Counterparties: The lessons of tuition inflation

By Ben Walsh
November 14, 2012

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Why have college costs risen 12 fold in 30 years? In a terrific story today, John Hechinger points to “administrative bloat” at public universities like Purdue, which has made a habit of doling out six-figure salaries to armies of administrators:

Purdue has a $313,000-a-year acting provost and six vice and associate vice provosts, including a $198,000 chief diversity officer. It employs 16 deans and 11 vice presidents, among them a $253,000 marketing officer and a $433,000 business school chief.

The rise in tuition could be exacting a toll on enrollments: Richard Vedder thinks that with tuition increasing at twice the rate of consumer prices, “colleges may in some cases be pricing themselves out of the market”. The gap between disposable income and college costs, Sober Look writes, “has widened to historical highs”. For a data deep-dive, the College Board has a comprehensive study of the trends in tuition and student aid.

Megan McArdle argues that surging costs are as much a consequence as they are a cause of unprecedented levels of student debt, spurred on by government subsidies. But Mike Konczal flags a Department of Education study that shows that the government earns $1.14 back for every dollar it loans to students and asks, “What’s a good word for the opposite of a subsidy? Whatever it is, student loans are that”.

Whatever the cause of rising costs, getting a BA isn’t necessarily a guarantee of high-paying work: the US now has “more than 100,000 janitors with college degrees and 16,000 degree-holding parking lot attendants”. If you look for it, there’s plenty of bad news about post-collegiate life. The employment prospects of new grads are dim and their wages aren’t likely to pop back after a recession as quickly as their non-college educated peers.

Michael Greenstone and Adam Looney of the Brookings Institute think college is still worth it. The lifetime earnings bump that comes with a BA is at historic highs and the the return on investment from a college degrees is at least as good as it was in the 1980’s. “College is still one of the best investments an individual can make,” they conclude. — Ben Walsh

And on to today’s links:

Tax Arcana
How oddly tax-exempt organizations like the NFL and the US Polo Assoc. earn billions tax-free – Bloomberg

EU Mess
“There is just no work”: Austerity protests erupt in Europe – BBC

Regulations
No, Obama isn’t about to crack down on Wall Street – Jesse Eisinger
Financial stability council is unimpressed by money market funds’ contribution to financial stability – Matt Levine

New Normal
What it actually costs to raise a child – NYT

Taxmageddon
“Tax increases, especially for the wealthiest, are appropriate” (but only if we cut spending) – Lloyd Blankfein
Obama’s first “bid” in the fiscal cliff negotiations: More than double his 2011 offer – WSJ

Advanced Strategy
BofA’s equities sales strategy: meet with clients so often they won’t have time to trade with anyone else – Bloomberg

Primary Sources
FOMC minutes 10/23/12 - Federal Reserve

Sorry Nerds
Actually, the GIF is dying – Quartz

Good News
BofA has approved more than 30,000 principal reductions under the national mortgage settlement – Housingwire

Cephalopods
Meet Goldman Sachs’ 70 new partners – Susanne Craig

Data Points
Puppies as economic indicator – WaPo

Kids Today
“A three-martini lunch is offered at noon, and then it’s naptime, followed by merger play.” – McSweeney’s

Helpful Reminders
“Never put anything in an email message, to anyone, that would cause you serious problems if it fell into the wrong hands.” – James Fallows

More From Felix Salmon
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The Piketty pessimist
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The problems of HFT, Joe Stiglitz edition
Private equity math, Nuveen edition
Five explanations for Greece’s bond yield
Comments
7 comments so far

there is a petition on the white house website to have the government to buy back the worthless diplomas…

Posted by rjs0 | Report as abusive

I’ve got more worthless diplomas than I need, but the education has been invaluable.

Perhaps those kids who spend their college years partying should remember that? You can’t expect the diploma to do your job.

Posted by TFF | Report as abusive

“But Mike Konczal flags a Department of Education study that shows that the government earns $1.14 back for every dollar it loans to students and asks, “What’s a good word for the opposite of a subsidy?”

Funny how all these government programs make money – makes one wonder why we have to pay taxes…

I’d like to see that Department of Edyucation Study…OH, the link is right there!

“The default rates reflect the percent of dollars that are estimated to go into default over the life of the particular cohort. The recovery rates reflect the percentage of dollars the Federal Government estimates it would collect on those defaults. Since interest continues to accrue during the period in which a loan is in default, the interest component becomes a primary
driver of total collections. Nevertheless, some loans may have little or no recoveries while others
may have substantial collections.”

Estimate, estimates…the last refuge of institutions (I’m looking at you MBIA) trying to make crappy loans look profitable.

Posted by fresnodan | Report as abusive

The brick and mortar university is a dying institution and will be a dead one if it refuses to change.

You can record a lecture and post the video online. You can pdf a set of lecture notes and post it online. You can deliver a textbook as an eBook. You can have online chat sessions with a low paid TA to answer student questions, and these same low paid TAs can grade assignments submitted from afar after running them through an online service that automatically checks for plagiarism. Once they figure out how effectively administer online tests in a way that minimizes cheating it will be game over for these bloated dinosaurs.

Posted by RueTheDay | Report as abusive

If you look at college debt statistics, it took off around 2003, coincident with the big lending party on Wall Street and shortly before the Congress declared student debt non dischargeable in bankruptcy. With one hand Wall Street was peddling subprime mortgages to poor black people to Louisiana, with the other it was peddling student loans to middle-class students. And, obviously, student loans were far safer, you can’t walk away from one, that’s why subprime is gone but student loans are still around and still growing.

Posted by Nameless | Report as abusive

One of the problems is that tuition payments are being used to support the research infrastructure of the university, something from which undergraduates benefit very little. At most universities, there are many professors who do not teach at all, and many more who only teach 1-2 grad-level classes which undergrads cannot attend. If you are an undergrad who want to get value for money, you are much better off going to community college for two years and then transferring, rather than a university for all four.

Posted by mfw13 | Report as abusive

You could argue that the salaries mentioned in your pull quote are egregious, but they can’t by themselves be the cause of Purdue’s rising tuition. They’re less than 1 percent of the total budget. If tuition is rising appx. 4-5% a year (according to Purdue’s own figures), those guys would have to be giving themselves huge raises every year to have an effect.

Posted by Moopheus | Report as abusive
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