6 ms·

Author here. Another long read -- apologies! The TL;DR of this essay might perhaps be: - College degrees are more valuable than ever in post-industrial econom

by cjmb 8y ago

Author here. Another long read -- apologies! The TL;DR of this essay might perhaps be: - College degrees are more valuable than ever in post-industrial economies, so applicants to top-tier schools are up 240% over the last 25 years - Meanwhile, available spots at top-tier colleges in America have increased just 2% over the last 25 years (Thanks to Tyler Cowen & others for complaining about this publicly) - Microeconomics 101: Fixed Supply + Increased Demand = Increased Price - That’s the obvious part - The non-obvious part is that this is intentional... - ...because the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education (read: “receiving financial aid”) - That Charity-status protects the Investment Returns of College Endowments from Uncle Sam & the IRS - Investment Returns Compound over time, and there is no more powerful force on Earth — anyone not playing the game to maximize Compound-returns will lose to everyone who is - Thus: if Colleges want to keep their Investment Returns tax-free, Tuition MUST remain unaffordable for at least 50% of undergrads

kermittd 8y ago
Thanks for the quick breakdown. Reading now...college is a subject I’m endlessly fascinated by.
assblaster 8y ago
Do you see a responsibility of the federal government in lending money to students who have no ability to reasonably pay back their loans because their degrees don't have a high rate of return? Do you see a problem with universities increasing the quality of student housing, sports programs like football, and college administration, and that this desire to spend more to get more students to pay more tuition dollars is an undesirable feedback loop that perpetually increases tuition costs over time?
- Matticus_Rex 8y ago
  > Do you see a responsibility of the federal government in lending money to students who have no ability to reasonably pay back their loans because their degrees don't have a high rate of return? Can we all agree that this is an awful idea societally and for the individuals involved? If you couldn't get credit to go, it's because the market is sending a signal that it's a really bad idea to go. Yeah, it sucks if your dream is to do [insert unmarketable degree here] and there are few jobs for people who do that and the training costs just as much as an engineering degree. The idea that "society" should subsidize that is narcissistic at best.
  - prater 8y ago
    We absolutely cannot all agree on that. As you point out - the fact of the matter is that an undergraduate degree in business, engineering or medicine costs the same as a degree in art, social work or childhood education and pays about 3-4 times as much. So it's individually quite stupid to major in anything _other_ than engineering, business or premed. Do you really think a society is going to function without teachers, psychologists, lawyers and artists? So in that case can we all agree that arranging the incentives so that the only thing Universities produce are engineers, MBA's and medical professionals is an awful idea societally and for the individuals involved?
    - assblaster 8y ago
      But why does the "degree" require paying for college football or fancy dorms or student entertainment? College has lost its focus on education and, nationally, colleges are competing on providing amenities and costs of college are skyrocketing. Wouldn't it make sense to bring college education back to its original purpose?
      - CamTin 8y ago
        Which original purpose? The elite school one of allowing the next generation's ruling class to network with one another, or the land grant one of doing the same thing for flyover country, but also discovering new ways of applying fertilizer at the same time?
    - dpau 8y ago
      Thank you for this. Can we start backwards from a model of what we believe a rich, healthy society should look like, and then figure out how to get there? A society that depends only upon "market signals" to determine which jobs have value is not one I would wish to live in.
      - assblaster 8y ago
        But, our current society already does this, since we're not living under communism and centralized price fixing. Even "public" school salaries are determined by the market.
travisoneill1 8y ago
> the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education This would still be true even if college cost 10x less than it does now. Very few 18-22 year old full time students can afford any level of tuition.
- bilbo0s 8y ago
  I guess it might be more precise to say that it depends on the familiies of most students being unable to afford tuition.
analog31 8y ago
A minor quibble: The ratio of admissions to applicants is kind of a funny number. Applications could be driven by an external factor such as online application systems and word processing making it easier to apply.
- hkmurakami 8y ago
  Colleges have amped up their marketing budget to increase the top of the funnel as well.
- sn41 8y ago
  Foreigner here ... can confirm this. The application process to US universities has gotten much better compared to 20 years ago. Back in the day, we needed to pay application fees+international postage. Now, the second part has gone away. The first part, surprisingly, has not gone up by much.
- extra88 8y ago
  Yes, and the improvements in financial aid at elite schools makes them as affordable as a state school so applying to them is a low cost gamble.
ropeladder 8y ago
"...because the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education (read: “receiving financial aid”)" I wasn't aware of this at all. Do you have a source? Non-profits don't generally need to give away their money.
- cjmb 8y ago
  For sure, you’re totally right that non-profits don’t generally need to give away their money. I tried to touch on this idea in the “Case for Charity: A Charity Case” section, but my approach is to view it idealistically / as things should or might be. And in a hypothetical world where Colleges charge double-digit fractions of a family’s net worth, while generating as much investment profit as our best companies and hedge funds, but where 0% of students received any “aid”...... .....and the institution was still allowed to remain a non-profit and have returns tax-sheltered.... ....I can’t imagine that such a state of affairs would be allowed to continue. Which organizations are allowed to be considered 501(c)(3) and on what basis and what privileges that affords them is a matter that is hypothetically at the prerogative of Congress. I know trust in Congress/the political process is pretty damn low these days. But my point with the “best play it safe” comment was basically...if I were colleges, I wouldn’t roll the dice.
  - firethief 8y ago
    But no one is "colleges", if they're each acting in their own best interest. I don't see how this argument explains their behavior unless colleges are coordinating as a cartel. What's keeping them each in line?
    - mcguire 8y ago
      One of the points in the article is that this tier of colleges have been operating as a cartel since before the 1990s.
      - firethief 8y ago
skybrian 8y ago
Since you're using MIT as an example, it says here [1] that 90% of students get financial aid. I doubt that's changed much. The "sticker price" for elite colleges has always been too high for most families to afford, but most students' families don't pay that price. If you want to prove that maintaining charity status is a cause of tuition increases, you'll have to try harder. [1] https://web.mit.edu/facts/tuition.html https://web.mit.edu/facts/tuition.html
- secabeen 8y ago
  The college board publishes a nice charge of net cost of college: https://trends.collegeboard.org/college-pricing/figures-tables/average-net-price-over-time-full-time-students-public-four-year-institution https://trends.collegeboard.org/college-pricing/figures-tabl... Room and Board is a major driver of the increased cost of colleges.

by cjmb 8y ago

kermittd 8y ago

Thanks for the quick breakdown. Reading now...college is a subject I’m endlessly fascinated by.

assblaster 8y ago

Do you see a responsibility of the federal government in lending money to students who have no ability to reasonably pay back their loans because their degrees don't have a high rate of return? Do you see a problem with universities increasing the quality of student housing, sports programs like football, and college administration, and that this desire to spend more to get more students to pay more tuition dollars is an undesirable feedback loop that perpetually increases tuition costs over time?

Matticus_Rex 8y ago
> Do you see a responsibility of the federal government in lending money to students who have no ability to reasonably pay back their loans because their degrees don't have a high rate of return? Can we all agree that this is an awful idea societally and for the individuals involved? If you couldn't get credit to go, it's because the market is sending a signal that it's a really bad idea to go. Yeah, it sucks if your dream is to do [insert unmarketable degree here] and there are few jobs for people who do that and the training costs just as much as an engineering degree. The idea that "society" should subsidize that is narcissistic at best.
- prater 8y ago
  We absolutely cannot all agree on that. As you point out - the fact of the matter is that an undergraduate degree in business, engineering or medicine costs the same as a degree in art, social work or childhood education and pays about 3-4 times as much. So it's individually quite stupid to major in anything _other_ than engineering, business or premed. Do you really think a society is going to function without teachers, psychologists, lawyers and artists? So in that case can we all agree that arranging the incentives so that the only thing Universities produce are engineers, MBA's and medical professionals is an awful idea societally and for the individuals involved?
  - assblaster 8y ago
    But why does the "degree" require paying for college football or fancy dorms or student entertainment? College has lost its focus on education and, nationally, colleges are competing on providing amenities and costs of college are skyrocketing. Wouldn't it make sense to bring college education back to its original purpose?
    - CamTin 8y ago
      Which original purpose? The elite school one of allowing the next generation's ruling class to network with one another, or the land grant one of doing the same thing for flyover country, but also discovering new ways of applying fertilizer at the same time?
  - dpau 8y ago
    Thank you for this. Can we start backwards from a model of what we believe a rich, healthy society should look like, and then figure out how to get there? A society that depends only upon "market signals" to determine which jobs have value is not one I would wish to live in.
    - assblaster 8y ago
      But, our current society already does this, since we're not living under communism and centralized price fixing. Even "public" school salaries are determined by the market.

travisoneill1 8y ago

> the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education This would still be true even if college cost 10x less than it does now. Very few 18-22 year old full time students can afford any level of tuition.

bilbo0s 8y ago
I guess it might be more precise to say that it depends on the familiies of most students being unable to afford tuition.

analog31 8y ago

A minor quibble: The ratio of admissions to applicants is kind of a funny number. Applications could be driven by an external factor such as online application systems and word processing making it easier to apply.

hkmurakami 8y ago
Colleges have amped up their marketing budget to increase the top of the funnel as well.
sn41 8y ago
Foreigner here ... can confirm this. The application process to US universities has gotten much better compared to 20 years ago. Back in the day, we needed to pay application fees+international postage. Now, the second part has gone away. The first part, surprisingly, has not gone up by much.
extra88 8y ago
Yes, and the improvements in financial aid at elite schools makes them as affordable as a state school so applying to them is a low cost gamble.

ropeladder 8y ago

"...because the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education (read: “receiving financial aid”)" I wasn't aware of this at all. Do you have a source? Non-profits don't generally need to give away their money.

cjmb 8y ago
For sure, you’re totally right that non-profits don’t generally need to give away their money. I tried to touch on this idea in the “Case for Charity: A Charity Case” section, but my approach is to view it idealistically / as things should or might be. And in a hypothetical world where Colleges charge double-digit fractions of a family’s net worth, while generating as much investment profit as our best companies and hedge funds, but where 0% of students received any “aid”...... .....and the institution was still allowed to remain a non-profit and have returns tax-sheltered.... ....I can’t imagine that such a state of affairs would be allowed to continue. Which organizations are allowed to be considered 501(c)(3) and on what basis and what privileges that affords them is a matter that is hypothetically at the prerogative of Congress. I know trust in Congress/the political process is pretty damn low these days. But my point with the “best play it safe” comment was basically...if I were colleges, I wouldn’t roll the dice.
- firethief 8y ago
  But no one is "colleges", if they're each acting in their own best interest. I don't see how this argument explains their behavior unless colleges are coordinating as a cartel. What's keeping them each in line?
  - mcguire 8y ago
    One of the points in the article is that this tier of colleges have been operating as a cartel since before the 1990s.
    - firethief 8y ago

skybrian 8y ago

Since you're using MIT as an example, it says here [1] that 90% of students get financial aid. I doubt that's changed much. The "sticker price" for elite colleges has always been too high for most families to afford, but most students' families don't pay that price. If you want to prove that maintaining charity status is a cause of tuition increases, you'll have to try harder. [1] https://web.mit.edu/facts/tuition.html https://web.mit.edu/facts/tuition.html

secabeen 8y ago
The college board publishes a nice charge of net cost of college: https://trends.collegeboard.org/college-pricing/figures-tables/average-net-price-over-time-full-time-students-public-four-year-institution https://trends.collegeboard.org/college-pricing/figures-tabl... Room and Board is a major driver of the increased cost of colleges.