The College Bubble

Article excerpt

Byline: Megan McArdle

Mythomania about college has turned getting a degree into an American neurosis. It's sending parents to the poorhouse and saddling students with a backpack full of debt that doesn't even guarantee a good job in the end.

Why are we spending so much money on college?

And why are we so unhappy about it? We all seem to agree that a college education is wonderful, and yet strangely we worry when we see families investing so much in this supposedly essential good. Maybe it's time to ask a question that seems almost sacrilegious: is all this investment in college education really worth it?

The answer, I fear, is that it's not. For an increasing number of kids, the extra time and money spent pursuing a college diploma will leave them worse off than they were before they set foot on campus.

For my entire adult life, an education has been the most important thing for middle-class households. My parents spent more educating my sister and me than they spent on their house, and they're not the only ones ... and, of course, for an increasing number of families, most of the cost of their house is actually the cost of living in a good school district. Questioning the value of a college education seems a bit like questioning the value of happiness, or fun.

Donald Marron, a private-equity investor whose portfolio companies have included a student-loan firm and an educational-technology startup, says, "If you're in a position to be able to pay for education, it's a bargain." Those who can afford a degree from an elite institution are still in an enviable position. "You've got that with you for your whole life," Marron pointed out. "It's a real imprimatur that's with you, as well as access to all these relationships."

That's true. I have certainly benefited greatly from the education my parents sacrificed to give me. On the other hand, that kind of education has gotten a whole lot more expensive since I was in school, and jobs seem to be getting scarcer, not more plentiful. These days an increasing number of commentators are nervously noting the uncomfortable similarities to the housing bubble, which started with parents telling their children that "renting is throwing your money away," and ended in mass foreclosures.

An education can't be repossessed, of course, but neither can the debt that financed it be shed, not even, in most cases, in bankruptcy. And it's hard to ignore the similarities: the rapid run-up in prices, at rates much higher than inflation; the increasingly frenetic recruitment of new buyers, borrowing increasingly hefty sums; the sense that you are somehow saving for the future while enjoying an enhanced lifestyle right now, and of course, the mountain of debt.

The price of a McDonald's hamburger has risen from 85 cents in 1995 to about a dollar today. The average price of all goods and services has risen about 50 percent. But the price of a college education has nearly doubled in that time. Is the education that today's students are getting twice as good? Are new workers twice as smart? Have they become somehow massively more expensive to educate?

Perhaps a bit. Richard Vedder, an Ohio University economics professor who heads the Center for College Affordability and Productivity, notes that while we may have replaced millions of filing clerks and payroll assistants with computers, it still takes one professor to teach a class. But he also notes that "we've been slow to adopt new technology because we don't want to. We like getting up in front of 25 people. It's more fun, but it's also damnably expensive."

Vedder adds, "I look at the data, and I see college costs rising faster than inflation up to the mid-1980s by 1 percent a year. Now I see them rising 3 to 4 percent a year over inflation. What has happened? The federal government has started dropping money out of airplanes." Aid has increased, subsidized loans have become available, and "the universities have gotten the money. …