The Higher Education Bubble

Via Instapundit, my favorite blog aggregator, created by Tennessee law professor Glenn Reynolds.   This is a story Reynolds has been on for some time, and one that I've thought about a good deal too, particularly since I've both taught at the college level and also have three children for whom I'm saving for college (although not enough).   Reynolds links to this Forbes article, which attempts to consider the average college education as an investment, and attempts to calculate its "price/earnings" ratio.   The usual concept of a good price-earnings ratio for a blue chip stock is something around 15... that is, you would pay $15 for a stock that earned $1 a year.   The author concludes that the P/E ratio of a college education is something like 100... in other words, it's a highly, highly speculative investment, and one that most parents of most college-age kids wouldn't make, if it were viewed as an investment.   It's also, as he points out, illiquid... you can't sell your diploma if it turns out that it's a bad investment.  

Here's a key point that a lot of people don't get:

On average it takes six years to finish college nowadays. That's because students increasingly are dropping classes late in the term in order to avoid failing grades--dropping out of a class does not mean they avoid tuition costs on the class. So, hard cost for a college degree is roughly $150,000 for a private school and a little less than $50,000 for public (depending on residency discounts).

But that's not the only cost: Students are foregoing six years of full-time income for their six years of full-time education. Let's say an average of $10 per hour (something like $8/hour right out of high school, trending toward $12/hour after six years' work), which comes out to $20,000 dollars per year, which is $120,000 over six years.

We have too many kids in college, studying subjects that aren't useful, and getting out in debt, only to work at Kinko's.   We have too big a college industry, preying on these families.   It's a racket.   But it's a racket that, I think, parents are starting to wake up about.   My sons and daughters are, at least at this stage, academically gifted.   They are the kinds of kids who could excel in college, and should go, because they can do college level work in serious subjects.   But if I had a son who wasn't academically gifted, I would be seriously thinking about steering him into being an electrician or a carpenter or a plumber.   Think about it:  your son gets out of high school, apprentices for 4-6 years, and at the end of it he has some of his own money in the bank, he has a marketable skill, he has work habits, and he's been hanging around with adults rather than college-age drunkards.    When he turns 22 or 24 you hand him a check for $100,000, or whatever his college would have cost, and you say to him, take half of this and start a small business, and take the other half and buy yourself a house.   Is he going to be better off in that scenario, or is he better off getting out of Wisconsin-Whitewater with a degree in sociology and a hangover?