College-Industrial Complex Drove Tuition High

Dear Class of ‘13: You’ve been scammed

May 17, 2013

MarketWatch - No one else is going to tell you this, so I might as well.

You sit here today, $30,000 or $40,000 in debt, as the latest victims of what may well be the biggest conspiracy in U.S. history. It is a conspiracy so big and powerful that Dan Brown won’t even touch it. It’s a conspiracy so insidious that you will rarely hear its name.

Move over, Illuminati. Stand down, Wall Street. Area 51? Pah. It’s nothing.

The biggest conspiracy of all? The College-Industrial Complex.

Consider this: You have just paid about three times as much for your degree as did someone graduating 30 years ago. That’s in constant dollars - in other words, after accounting for inflation. There is no evidence that you have received a degree three times as good. Some would wonder if you have received a degree even one times as good.

According to the College Board, in 1983 a typical private American university managed to provide a bachelor’s degree education to young people just like you for $11,000 a year in tuition and fees. That’s in 2012 dollars.

Instead, those of you at private colleges paid this year an average of $29,000.

And back then a public college charged just $2,200 a year in tuition and fees - in today’s dollars. You could get a full four-year degree for $8,800. Today that will get you one year’s tuition, or $8,700.

Notice, please, we are not even counting the cost of all the “extras,” like room and board. This is just the cost of the teaching.

It is, as a result, no surprise that total student loans are now approaching $1 trillion. They have easily overtaken credit card debts and car loans. According to the Federal Reserve Bank of New York, total student loans have basically tripled since 2004. Fed researcher Lee Donghoon says in the last eight years the number of borrowers has gone up by about 70%, and the average amount owed has also gone up about 70%.

Donghoon calculates that about 17% of those with student loans are more than 90 days’ delinquent on their interest payments. Yet he also calculates that 44% haven’t even entered the repayment period at all.

If you turn to the pages of any newspaper you will read a lot of handwringing about this. You will hear attacks on “predatory” student loan companies, and “predatory... for-profit colleges.” You will hear about cutbacks on Pell Grants and federal aid and proposals to lower the interest rate on subsidized federal loans. But all of these comments ignore one basic problem.

U.S. colleges are a rip-off. Two decades ago I spent six years at Cambridge and Oxford universities and it didn’t cost me a nickel. Admittedly one reason was social policy: The taxpayers paid the bill (and a very good return they earned too, given the British taxes I paid once I graduated and started work). But the second reason was that these universities did not charge an arm, leg and other appendage for the act of teaching.

My undergraduate course at Cambridge largely consisted of one hour a week with a tutor, a weekly essay question and research list, and a library card. This teaching model hadn’t changed much, really, since the days of Aristotle. Student, teacher, discussion. See you same time next week.

How on earth do colleges today ramp up costs to $40,000 a year? 

Yes, I know that in the sciences the costs of teaching may have risen to some extent legitimately. But that’s probably wildly exaggerated, especially at the undergraduate level. And in the humanities and liberal arts any claim that the real cost should be rising faster than inflation is complete nonsense. 

I know of a young singer who had to drop out of conservatory because he couldn’t afford the tuition. Think about that. How much should singing lessons cost? We’re talking about a sound-proof room and a voice coach. The student brings the vocal cords. How is this worth tens of thousands a year? 

Part of the answer lies in the arms race of fancy facilities being built by colleges. Part of the answer lies in escalating salaries, especially for academic “divas” - the marquee names recruited at great expense to bring in the customers... er, students. Part of the answer lies in institutional metastasis - the expansion of bureaucracy, like any bureaucracy. 

The student drama facilities at Cambridge consisted of a few rooms here and there and a damp basement below an old church. Out of this the university produced the comedy trouple Monty Python, and a legion of successors. Hollywood director and actor Chris Weisz, who was at university when I was there, began his dramatic career in a bizarre play called Mango Tea in a room above a pub. But apparently today colleges need the dramatic facilities suitable for staging Les Mis. 

Some members of the College-Industrial Complex are now talking about a new solution to bring down costs. They want to reduce, or eliminate, the amount spent on the actual teaching. Instead, students will watch online videos. Perhaps these will be on YouTube, or TED. It sounds like a column by the late, great Art Buchwald: “For $30,000 a year we can provide you with a top-of-the-range BA degree, just without any actual teaching.” You couldn’t make this up. But we’re already half way there anyway. Even today most undergraduates don’t get within a million miles of the big-name professors that they are paying for. 

Today’s graduates, so badly served by comparison with their parents and grandparents, may look actually look lucky to those who come later. Costs are probably going to keep rising. The super-rich can bid up prices, just as they do for real estate in New York or London. (The difference is that you don’t have to live in New York or London, but you do have to get a degree. Unemployment rates for those without a bachelor’s degree are twice as high as for those who have one). The conspiracy will keep pushing for more federal support. 

How high will it go? Try this. The College-Industrial Complex says that degrees are still worth it because those with BAs will earn a lot more over the course of their lifetimes, and should pay for that. They point to U.S. Census data showing those with BAs earning on average $26,000 a year more than those with just a high school diploma. 

Using that logic, they could justify charges approaching $500,000 for a college degree. With the interest rate on subsidized student loans down to 3.4%, the net present value of those future earnings is, theoretically, very high. 

No one is going to slap that price tag on a degree in public. Not yet. But these numbers are based on some basic financial calculations. If I’ve done them, you can bet those in the Complex have, too. 

Some members of the Complex are pushing for the interest rate on student loans to be slashed to 1%, subsidized with taxpayers’ dollars. The lower that interest rate, the more the colleges can charge. 

This isn’t just a rip-off. It is also a conspiracy. You’ll notice how college fees, miraculously, move in tandem. You’ll notice how few colleges are willing to break ranks. Above all, you’ll notice amazingly little frank and open discussion of this from the usual sources. 

Call me crazy if you like. Tell me I should have mimeographed this column in purple ink. Send me sarcastic emails asking if the CIA is sending me signals through the metal fillings in my teeth. Fact is, a horrifying number of people are in on the conspiracy - directly and indirectly. And, as in many of the most insidious and effective conspiracies, most of them don’t even realize they’re involved. 

The rich and connected benefit from the escalation of college costs because it prices middle-class kids out of the market. For the 1%, a bill of $20,000 or $60,000 isn’t much different: But suddenly junior’s chances of getting in to Prestige U. are a lot better, since many will decide they can’t afford to apply. College is a luxury good again, like $3,000 Italian shoes. Great news for those who can afford it. 

Fancier sports arenas and drama facilities just add to the exclusivity. Indeed, astonishingly, I have seen one or two “conservative” writers actually complain that good public colleges are underpriced. Berkeley, they say, should raise its prices to equal those of Stanford. 

After all, you don’t want to let in the riff-raff! 

Meanwhile there’s a second group who are in on the conspiracy: The media. 

The reason? Self-interest. 

Some members of the media already work in the Complex. They teach in college, or they hold down some cushy sinecure in a university’s “media institute” or think-tank. Many more journalists have friends, or family, who are employed by a college. And still more journalists are hoping to land college jobs themselves. 

Consider the deafening media silence over the phenomenon of graduate degrees in journalism, where young people are scammed out of $30,000 or more for the privilege of earning a certificate to practice a dying craft. Working journalists, in private, all agree how utterly crazy and ridiculous it is that young people are still going to journalism school. I hear this all the time. 

But good luck finding much commentary about it in public. The reason? J-school no longer exists to teach the journalists of tomorrow (if it ever did), but to employ the journalists of yesterday. Every reporter awaiting the dreaded Next Round of Layoffs has J-School lined up as Plan B. Good luck getting that job, though, if the hiring professor’s Google search of your recent articles turns up a scathing expose of journalism school. You’ll end up in Starbucks instead. 

Like I said, call me crazy. Tell me I’m paranoid. But, whatever you do, don’t forget to tip me ten years from now, when I serve you that decaf soy latte.