Counterparties: The lessons of tuition inflation

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

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

“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

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


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