose weaker diplomas in favor of stronger financial aid packages. Part-time jobs are becoming unavoidable. Full-time work is increasingly the norm. Why would we be surprised that the majority of hard science PhD students in the United States are not Americans.
#13 Okay, okay I was wrong. Only close to half of all the graduate science students enrolled at colleges and universities in the United States are foreigners. How again does this motivate the average American kid to study physics, molecular biology, chemistry or electrical engineering? There's a correlation between perceived value and hard work. When carrots are not there to be dangled... hardly an ass will follow.
#15 A shocking 1/3rd of college graduates end up taking jobs that don't even require college degrees. This is the thing that really pisses me off. College in America has become a bigger scam than any ponzi scheme known to man. Yes, I include both Bernie Madoff and the Federal Reserve in that notion. Consciously pushing clueless kids into mountains of debt so they can go deliver pizzas and break brick for a living is plain criminal.
I am well aware that most readers of this forum feel that this information doesn't apply to them. For the few of you, however, who are blinded by end goal results... think about it. Rather than obsessing about which school to go to and which one will give you the best shot at the good life, take a breather and think. Maybe college is not the best move for you at this point in time...it certainly is not for millions of American young adults today.
definitely interesting, and I think you have a point. But, like you mentioned, I doubt this applies to many WSOers...and if it does, they are likely already IN college reading this :-)
Stupid kids who major in basket weaving & attend schools with 60%+ acceptance rates deserve to be fucked. Social Darwinism at its finest, and I am all for it.
P.S.: http://www.dailymotion.com/video/x1i2b6_joe-rogan-on-stupid-people_fun longer version of that clip
This.
Not all colleges are equal.
I honestly think the UK system just makes so much more sense.
Total cost for me (EU citizen): approx 36k GBP all in (tuition, food, accomodation, gym, plane tickets home 6x a year, train tickets etc), and im at the high end of cost.
securitize student loan debt+short short short short=trade idea of the next decade?
Student loans are one of the main ABS asset classes (with mortgages, autos loans, and CC debt). The market for SLABS is huge. See: Sallie Mae (http://en.wikipedia.org/wiki/Student_Loan_Marketing_Association).
Interestingly, while default rates on student loans are may be high, SLABS are still pretty attractive because FFELPs remain the most common types of loans (although this is changing) and they're guaranteed by DOE at like 95-98%. When private student loans get securitized there's a shitload of credit enhancements, think overcollateralization.
This is not new ... M. W. already spoke about this.
but what is the % of kids without college degrees working in jobs which require one?
the bottom line is that the paper is a necessity for getting any decent paying job, save being an entrepreneur. even if you dont have 25k in student loan debt to pay off, living off of 30k a year is pretty miserable...
Most of those statistics seem largely irrelevant. There are 1000s of colleges in the United States. Most of us here wouldn't even consider going to one that wasn't in the top 50 or so. There is a huge difference between the value of a degree from cal tech and the value of a degree from St. Francis University.
Typical engineering starting salary= $75K/year. If MIT or Cornell costs $220K and you finance all of that at 9%, that's $20K/year in debt service going to student loans. For that amount of interest, it is probably just better to be a car mechanic or a plumber. Even if you land a $100K+/year job, that debt service is still difficult to manage by a number of standards.
I like the Canadian/EU system. Have a number of flagship national/state schools, make them easy to get into but difficult to graduate, keep tuition fairly low, and focus on research and efficiently producing quality students.
This used to be the model in the United States. My father walzed into the University of Missouri - Columbia in the early 1950s but initially dropped out because of the rigor of the curriculum.
Tuition is low, not because they cut costs, but because they shift the burden to tax payers.
IP, the 75K starting figure seems very high to me. The stats that I have seen suggest more like 60K for an average. This strengthens your argument more though. I would like to add that most engineering firms and Gov contractors that are 80% engineers do not have the bonus structure and promotion structure that Wall Street has. So even though you start out with an attractive salary as a 23-year old, your salary crawls very slowly throughout your career (on average).
I am not sure whether the problem is that students are willing to pay for these degrees, or that employers require them. Really, how many jobs really need a college degree? Engineering, medicine, research...not much else comes to mind.
Couldn't a top-shelf high school grad do IB, quantitatively speaking? Is there any particular skill he will acquire during his four year at Harvard working on a humanities degree? And isn't even your average American HS grad capable of working at the DMV or Post Office? But these jobs all require degrees.
It seems almost like lazy HR screening to me. It's just another way to cut the number of applicants. Who would be a better analyst: a recent Harvard art history grad, or a Exeter grad who just spent four years as an apprentice to a banker?
The thing is, even a lot of private high schools don't teach the necessary skills for finance such as basic accounting and valuation. Mathematically/quantitatively, the education could be there, but conceptually it isn't. If you can perform complex formulae in your head but don't know how to read an income statement, what use is it?
The lack of financial literacy in hs education is a problem in and of itself. However, a lot of targets don't even have business courses. Analyst training at BBs is more than enough for most decently intelligent people.
I think the point stands that a lot of education is just self-promotion by academics...law is especially ridiculous.
The formula is 4 years studying whatever + 3 studying legal theory (that has nothing to do with practicing law). I would argue that you could take anybody inclined to practice law, put them through BarBri, and they would be more likely to pass the bar than a top 5 law grad (sans BarBri).
I can understand the value of critical thinking, an educated populace, etc, but putting kids through ~7 years of school and $200k in debt for no real professional knowledge is extremely questionable.
But how long does it take, what educational path do you need to follow to understand even a simple concept such as value-at-risk?
Why in the hell would anyone go to a for-profit and/or non top-200 college. Even the merits of a school below the top 100 (or even top 50) is questionable.
No one is denying that a degree from Harvard, Yale, Princeton, Stanford etc. is worth a hell of a lot more than what you payed to get it, and I think, at least for a small subset of schools (Top 20ish) it will always be this way. The big problem I see is people who in no way shape or form should be attending college and people who end up attending Podunck University and expect it to increase their odds / success at getting a job by a hundred fold. A degree is not a magical ticket to job success, and from "lesser" schools it is not a huge asset.
Student loan debt is probably the worst thing to get in, but it is kind of funny as its not really a problem for the top college attendees (the financial aid for those type of schools is insane). The problem is too many people going to lesser quality schools and paying way too much for them. Schools need to find ways to cut costs, provide quality instruction, and get rid of the kids who should not be there in the first place.
I honestly don't even think attending the Ivy League or top tier institutions is worth the money without significant financial aid. It depends on what you want to do with your career and what the other options are. Outside of wanting to work in finance or pursue a career in academia, I think the cost and benefits of attending a top-tier public institution versus a top private institution are significantly in favor of the cheaper option.
Medicine - MCAT, GPA, Research experience Engineering - Besides Caltech, MIT, and Stanford, attending Georgia Tech, VTech, or Purdue is just as good Law - GPA and LSAT for admissions Random Crap - All applicants welcome
We can discuss the merits of attending schools with more intelligent peers, but when it comes to career results, attending top public institutions with significant aid is worth more than graduating with significant debt from an Ivy League school.
It's only for fields in which the next step requires significant prestige that attending a brand name school matters. I couldn't imagine taking on $250,000 of undergrad debt to attend Yale Law School. I'd rather have a slightly lower probability of getting in by attending UVA and graduating with $40,000 in debt.
Great points. Unless you want to work in finance, top universities make absolutely no sense. I go to an engineering school and a lot of my friends are going to work in sales and trading and banking. Alumni, who have gone into science and engineering, who I have spoken to have all said that going to MIT was a waste of time since almost all of their coworkers went to state schools. I know quite a few people will be working in science who have racked up 100k+ in debt. It makes no sense. Just go to your state school.
Top tier schools' financial aid is also not "insane". If your parents make over $150,000 you're not getting any financial aid. What's the after-tax income of $150,000? What's leftover after fixed payments, retirement, and discretionary spending? Not a lot and not enough to pay for school with taking on a little debt, that is your parents are kind enough to spend 100% of their savings on your tuition and cut expenses like hell.
Look at the financial statements for some schools. Financial aid as a percentage of tuition charged has not increased in the last several fiscal years for the top universities. It's just a partitioning of the have nots and the haves. I think it's just a publicity stunt to tell the world that the Ivy League is in reach for all poor and underprivileged Americans.
This. I'm not exactly in the same boat but there are people who came out of community colleges with the same job as me. If I could do things over, I would still go to college, but things better turn up soon before I start feeling like I got robbed.
I completely agree with this post. The only advantage of college for most people, and the reason why attendances will not go down in the future, is that it gives them a few more years to grow up and figure out what they want to do.
I HAVE BEEN SAYING THIS FOR THE LAST COUPLE OF YEARS!!!
Someone look at the "Should I pay 240K to go to Stern" thread. Are you fucking mad? HELL NO. I don't give a flying fuck what the "exit opps" are. Fuck no. Fuck no. Fuck no...
The trolls in academia woke up and realized that somebody was getting paid and it wasn't them. They are officially price gauging students simply because the availability of federal funding AND IT WILL COME AT A STEEP PRICE TO THIS COUNTRY. We are not insulated simply because some of us have graduated and this will not end well...
Paid ~$120,000 for undergrad Paid ~$65,000 for grad school
1st year all-in: ~$140k
I personally don't see any problem.
But like the OP said, this doesn't apply to many of the people on here. It's more relevant to (the majority of) the kids out there who are just getting by in their art history/education/management/music/marketing majors. Hell, is it even worth paying a couple hundred thousand for an education in accounting and then to head out to one of the Big Four? I don't think so...
Somebody's gotta link it...
maybe there parents should have been more responsible and saved instead of buying beanie babies and nintendos
I returned the favor
Real or nominal dollars?
A few random points:
-A part of the reason that, by looking at the numbers in retrospect, attending a top-tier school doesn't make sense might have to do with what students want to do. The kids at Stanford might not want to do IB because they are more likely to come from rich families, and money does not motivate them. A kid from a state school is more likely to be willing to be a slave in order to make money. In terms of earning potential for those that want to maximize earnings, I can't see that statistic holding up.
-1/3 end up taking jobs that don't require college degrees - is this a recent figure? I would imagine this number has doubled or tripled due to recession.
"Why in the hell would anyone go to a for-profit and/or non top-200 college. Even the merits of a school below the top 100 (or even top 50) is questionable. " Some people don't know better. I went to ugrad at a non-top-200 college because it was cheap and I thought that if you do well in school and get out into the workforce and work hard and are somewhat intelligent, you will catch up to those that went to the top schools. Found out much later that this simply is not the case, and now I am wasting $80K and a year of earnings potential to rebrand myself via a MFin program. Not to mention a year of my life. It is easy to say "dont do that" when you have the data, but many simply don't know enough.
"Stupid kids who major in basket weaving & attend schools with 60%+ acceptance rates deserve to be fucked. Social Darwinism at its finest, and I am all for it." Completely disagree. You are often paying for this with your tax dollars, so you should not be all for it. Society loses as a whole - that person could have spent 4 years working in a factory. These individuals are a burden on society (unless they use their degree and teach art in elementary school or something). Having them work at Starbucks is not doing anyone a favor.
As far as resolving the issues MMM brought up, I think 2 things would help: 1. Guidance counselors in high school that do more than tell kids "do what you enjoy". I am sure many high school kids would try a lot harder if they knew what it meant to go to a decent college (in terms of future earnings if nothing else). 2. A work requirement before going to college anywhere except at top schools. If you don't get into a top-20 school, go out and work for a year without a degree. Will make you 10x more motivated when you are in school. And you may also choose to not major in basket weaving. This would also alleviate the ongoing dilution of the college degree - those that enjoy the blue-collar lifestyle for that year will stop there, saving tax-payers dollars and increasing the value of the college degree.
When I was a college basketball player (long time ago) we scrimmaged the Israeli national team. Afterwards, we got to hang out with them and shoot the breeze. In Israel you do 6 years of military service straight after high school and then you go to college. Imagine starting college when you are 24 and how focused you would be. Personally, I was waaaay too immature to take college seriously when I was 18 - 20. Luckily, I smartened up in my last two years. My point is that most college-aged kids are not even ready for college or professional internships. They just go so they don't have to hang around their hometown and mow lawns. Then they graduate and end up in their hometown mowing loans.
Agree with your overall post, but mandatory military service is 3 years for males, 2 for females. Which I think is the ideal amount of time to gain the maturity needed.
http://www.wallstreetoasis.com/forums/stern-worth-240k
if lesser schools are the problem why not ban for-profit schools or better yet, restrict federal loans for state schoolers, so that the person who isn't supposed to go to college would have the burden shifted onto him to make it through and the for profit school could work out a loan system with a bank. I think the main problem today is that people are paying for programs that don't serve a real purpose in society (ex. basket weaving) and a traditional liberal arts/humanities education wasn't the same as today's. You probably had to take history/english with calculus and chemistry. In today's terms this should be updated with some compsci classes and languages. Just sayin, cuz my 90 yr old my math prof had a liberal education and constantly about the historical time frame of proofs when he does them.
Why not just abolish public colleges and public sector subsidization of education in general?
Because education provides benefits beyond just the individual that receives the education. It's an externality that the market doesn't account for. Most economists (except primarily Austrian psuedo-economists) believe that public subsidization of education is a GOOD thing.
but that is less competition for me and more people for me to take money from i say let them be ignorant
These are 2 ideas I've come up with to slow down the rate of tuition increases:
1) Eliminate federal student financial aid to students enrolled at universities with endowments at or greater than $1 million per enrolled student. There's no reason the federal government should be giving loans or direct or indirect financial aid to students at universities that have $30 billion endowments and 10,000 or less students. It's time for extraordinarily wealthy schools to step up and take on the burden of financing their own students, reducing the pressure of tuition increases. It's supply and demand.
2) Eliminate federal student financial aid for liberal arts and business degrees; on the other side, give large sums of money in grants to American citizens to earn degrees in engineering, mathematics, medicine and the sciences, including at the graduate level. Cut off the spigot to America's financing of new lawyers, investment bankers, and poets and reallocate those resources to the hard sciences, encouraging otherwise intelligent students to pursue degrees that matter. We don't need more lawyers; we need more doctors and civil engineers. Again, it's supply and demand--reduce the supply of money for frivolous degrees then you reduce the demand for such degrees, thereby reducing pressure on tuition.
Don't forget the next bubble is likely the "student loan bubble", and with the precarious position we are in now its effects will likely be amplified. Then comes the issue of moral hazard, the right to higher education, and a whole new can of worms. Good op-ed in The Economist.
Almost everything the government touches turns into a bloated, bureaucratic bag of shit. Fannie, Freddie...Sallie is next.
I know a lot of people will argue otherwise, but I am seeing some overlaps with the sub-prime market here. Giving large loans to people who can't pay them back with no credit checks.
"But they can't be discharged!" But students can still fail to repay them. Can't adequately garnish wages if a JD with 300k debt is waiting tables for 30k a year.
"But a degree will always be worth something! College is always a good investment!" Well, a bank can't even repossess a degree if you fail to pay. And didn't people say the same thing about housing always being a good investment? A degree's value can still decrease just like any other asset.
You're right about moral hazard. How many students pursuing liberal arts degrees at poor schools even think about how exactly they will repay the debt? The lenders have a guarantee that they will be repaid, so they don't care.
Can you post the link? I can't seem to find that article.
http://www.economist.com/blogs/lexington/2011/04/higher_education
Agree with this post. I got pretty lucky going to Joketown University and still landing a good job. Maybe we will see more people choose trade schools rather than waste money on 'basketweaving' degrees?
Theoretically you should invest in education until the rate of return for another marginal year is equal to the market interest rate. I think studies show that at the moment there still is a positive rate of return to higher education for most people, particularly for women(although I think males who study arts had a negative return). Although I'm not sure if these figures hold for the US, as the papers I've looked at usual are looking at the British HE sector.
Problem is calculating these private rates of return to education. Normal thing is to use a earning functition but the problem is that these rate of return are for people who graduated 20 years ago and who there is earnings data, yet with the massive increase in garduates this is gonna effect graduate wages.
Another issue is wherethere the people who have degree are people off higher ability and would have earnt more than the average non graduate anyway. Plus if there is public funding of education you need to look at the social rates of return which opens up a whole other bag of worms.
On the whole I'm not sure where I stand on this whole issue. Oh well I got two exams comming up on the economics of education so I'll see how I feel in 2 weeks time.
The original post : ^^ is a follow-up response http://www.economist.com/blogs/schumpeter/2011/04/higher_education
For the sake of argument, let's accept the premise that public sector subsidization of higher education is a good thing (I'm not talking about public universities; focused more on federal grants, federal loan programs, etc.). Couldn't we agree that the meat--or almost all--of the public benefit comes from producing engineers, scientists, mathematicians, teachers, nurses and doctors? If we could agree largely on these grounds, wouldn't it make sense to begin discouraging intelligent students from going to college to get degrees in philosophy, political science, and management and point them toward publicly beneficial programs? And wouldn't the best way to discourage these degree seekers be turning off the money that allows students to pursue any type of degree blind of its benefit to the student or to society at large?
As a tax payer, I want an explanation describing the benefit to the general populace of my tax dollars subsidizing a political science degree. I'm 100% ok with loan and grant programs aimed at educating more civil engineers. I'm NOT ok with my money being used to create more Manhattan lawyers. This supply of money to liberal arts majors serves no public purpose; rather, it has a similar effect to that of quantitative easy--causing the artificial inflation of the cost of the product.
The problem with subsidizing higher education is that politicians fail to understand that higher education to a large extent only functions as signalling.
The amount of available higher end jobs is limited, just because you start pushing alot of people (many of whom should never be at college) through university, does not mean there will be jobs created which require those people. More education is not always a good thing.
That said, I don't really care about some kid that goes to bumblefuck idaho college, studies english lit, bums around all day, and then has to pay off his student debt for the rest of his life with his starbux salary. It's his own fault.
Also think of this:
First year all in comp for M&A analyst at BB is roughly same across frankfurt, london ny.
The guy in london paid 15,000$ tuition fees, the guy in frankfurt coming from german university paid roughly 4300$ tuition, the guy in harvard paid what? Like $140,000 in tuition?
the US of A is screwed in terms of university tuition. that is all.
Not talking about leverearb's comment about tuition costs but about a previous poster mentioning Europe having a better system of higher education for tuition, demonstrated in its MUCH lower tuition rates. I would argue otherwise. In the same manner that "free" universal health care in Canada is not free, free or highly subsidized tuition in Europe is not truly free--tax payers, through substantially higher taxes (income taxes, gas taxes, VAT, sales taxes, etc.) pay for tuition subsidization. Every tax payer spends his or her entire life servicing the bill for college tuition, whether or not he or she actually went to college or not.
4 years at a Virginia state university (UVa, Virginia Tech, William & Mary, George Mason, etc.)--$45,000 for tuition, textbooks, room and board. We all make decisions--if you choose to live in Pennsylvania and pay $20,000/YEAR in-state at Penn State then it's your decision. If you choose to go to NYU and pay multiple 6 figures for an education you could get for free at the local library (ha! love that line), then it's your decision. The difference between America and Europe is that I don't spend the rest of my life paying enormous tax rates to subsidize someone else's tuition decision.
My cousin is spending 2 years at the local community college, knocking out all her prereqs and then moving on to a public nursing school. She will spend well under $30,000 becoming a very well paid RN (BSN). Life is about decisions.
Exactly! As Milton Friedman was fond of saying, "There's no such thing as a free lunch"...
When you make students pay less of the cost of their education, that burden gets shifted to tax payers.
There will definitely be a bubble in the upcoming decade for student debt because of low income students having the ability to get student loans at for-profit university. So many kids are ignorant and inundated with the mantra that a 4 year college degree is needed to be successful in life. They eat it up and accumulated so much debt for a piece of paper, and not knowing how to pay it back. The kids do not even know the difference from a top or bottom tier university is.
The government should only make loans and grants to students who are pursuing degrees in science (engineer, computer science, bioscience, math, medicine, etc.). Too many idiots with degrees in liberal arts or law are running around today.
Certificates (CFA, CPA, JD) should become the standard for employment and not a college degree. Only 20% of what someone learns in college actually applies to a person's career.
Here's a great documentary by PBS Frontline that discusses the scandal going on at for-profit colleges with government loans: http://www.pbs.org/wgbh/pages/frontline/collegeinc/
How can I short student loans?
And this discusses the scandal going on at public schools with public money:
In other words, the public sector sucks both as a financier and provider of education...
^^^Go short on the Apollo Group aka University of Phoenix when government student loans drys up. They receive 86% of their revenue from government student loans.
Thanks for the link, I'll check it out.
We can argue about the benefits and disadvantages of public subsidization of higher education, but I have difficulty believing that some of you guys actually think public subsidization of primary and secondary education is a bad thing. I went to a public high school that had a 100% graduation rate and 99% of kids went to college, with 65% of kids going to colleges that most people on this board would deem as highly respectable institutions. Sure, this might not be the norm, but there are tons of highly successful public schools, it's just that you don't hear about that as much, because the media usually focuses on the bad ones.
The best part is that even if a student wasn't from the school district, they could still attend schools in our district (revenues from property taxes were collected by the state government and dolled out to school districts based on the number of students they had).
An educated society has lower crime rates and more involved citizens.
It's not a question of economics but of of philosophy. Every child deserves an education regardless of whether their parents can pay for one. Of course there's no free lunch. It's just the price we pay for a civil society.
Public schools for secondary high school system are satisfactory, but needs some reform; depends on where you live. I went to a top 10 high schools in the country. I like how there is IB, AP, Honors, and regular classes. Usually only the IB and AP kids get into colleges, the rest just have babies.
I would actually love to see a completely privatized school system. Instead of the extremely expensive schools we have now, I think we'd see the equivalent of Wal-Mart in education - that is, companies which offer their service at an incredibly low price (with still decent quality). If you're worried about poor people, then why not just subsidize their education (as opposed to subsidizing everyones)?
I agree with starwin--most of us agree with public financing of secondary education (and I agree with public universities, just not the vast amounts of federal subsidization of useless degrees)--but there is definitely need of major reform in the public school system in the United States.
I live in one of the top 10 wealthiest counties in the nation (Johnson County, KS) and the public schools here are really good. But my aunt's home schooled co-op has a lot of incredible ideas. For example, it groups kids into cooperatives where they rent out cheaply or are leant free classroom space by organizations, teachers are volunteers with expertise in a field (biology, physics, mathematics, history, English, etc.), and the community college is effectively used as a way of knocking out high school and college courses simultaneously. Each family spends less than $1,000 per year per student. I'm not saying you can apply these specific reforms to public schools, but the fact is these kids are getting an AMAZING education at about 1/6 what it costs at public schools per pupil.
econ, surely a fully privatized system for education would be horrible as there are positive externalities arising from education?
Currently there is significant overconsumption of education in the US and the UK, driven by both govt. subsidies, and efforts to increase enrollment rates. That does not imply that one should get rid all of subsidies. Just lower enrollment rates, and make subsidies more merit based. Subsidize courses with tangible positive externalities(i.e. fuck the humanities, go hard science).
Except for the fact that individuals derive a good deal of benefit from their own education, in the form of higher salaries (and in the form of knowledge). So, I actually don't accept your premise. Once again, let me refer you to these resources for a more balanced view than the trying to use econ theory to uphold the status-quo: - http://www.econtalk.org/archives/2008/03/munger_on_subsi.html - http://en.wikipedia.org/wiki/The_Lighthouse_in_Economics - http://www.mace-events.org/training2_2008/5585-MACE/version/default/par…
Except for the fact that individuals derive a good deal of benefit from their own education, in the form of higher salaries (and in the form of knowledge). So, I actually don't accept your premise. Once again, let me refer you to these resources for a more balanced view than the trying to use econ theory to uphold the status-quo: - http://www.econtalk.org/archives/2008/03/munger_on_subsi.html - http://en.wikipedia.org/wiki/The_Lighthouse_in_Economics - http://www.mace-events.org/training2_2008/5585-MACE/version/default/par…]
That assumes people are rational. But people are incredibly myopic, and in the case of primary/secondary education where the parent is making the decisions then what may be in the familys interest may not be in the childs.
You also got significant equity issues, with poorer familys more likley to be significantly risk averse and who also discount the future more, thus they are more likley to be put off by price rises even if education is still a good investment.
Plus for the market to work well you need people informed well. But how do you ensure that people are well informed? If they are not and make bad decisions there kids will suffer for the rest of their life.
Except for the fact that individuals derive a good deal of benefit from their own education, in the form of higher salaries (and in the form of knowledge). So, I actually don't accept your premise. Once again, let me refer you to these resources for a more balanced view than the trying to use econ theory to uphold the status-quo: - http://www.econtalk.org/archives/2008/03/munger_on_subsi.html - http://en.wikipedia.org/wiki/The_Lighthouse_in_Economics - http://www.mace-events.org/training2_2008/5585-MACE/version/default/par…] I never said they do not derive private benefits from it, the existence of social benefits does not presuppose the non existance of private benefits.
The question is how and if education has any public benefits. If we assume all education is pure signalling, then a more educated populace in the limit has no public benefits. I sympathyze with this view since realistically most undergraduate education adds zero transferable skills to the work place. One needs a certain amount of cognitive abilities and drive to perform white collar jobs. Current undergraduate education does little to stimulate either, if either can even be changed.
However if there is a real structural shortage of trained individuals(not educated, trained), then there would probably be some social benefit from training more of those individuals.
The wikipedia link sort of discredits the idea of a truly private lighthouse...
Depends on how you define private. I'm talking about people coming to solutions in a voluntary, decentralized way. With many goods, people assume that they can only be solved via governmental force and coercion. The lighthouse and beekeeping were seen as two perfect examples in economics where government intervention was necessary. But, when two economists looked into, they found out that there were counterexamples to the claim.
SDBall, that's what I had to remind my engineering friends of 4 years ago when they were all haughty about their higher salaries than we lowly finance majors. We had to remind them that we will be their bosses in about 10 years.
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