Move in Day!

Tomorrow is move in day for the dormitory at VBU, while classes start in earnest next week.  So we will join the thousands of other parents packing the parking lots of dormitories trundling in boxes of clothes, mini-fridges, linens, and electronics into dorm rooms.  Target, Home Depot, and Bed, Bath & Beyond must be giddy in anticipation with parents following their students around the store as small appliances, linens, plastic storage containers are snapped up.  

Roommates will finally meet in person, a mere formality since they have already connected on Facebook.  Parents, those that have gone to College, will feel a mélange of emotions ranging from nostalgia, amazement how quickly time flies, and the unsettling remembrance of how they thought of their parents at this time in their lives, knowing that their child probably feels the same way.  

There will be tears and smiles and soon the parents will drive off and the newest entering Freshman class of VBU will be able to breath a sigh of relief and fill their lungs with the first real whiffs of freedom they have had in the past eighteen to nineteen years.  There will be fairs, student groups, sororities, and fraternities vying for new members.   Causes to be joined.  Music to listen to, and cookouts with the dining hall.  Roommates will cling together in forced companionship until those wings have grown strong enough to fly on their own.  

It's a day that I think all of us who have gone to college recall as such a grand transition day, the beginning of an exciting adventure.  A day when we were both nervous from anticipation and worry.  As a parent, I can't help think about all those years that have passed and wonder if I will ever feel that level of wonder, awe, and giddy eagerness again.

What's College Worth: Diminishing Returns
Part II:  Absent change, College prices itself out of the Market

From www.Inflationdata.com

According to one website, Inflationdata.com, the cost of tuition from 1985 to 2011 has risen 498.49% while the Consumer Price Index (which has its flaws and often overstates inflation) rose only 114.85%.  Writer Gordon Wadworth notes, "For example, if the cost of college tuition was $10,000 in 1986, it would now cost the same student over $21,500 if education had increased as much as the average inflation rate but instead education is $59,800 or over 2 ½ times the inflation rate."

What this means is that, overtime, College will become so expensive that the cost will dwarf any possible hoped for boost in income potential.  The average College Business Graduate earned $28,000.00 in 1986.  In 2011, according to NACE, the same starting salary is $48,144.  This an average increase of 2.769% a year.  Meanwhile college has increased at an average 8% according to FinAid.

Currently four years of College Tuition at VBU cost $36,608.00 In ten years that cost will be $79,034.00, while the starting salary (for a business degree) growing at the historical 2.769% will only be $63,265.00.  Twenty years from now the cost will rise to $170,628.  Business starting salaries will be $83,135.18 on average.  

Thus the CollegeTuition Dollar to Starting Salary Dollar went from:

• 1986 $1 to $2.1
• 2011:  $1 to $1.3
• 2021: $1 to 80 cents
• 2031: $1 to 48 cents

Free markets require that, in general, consumers will stop purchasing a product that fails to bring in more perceived value than the cost.  What happens when people start questioning the value of a college education as it relates to earning potential?  Will college be forced to ratchet down services, costs, and payroll in order to reclaim market share?  It is difficult to see what else can be done, since the Federal Government in 2020 and beyond will be faced with enough fiscal demands from the looming Social Security and Medicare demands.

What's College Worth?
Part I:  There are no easy answers

The very act of purchasing is an affirmative statement that what you get in return is worth more than the money expended.  While College offers a number non-monetary intangible values such as knowledge gained and the University experience - the main argument for College, and any other type of higher education or training, is the increase in earning potential.  

The Very Big University touts its graduates' successes in the marketplace, citing PayScale.com, claiming that median starting salary for VBU graduates is $46,000.00 starting, and a median $91,600.00 career salary.  Politicians and Universities also liked to tout that four-year degrees resulted in a million dollars more earned over the graduate's life although this number has been questioned.  

Which School you attend matters.  PayScale puts things in starker context.  While VBU touts the $91,600.00 median earnings, the obvious question is - compared to what?  PayScale puts the cost of attending VBU at $103,900 in 2011.  PayScales estimates the additional lifetime earnings over 30 years at $361,600.00 for a 9.1% return.  Other schools have worse returns.  That's a bit sobering when you consider that the thirty year return on the S&P 500 is 10.8%  

In fact, when you consider that the $103,900.00 cost of college does not include the lost opportunity of wages that could have been earned during that period - the return may be even less.

In addition to the School - what degree you obtain also impacts the value of your education.  Not surprisingly, Business, Engineering, Computers and Mathematics; and Medical degrees earn more than other degrees.  Finally, the numbers can be skewed by graduates who go onto (and complete) graduate studies.

Bottom Line:  Don't blindly buy into the College hype that any degree automatically will result in a good return of your time and investment. 

What do you think College was worth to you financially? 

Student Loans & Slavery
Good Luck Getting Rid of The Albatross 

In the Rime of Ancient Mariner, Samuel Taylor Coleridge writes of the protagonist's struggle to get rid of an Albatross that literally, hung around his neck.  Coleridge might as well have been talking about government backed student loans.  

Saving the discussion of whether getting more money into the hands of buyers makes College less expensive, we have created a system where nineteen year-olds are permitted to borrow hundreds of thousands of dollars (in effect the cost of a median home in most markets) without any sort of credit, collateral, or demonstration of an ability to repay.  The lenders don't care, because the Federal Government has guaranteed the loans eliminating any sort consideration about the wisdom of making the loan.

According to the Wall Street Journal (citing the Progressive Policy Institute) the average debt load of all new graduates rose 24% from 2000 to 2010 even after adjusting for inflation.  Graduate students are leaving school - sometimes without finishing - with $150,000 and $200,000 in debt.  They call it a "noose around my neck" and "enslaving."  27% of borrowers who have begun re-payment are classified as delinquent.  It is the new fiscal time bomb of our own making over the past thirty years. It is so massive that the Consumer Financial Protection Bureau pegs the total outstanding student loan debt in the United States at $1 Trillion dollars.  

Guaranteed Student Loans are not dischargeable in bankruptcy (because then the Federal Government - that is federal income taxpayers like 53% of us - pays the loan) there is no way - other than death - to get rid of them other than to pay them off.  Other than Credit Card Debt, the single most common problematic debt callers of the Dave Ramsey Show face is Sallie Mae and student loans.  Ramsey strongly - if not categorically - recommends and rails against taking on student loan debt - encouraging students and parents to explore other options.

It is a crazy senseless situation, and unfortunately the politicians will likely be unable to craft sustainable economic solutions because it seems heartless and hostile toward students.  Student Loans are like crack cocaine - too easy to get and get hooked on - and a whole lot of work needed to get off them.  Doing the hard work now, saving for College, making cost-conscious decisions about school, and working while in school is the smartest decision.  Go to Community College for your first two years of Core Education Requirements, go to a state school, work like a banshee for three years in your chosen industry and save money for College - all of it can be yours if you are willing to wait.