The Math of Higher Education.

Higher education has gone from being the holy grail of a prosperous economy to being a drain on our economy. Many young people graduate from college with such levels of debt that they are basing life decisions around this debt, the decision on whether or not to get married, on whether or not to have children, decisions on so many things are based around these obligations. It shouldn’t be this way. I mean look at it this way, young people are saddled with so much debt that they won’t be able to save for their children’s college education, now how sustainable is that?

So let’s take a quick and dirty look some numbers. If we consider $20,000.00 to be a fair price to pay for a bachelors degree, and a student carries four classes per semester, or 8 per school year, then that $5,000.00 per year, (for a four year degree), amounts to $625.00 per class. Now if professors are paid $75,000.00 a year and a school tacks on an additional 25% for other costs each professor has to generate income of $100,000.00 a year for the school. At $625.00 per student per semester that equals 80 students per semester, or 4 classes of 20. That all seems pretty doable and straightforward.

Now what if we are say that we want everyone who is able to get a bachelors degree? Currently there are about 18.8 million young men and women of college age, now there will always be those who can afford a top of the line education at a university which offers advanced degrees and conducts research so we can subtract them, and there will always be those who simply do not want to attend college, so we can subtract them, so let’s say that we want to educate 80% of that 18.8 million, (a figure I am just pulling out of thin air as an example), that comes to slightly over 15 million people that need to pay tuition every year, or  75.2 billion dollars a year. A lot of money, but we could come up with that if we really wanted to, we have a national income of 15 trillion dollars, net dividends alone amounts to 550 billion dollars a year, the defense department spends more than our 75.2 billion on equipment and software alone. So this can be done if we really want to.

I think a big point though is that if you want to do something like this you have to make it illegal to fund such education through debt. If you still allowed debt to influence purchasing ability then prices for these educations would just go up. The point is to make them affordable, not underwrite higher tuition costs. As a matter of fact these suppliers of education should be considered to be non-profit.

Now there is a very good point that could be made here, which is the supply demand argument. This has been made quite well by H Woody Brock as concerns health care. The argument goes like this if you increase demand, in the case of health care by offering universal coverage, but don’t increase supply, in the same case by not training more doctors, then prices have to go up. So when we talk about higher education if we increase demand by establishing a free education for everyone who wants one, but don’t build more schools, who will build the schools? Especially if tuition prices are held in check. And if no one is building them how can prices not go up?

There is a viable option for dealing with this. Get rid of the schools. Now in the above scenario if we are to pay a professor, (or perhaps instructor would be a better title), and they could get paid $75,000.00 a year, with $25,000.00 spent toward what they need to get wired so they can teach online courses, then you could have individual instructors offering classes from their homes. For those students who can’t afford a computer to take advantage of this instructors could form co-ops where they might teach out of someone’s home. They could all advertise on a exchange where they are rated for their abilities to teach, perhaps on a student review basis, they would limited to the 80 student per semester threshold, they could teach from a relatively standardized curriculum, and testing of students to make sure they are learning could be done by the government. This would both increase the supply of educators and hold down the cost of offering college level classes.

A big aim of this should be to simply create a sustainable industry no matter the outcome for those graduates. An education is a great thing, and has multiple benefits outside of earnings potential, but it also provides jobs for people. But if you want it to do this, function as a viable industry in an age were we need jobs, then the cost of it has to offer enough jobs and wages to make it self fulfilling. Right now the cost of it doesn’t do so.

This whole thing reminds me a bit of an point made in a book by David Graeber, Debt:the First 5000 Years, (and exceptional book by the way that I can’t recommend highly enough). In it he recounts the horrors that were done by the Spanish when they conquered South America. Now people like Cortez did awful things, but why did they do them? They did them because they were so deeply in debt and were looking for a way our of it. This is not to excuse the acts, lots of people who are in debt don’t enslave others, but it does point to how there is a primary act which leads to a secondary act, things do not happen in a vacuum. So why do professors need to get paid so much? Because they themselves were saddled with student debt on the road to becoming professors. They also have to maintain lifestyles in line with their professions. There is something profoundly wrong with a system that self perpetuates, and compounds, such an economically harmful structure of costs and benefits.


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3 Responses to “The Math of Higher Education.”

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  1. Diogene says:

    You have really written enough for two posts here, but I’ll respond since I am a university instructor.

    First, while tenured faculty may make $75K, or even into the six figures, it’s important to remember that nowadays most university instructors aren’t tenured, full time instructors, but part-time, so-called adjunct professors–which is a euphemistic term, as they are paid little more than menial laborers. I bet that $75K would be optimistic and that the median salary for equivalent full time university instructors is no better than–and in many cases worse than–high or elementary school teachers. $60K may be more like it.

    Secondly, while teaching 4 classes of 20 students accords pretty much with my experience as an instructor, I wonder if $5K a year in tuition isn’t also optimistic. Certainly private colleges and universities cost much more than that, and many quality public universities do too. Only the community colleges might be cheaper.

    So, the reality is that primary expense for universities–faculty salaries–are probably at least 20% lower than you estimated, while tuition revenue is probably well over 30% higher, on average, and sometimes several times higher (some private schools may cost ten times what you estimated). Together these two factors imply that colleges and universities are raking in 50% or more than you estimated, meaning that tuitions could be lowered by 1/3 (to $4,000/year) or faculty salaries raised 50% (to $90,000/year).

    Of course the reason for the discrepancy–why tuitions are high and faculty salaries are low–is that much of the money has been funneled into extra-curricular activities like fancy facilities or administrator salaries. Universities aren’t being run as utilities as much as for profit businesses.

    I also wonder if we should be equating higher education with health care even if both of these may be necessities for most people. I notice that more and more students are in college by default, since they haven’t any other easy option, and not because they want to learn anything. This attitude may infect the rest of the students, who actually start out being interested in the subject matter. I also wonder how practical many courses of study are.

    • EricRhoades says:

      The Economist recently ran a piece on higher education in America, some bits from that…

      The cost of university per student has risen by almost five times the rate of inflation since 1983.
      Between 2001 and 2010 the cost of a university education rose from 23% of median annual earnings to 38%.
      Debt per student has doubled in the last 15 years.
      Two thirds of graduates now take out loans. Those who earned bachelors degrees in 2011 graduated with an average of $26,000.00 in debt.
      The chances of a student completing a four-year degree in six years stands at 57%.
      The spending on instruction has risen more slowly than any other part of university expenditures. in 1976 universities had about 52 non-faculty professional employees per 100 faculty members, in 2009 they had about 97.
      Despite spending a higher percentage of GDP on universities than any other country the U.S. ranks 15th in young people attending them.
      The literacy of college educated students declined between 1992 and 2003, when only a quarter of students were deemed proficient. Meanwhile 43% of grades are AS, an increase of 28% from 1960.
      Despite the increase in cost graduates earn no more, adjusted for inflation, than they would have in 1979.
      Tuition for Western Governors University, an online service, costs $6,000.00 per year.

      So the things you say hold true. And in light of them when I proposed the numbers for freelance instructors it seemed that would provide a great impetus for people to provide such a service, $75,000.00 is a lot of money to be able to make from ones home.

      These numbers also bring to light something else. While there are problems comparing health care with higher education the two things do share something, a lot of waste. It is estimated that the U.S. wastes 750 billion dollars a year on health care. While I have read no estimates of a comparable number for higher education the same has to be true given the statistics concerning cost versus achievement versus enrollment.

      “I also wonder how practical many courses of study are.” Is true, but it would provide a great social good if we could find a way to turn education into a viable engine of economic activity. Taking classes for classes sake, something that does happen. But in order to do that we need to reduce the cost dramatically.

      This whole thing ties into something I have been thinking about lately. We talk about how we need an educated workforce to compete in todays economy, but the ironic part of this comes when you think about why we need an educated workforce. We need an educated workforce because our systems have been designed by educated people who assume that everyone else will just follow their lead. Now there is the reality that it costs more to develop systems which are dumbed down, you are in essence creating another layer of functionality on top of a basic system, especially since higher functions will probably still be required for troubleshooting etc. (These are, of course, broad generalities, systems vary widely in their nature and application). But the idea that people will just fall in line and adjust to the complexity of new systems may be reaching the limits of it’s practical application, which has to cause us to ask ourselves what is cheaper, dragging people into education systems which cannot yield satisfactory results, or designing dumbed down systems for people to use. Really it seems to me that designing dumbed down systems has to be cheaper than pouring all this money and effort into education systems that many people simply aren’t motivated to use. If that is the case then as long as you are producing sufficient STEM majors to fuel R&D and the like then you should be building in an economic advantage in that you are allowing yourself to get the greatest use out of the lowest rung of your labor pool with the least effort.

      Now an obvious problem with that line of reasoning is that jobs which an educated workforce can do pay more than ones that a dumbed down workforce can do. In, in a way, may be turning the workforce of the U.S. into a the workforce of a developing nation, degrading standards of living. But it is better than the alternative, dragging student horses to expensive educational water that they will not drink.

      • diogene says:

        Those statistics from The Economist are just shocking when you add them all up. And, yes, they do resemble the statistics relating to the American healthcare delivery system, which is why some are calling both higher education and healthcare cartels. In both arenas the providers have the American public, AKA consumers over a barrel, and are charging whatever the traffic will bear. They are both backstopped by government, inasmuch as they are subsidized. Their outrageously high prices wouldn’t exist absent this government support.

        Certain individual stats are worthy of comment:

        Between 2001 and 2010 the cost of a university education rose from 23% of median annual earnings to 38%.

        That’s an astounding increase in a single decade.

        The chances of a student completing a four-year degree in six years stands at 57%.

        I assume that the remainder (43%) either don’t finish at all or take longer than six years to complete their degrees. That’s indeed a dicey proposition.

        Despite spending a higher percentage of GDP on universities than any other country the U.S. ranks 15th in young people attending them.

        This is strictly analogous to the fact that the US spends the highest % of GDP on healthcare, yet the country ranks about 37th in life expectancy…and probably even worse in terms of the percentage of the population which is covered. Clearly both higher education and healthcare have failed America, and the reason is probably their cartel-like natures.

        What has the nearly doubled amount of college administrators accomplished for the end-user of America’s universities: the students? Why have the two losers been students and non-tenured faculty? Could you imagine cutting doctors’ and nurses’ salaries while hiring twice the number of hospital administrators…and accountants/paper-shufflers–probably to deal with the blasted insurance companies? Increasingly it looks like the purpose of education is not teach, nor healthcare to heal the sick…nor banking to loan money for productive ventures. No…the main purpose is to swindle the public by charging it as much as possible, and then get government to step in when the public folds and start the cycle over again.

What do you think?