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Collapsing the Ivory Towers

The Economist and other inquisitive media outlets have started to ask the long overdue question: What does paying $250k for a college education from a top tier school really get you…and is it worth it?   To set the stage, the economist did a great job of putting the cost of tuition into perspective:

“College fees have for decades risen faster than Americans’ ability to pay them. Median household income has grown by a factor of 6.5 in the past 40 years, but the cost of attending a state college has increased by a factor of 15 for in-state students and 24 for out-of-state students. The cost of attending a private college has increased by a factor of more than 13 (a year in the Ivy League will set you back $38,000, excluding bed and board). Academic inflation makes medical inflation look modest by comparison.”

For most Americans, the cost of their child’s education will be their second largest financial outlay after purchasing a house. For those students who have to pay for their education without help, they can join the ranks of those with an average cumulative debt of $27,800 when graduating from college.

All booms come to an end and I think the ballooning of college costs will find its apex on the supply/demand curve.  When unemployment is at 10% it might seem like a gift that only 8% of college graduates under age 25 are unemployed.  That gift dissolves when compared to the 3.7% unemployment rate for college grads under 25 in April of 2007.  College grads are still better off than the sub-25 year olds without a college education; they are are currently suffering from a 24.5% unemployment rate, up from 11.4% in 2007.  The young and unemployed portends for an eerie future similar to Japan’s lost generation of youth.

Just as houses became too expensive for consumers, educations are becoming too expensive for students.  While it is arguable true that debt from an education is less destructive than debt from consumption, there is a level where the cost/benefit analysis falls apart.  This becomes especially true in an age where education has become democratized for those with enough desire and self-discipline.  Want to learn how to program?  Why not learn from MIT for free.

Posted in Economics, Markets.

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