Saturday, January 21, 2012

College is not a trade school. Higher education as an investment "risk"

Whether it is in India or in the US, higher education sells, seemingly at rates faster than how tulips sold in the manic Dutch and European markets nearly 500 years ago.

Students (and their parents) operate with a skewed understanding of what higher education is about.  In economic terms alone,
colleges are not employment agencies.  Plus, the labor market rapidly changes; few schools are prepared to perfectly match students with open positions.  If they did, colleges would admit students (to the school or to majors) based on the supply and demand of available jobs.  Instead, students undertake a great deal of risk that their investment will pay off with increased income, but there is no guarantee.  Unfortunately, even as the student loan bubble continues to inflate, too few students (and their parents) appear to grasp the magnitude of risk that they are undertaking when they enroll in college.
So, what ought to be done?

While we can keep arguing whether college is worth it, the people who really need to answer that question are the ones who are ponying up the dough at the cash register.  We owe it to them to provide the best information so that they can make an informed decision.  They need a clearer definition of the assumed risk of enrolling in college.  They have to wrestle with the notion that a future graduate may have to pay $300 a month for 30 years after graduation, regardless of where that student goes after graduation.
Of course, a good college education does provide intrinsic rewards beyond a future paycheck such as an enlightened mind and a love of learning, but at the moment those benefits do not characterize the intentions of most students.  Hence, we need mechanisms to reduce (what Austrian economists call) the malinvestments in higher education.  The sooner this happens, the less pain will be involved and the quicker we can shift our intellectual energy from running in place to moving forward.  
The gutting of the traditional liberal arts is a tragedy:
As the former president of St. John's College in Santa Fe, John Agresto, argues in his essay, "The Liberal Arts Bubble," were it not for the continued infusion of government subsidies and the influx of foreign students, the bubble might already have burst. Agresto points out that the liberal arts, once the backbone of the higher education system, has fallen into a precipitous decline.
"What was once normative -- that Jake or Suzie would go off to college and study some history, some literature, learn a second language, and perhaps major in philosophy or classics -- has not been the case for years," Agresto writes. By 2008, the number of bachelor's degrees had risen to 1.5 million Americans, but few of these degrees were in the traditional liberal arts. Barely 2 percent of BAs were awarded in history and only 3.5 percent in English literature. Agresto points out that more than a third of undergraduate degress are now earned in business, health professions and education. Colleges have become trade schools by another name -- but far more expensive ones than their for-profit counterparts.
Yep, we have become expensive trade schools :(

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