No child left behind ... without a college diploma!

I have often remarked, cynically, that kids in elementary school are brainwashed into believing that the whole point of first grade is to get on that preparatory path to college.  In this modern world, the college degree is the holy grail.

My grandmother always reminded us about not joking about important things in life, especially cynically, because she believed that eventually they will come true.  Yes, some twisted logic about causation that is, but, hey, in this case it has come true!  An annual year-end kindergarten show has been canceled at a New York school (ht) because--hold on to your chairs, and look away from the screen if you are feeling queasy:

The reason for eliminating the Kindergarten show is simple. We are responsible for preparing children for college and career with valuable lifelong skills ...

So, it turns out that I was wrong.  The brainwashing does not start with the first grade, but right at kindergarten.  Hey little boys and girls, can you say SAT?

What the hell is wrong with the system, you ask?

It is simple, dear reader.

This didn’t come out of the blue. Kindergarten (and even preschool) has increasingly become academic — at the expense of things such as recess and the arts — in this era of standardized test-based school reform. In most states, educators are evaluated in large part on test scores of students (sometimes students they don’t have) and on showing that their students are “college and career ready,” the mantra of the Obama administration’s education initiatives.

Yep. As simple as that.  The George Obama presidencies effectively want to make sure that no child is left behind without a college degree.  Johnny may not be able to write or think, and may not be interested at all in going to college, but, by golly, we will make sure that a college diploma is had by all!

That letter to parents informing them about the cancellation ends with this:

Please do not fault us for making professional decisions that we know will never be able to please everyone. But know that we are making these decisions with the interests of all children in mind.

Oh yeah, in the best interests of all children.

If only the kindergarteners knew the real story that college screws everyone, not only the athletes

Can colleges that are failing produce successful students?

A presenter at one of the sessions that I attended at the conference spoke about the difficulty in capturing how students might be picking up valuable soft skills via their part-time work, and how much we need to understand that.

I agree with her--I have interacted with a number of students whose communication and leadership skills are exemplary, but these were not via classroom instruction.  It was then an added bonus to have such students in the classroom because of those skills they brought to the discussion-based learning that I prefer.

A hand shot up from the back of the room.  "Don't you have student clubs and organizations at your university?"

It didn't require that metaphorical doctorate in rocket science to understand what was going on--the presenter was from the UK and the audience member was from the US.  Very different contexts.

"We do" the presenter replied.  "But they are mostly student-run anyway and we won't be able to capture that ..."

The response from the audience member was all too revealing a statement on the higher education issues in the US.  She said "at [I am withholding the university name she said] where I work we have plenty of people who work on those student life issues."

Yes, the very "student life" bureaucracy that has driven up the cost of higher education is the one she referred to as a plus point for the US.  I chose not to engage her on a discussion about it--no fun constantly being the nagging one with a minority viewpoint!

It is atrocious how much we drive up the cost of education by hiring people in order to provide services all under the pretext of serving the customer--the student, that is.

If asked to explain the wildfire growth of their administrations, college officials would say, “It’s what the customer wants.” That huge “student life bureaucracy,” Johnson observes, was supposed to “enhance the typical student’s campus experience, since these students are incapable of navigating the modern college experience themselves.”   

If that sounds odd given the context—the context being college education, not new cars, clothing, or foodstuffs—you’re right: it is odd. “[T]he vision behind the student life bureaucracy sees the student as a consumer rather than a learner, someone who needs to be accommodated lest he take his finances elsewhere by transferring.” That’s the theory behind it. 

Yet, the faculty member in the audience was promoting the "virtues" of a student life apparatus at her university, when I think that we ought to go the European way--if students want to play soccer, or go hiking, or whatever, they should do that on their dime, er, Euro.

Yes, dear reader, even my university employs full-time staff to coordinate downtime activities for students.  And we think we don't have enough of them!  We are worried that without these, students will drop out of the university or, worse, they will transfer to other universities.

This NY Times piece on "colleges struggling to stay afloat" refers to a report from Bain that I have cited in this blog before:

One-third of all colleges and universities in the United States face financial statements significantly weaker than before the recession and, according to an analysis released last July, are on an unsustainable fiscal path. Another quarter find themselves at serious risk of joining them.
“Expenses are growing at such a pace that colleges don’t have the cash or the revenue to cover them for much longer,” says Jeff Denneen, head of the higher education practice at Bain & Company, the global consulting firm that, along with the private-equity firm Sterling Partners, performed the analysis. “A growing number of colleges are in real financial trouble.”

At public institutions like the one where I work, we don't want to rise up to this financial challenge by looking hard at how we do what we do.  Instead, we press for more money from the government and even use students as lobbyists for this noble cause--in the name of helping students.  That won't work because there isn't enough money in the coffers.  So, we will raise tuition and fees instead.  After all, we need rock climbing walls!

Perhaps the continued financial struggles indicate that there are just too many colleges for the marketplace — or at least too many that, with their climbing walls, lazy rivers and five-star dormitories, look too much alike in the battle for prestige, and have lost sense of their mission. A thinning of the ranks might be long overdue.
Just because we believe that colleges are a public trust and shouldn’t fail doesn’t mean they won’t.

We are already failing--in how much we are not educating students when that ought to be our core and only business.  The financial failure is only a result of veering way off.

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 :(

Now the credit agencies are on to the other debt: student loans

Unless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place.

 That is the analysis from the credit rating agency, Moody's, and Reason adds:

In August 2010 financial aid guru Mark Kantrowitz announced that student loan debt had, for the first time, surpassed credit card debt. A month later, the Department of Education announced that default rates for student loans had jumped from 4.6 percent in 2005 to 7 percent in 2008, the most recent year for which data is available. While the two announcements went largely unnoticed, some took the data points as evidence that America's next big bubble—higher education—was becoming dangerously inflated.

My reaction? a big yawn! 
I have been writing about the higher education bubble for more than a couple of years now!  (Search for "higher education ponzi")

More from Reason:

the college industry had more in common with Detroit than the housing crisis.
“These subsidies are kind of like propping up the auto industry with cash for clunkers, or the housing industry with cash for first-time buyers,” he told me last year. “We have this financial aid system that is keeping the system alive.”

Seriously, tell me something new!  

When will the policymakers and the public wake up to the fact that we are overselling higher education, which benefits neither the students nor the idea of "education," and the only beneficiaries are those in the higher education business? 

I am doing my part--like this recent opinion piece in the Oregonian, and this one that I hope that the Statesman Journal will publish.  How about you, dear reader? (editor: what makes you think there are readers?)

More on the Ponzi, er, higher education system

It seems like every single day there is yet another analysis of the utterly wasteful strategy of mandating college degrees for all.  If it looks, quacks, and walks the same way, isn't it about time we recognized it as a ponzi scheme?

Today's edition is from Matt Yglesias--far from a Tea Party nutcase he is.  Yglesias provides this chart (it is off the same set of data that I had blogged about last September):

See how much steeper the tuition increases are compared to even that other great ponzi scheme called housing?  Now, of course, the public tuition going up is a reflection of reduction in state allocations.  But, we can use the private tuition as the baseline index, which itself is enough.

So, as state allocations decrease, what do we do?  Increase federal grants, of course!  But then the more the feds subsidize, the more that "benefit" is immediately captured by the public institutions which jack up tuition and fees, instead of the benefit going to the poor student.  More on this here.

Against such a backdrop, faculty are already thinking about salary increases.  Welcome to the bizarro world.  Over at the Chronicle of Hr. Ed. is a lively debate on whether discussions about faculty salaries do more harm than good.  As far as I can tell, there is not any serious comment about the squeeze that we are applying on students :(

Increasingly I wonder whether students themselves realize they are being screwed.  My hunch is that they don't, or even if they do they feel like they have no choice in this matter.  oh well ...

update: this from the faculty union on campus:

Just a quick reminder that Monday (4/25) is Higher Ed. Rally Day at the state capitol steps.  Please join students and faculty for a rally which will convey our needs and goals to the Governor and the Legislature.  It startsat 12:30 on the steps and will last approximately an hour.  See you there.

So, where will the additional money come from?  Hmmmm ....

The higher education bubble bursts, with law schools first

A typical complaining note in this country, perhaps more than anywhere else, has been that we need yet another lawyer as much as we need a frontal lobotomy.  (editor: we do think you need one. Awshutupalready!)

Yet, law schools seemed to be sprouting everywhere. Why so?

Over the past decade, the number of law-school students has also steadily increased, as universities have opened or expanded their schools. Law schools tend to be moneymakers: They're cheap to set up, and tuition runs high, even at poorly rated programs. Thus, universities have added them on with relish, and the list of approved law schools has increased 9 percent in the past decade, to 200. That means that the number of new lawyers minted every year has not stopped growing, either: Law schools awarded 44,004 degrees last year, up 13 percent in a decade.

But, the Great Recession's aftermath has helped clarify that there might not be much monetary rewards waiting for these students upon graduation.  So, what is the latest news then?

According to data from the Law School Admission Council, first reported by the Wall Street Journal, the number of applicants to law school has dropped a whopping 11.5 percent year-to-year—to the lowest level since 2001 at this point in the application cycle.

One heck of a reason to celebrate, wouldn't you think?  But, what is driving down law school enrolments?

In the past year or two, scads of blogs have committed themselves to exposing law school as a "scam," and the New York Times and Wall Street Journal have devoted thousands of words to telling readers why law school is a bad, bad idea if you do not actually want to be a lawyer. Look to any of a dozen blogs or news sites to explain how wages for legal workers might continue to fall, as automation takes over rote tasks and businesses increasingly refuse to pay obscenely high per-hour fees. Wandering further into the realm of anecdata, virtually every young lawyer or law student I know would love to talk my ear off about the worrisome employment prospects for new legal professionals.
Once the conventional wisdom has spotted a bubble—whether in housing or gold or anything else—it tends to burst.

When will the public notice that law schools are only the most glaring example of most of higher education swelling up into a giant bubble?

More on the higher education bubble

In an earlier post, I quoted at length Megan McArdle's argument that colleges and universities appear to have gamed the system in order to extract for themselves as much as possible the economic benefits of higher education that used to go to students in the past.  Political Calculations' post seems to add to this:

We didn't set out to go looking for it, but we couldn't help but notice what would appear to be a really unique correlation between the average annual tuition at a four-year higher education institution in the United States and the total amount of money the U.S. federal government spends every year.

First this chart:

Notice the jumps compared to the median household incomes.

The argument here is that when household incomes did not grow much at the median level, and when state governments decrease their allocations for higher education, then one would expect adjustments in the service provision that would try to hold the costs constant, or at least hold the increases to a minimum.

But, that hasn't happened. Why?  We might not immediately think of the federal government's role in subsidized loans to students ... it is not that different from how low interest rates led to higher home prices during the real estate bubble times.  I recall even my realtor making this point eight years ago.  Realtors and mortgage brokers know this all too well because they operate with a clear sense of how much monthly payment the potential homeowner can take on. To them, that monthly payment is a critical variable in the process.  So, when interest rates are held low, it makes it possible for buyers to go after larger-value homes.  But then the homeowners and their advisers also sense this, and home prices are correspondingly adjusted upwards.  Pretty soon, the later entrants to this crazy market do not realize that such a system will only help those who are already homeowners, and are we to be surprised that those who joined this game towards the end are the ones "underwater" now?

In this case, colleges and universities then correspondingly adjust their tuition upwards.  Increasingly, students are like the late entrants to the real estate bubble.

Back to Political Calculations:

This correlation suggests that the U.S. federal government is directly behind the bubble we observe to exist in the cost of U.S. higher education, with federal spending during years of recession effectively insulating U.S. colleges and universities from the nation's economic circumstances by subsidizing their operations.
These subsidies, delivered at times of recession, free U.S. higher education institutions to set the price of their tuition independently of their students' ability to pay based upon their or their family's current household income.
The only limiting factor for U.S. higher education institutions then would be the actual growth of U.S. federal spending. This would be why the average cost of college tuition in the United States would appear to have come to track the total level of federal government spending so closely.
As a result, the cost of college tuition has skyrocketed with respect to the typical family's household income. Consequently, when a student attends college today, they must increasingly rely upon subsidies from the federal government that fill the gap between what their institutions charge and what they must pay for out of their own pockets.

How does all this translate to a typical student?  Here is a classic statement:

"I get financial aid but I get less because more goes to tuition," said Tiffany Webster, 22, who lives on campus. "It just seems like it is getting too high for a Cal State school. It should be affordable."

Which is how we end up with a scenario like the one in this graph from "Carpe Diem"'s Mark Perry, who adds that maybe, just maybe, students--like American consumers now--are not that excited to take on debt like they used to.  Perry notes that:

After remaining stable at about 11-12% of median household income between 1994 and 2001, student loans as a share of income climbed to more than 18% in 2006, before declining to 15.5% in 2007 and 13.6% in 2008. 

Oh no!!! Not another bubble!!!

Says the Economist:

It seems likely that, if developed countries keep interest rates low for a long time, bubbles will emerge somewhere. The argument against tightening policy now is a strong one, given the fragile state of the economic recovery. But to central banks it always is, whether the economy is healthy or not.

It is hard to imagine any circumstances in which the authorities will have the foresight (or the courage) to prick a bubble. It cannot be done when the economy is weak. And when the economy is strong, as it was in the late 1990s, central banks argue that higher asset prices are justified (back then, by the productivity improvements brought by the internet). Central bankers tend to see higher asset prices as a validation of their policies and to shy away from “second guessing” the markets. ...

The markets are beset by a series of contradictions. They are dependent on extraordinary amounts of government stimulus. But that stimulus is in turn ultimately dependent on the willingness of markets to finance governments at low rates. They should be willing to do so only if they believe that growth prospects are poor and inflation will stay low. But if they believe that, investors should be unwilling to buy equities and houses at above-average valuations. At some time—maybe in 2010—those contradictions will have to be resolved. And that will trigger another nasty bout of volatility.

China surging at 8.5%

When Fareed Zakaria writes or says anything in a public forum, he does not give me anything to disagree with.  Maybe because we are both from India?  Ha ha.  His latest piece, on China, makes sense:

China entered the crisis in an entirely different position. It was running a budget surplus and had been raising interest rates to tamp down excessive growth. Its banks had been reining in consumer spending and excessive credit. So when the crisis hit, the Chinese government could adopt textbook policies to jump-start growth. It could lower interest rates, raise government spending, ease up on credit, and encourage consumers to start spending. Having been disciplined during the fat years, Beijing could now ease up during the lean ones.

And look at the nature of China's stimulus. Most of U.S. government spending is directed at consumption—in the form of subsidies, wages, health benefits, etc. The bulk of China's stimulus is going toward investment for future growth: infrastructure and new technologies. Having built 21st-century infrastructure for its first-tier cities in the last decade, Beijing will now build similar facilities for the second tier.

This to me is not a big deal.  After all, the Chinese economy has a lot to catch up with the US.  But, the following ought to make American politicians think twice about what they are up to, particularly the likes of those who want to yell "you lie!":

China is also well aware of its dependence on imported oil and is acting in surprisingly farsighted ways. It now spends more on solar, wind, and battery technology than the United States does. Research by the investment bank Lazard Freres shows that of the top 10 companies (by market capitalization) in these three fields, four are Chinese. (Only three are American.)

The only thing to watch out for, says this FT blog post:

Worries that China is in the grip of a real estate bubble intensified after a five-bedroom apartment in Hong Kong was sold for $56.6m this week. Andy Xie, a Shanghai based economist, argues that China is probably the most bubble-prone economy in modern times - and may be just ten years away from its final day of reckoning.

The sound of the Chinese bubble bursting?

James Fallows and Thomas Friedman, among others, have written a lot about how China needs to maintain a minimum economic growth rate, in order to keep its people happy, while at the same time ensuring growth by lending to its biggest customer--the United States. China now owns about 2.2 trillion dollars of US treasury notes that it simply cannot convert without causing chaos within its economy, and to the rest of the world. Well, this is a ground that has been well covered.

The new twist to this story, which maybe I missed before but I read for the first time now, is this:

[Don't] confuse fast growth with sustainable growth. Much of China's growth over the past decade has come from lending to the United States. The country suffers from real overcapacity. And now growth comes from borrowing -- and hundreds of billion-dollar decisions made on the fly don't inspire a lot of confidence. For example, a nearly completed, 13-story building in Shanghai collapsed in June due to the poor quality of its construction.

This growth will result in a huge pile of bad debt -- as forced lending is bad lending. The list of negative consequences is very long, but the bottom line is simple: There is no miracle in the Chinese miracle growth, and China will pay a price. The only question is when and how much.

Read the complete essay for how this argument is built up; pretty fascinating.