Recently some more issues have arisen regarding education. Some of you may remember how we recently said higher education is a bubble about to burst. When students (or, more likely, their parents) are paying upwards of $100,000 for an education which, all too often, can’t be said to be worth nearly as much, some problems will surface.
First of all, if the parents are paying for the education, the child will then be expected to earn enough to pay for his/her children’s education. Of course, by the time these children are in college, tuition will have climbed to at least $140’000 (if current rates continue). This is far above any inflation rate and is therefore like one big Ponzi scheme.
The second option would be student loans, which then means the students needs to pay back this $100’000 on top of all other life expenses, including a car, mortgage, family, etc. Chances are, more than 20 years will be spent paying this, at which point the child is getting ready to go through the same cycle. Here the loans will be for a greater amount (to cover higher tuition rates), since there is very little chance the parents were able to save enough since they’ve been paying off their loans*.
Well, could anything make this situation worse? Sure. It turns out many students in China, as well as many other countries in Asia, just have other people apply to college for them. This means someone else who can offer “ghostwritten essays in flawless English, fake awards, manipulated transcripts and even whiz kids for hire whoʼll pose as the applicant for SAT exams.” The price for this? Between $5,000 and $15,000.
And, lest you think it was purely a cultural matter, a certain Sam Eshaghoff from Emory University was recently convicted of taking the SAT for six other students, earning between $1,500 and $2,000 for each test.
In other words, families are paying extra, under the table money in order to have their children go to an institution where they will then pay exorbitant fees, and somehow hope that our economy will provide jobs to make it all worthwhile.
This does all sound a bit crazy, doesn’t it? So what are the alternatives? Some have been proposed, such as degree-based tuition in Florida (science students pay more than humanities students since their degree is technically worth more in legal currency), or just offering elite education for free. While we don’t disagree with the fact that certain degrees are worth more monetarily than others, an increase is certainly not what is needed. And unfortunately, even if MIT offers courses for free (as does Berkeley in the form of online lectures), people will still pay much more to actually have the degree.
Here is one likely scenario, however: A recession might occur, during which students decide to get more education so they can A) ride out the recession and B) be more qualified once it’s over. Unfortunately, if it’s a prolonged recession, this strategy won’t work. This means they will search and search for jobs, finally settling for being underpaid in a job they likely could have had without the extra education. In other words in two years they’ve only gained a degree and loans.
Suddenly people will look to who was able to weather the recession and come out on top. As happens with all recessions, creative destruction (as described by Schumpeter) will occur. This means that old, inefficient companies will die out, while new, more efficient ones will be born. The dot-com bust brought us Google et al. In fact, some people will even realize how 70% of the Forbes 500 started during downturns**. In other words, entrepreneurial activity is what is beneficial, not higher degrees. At first a few intrepid souls will start pushing their children towards entrepreneurship rather than more and more degrees (these will most likely be entrepreneur parents to begin with). Slowly but surely, other parents will catch on.
The process might take a while, but the longer the economic downturn lasts, the more it will be sped up. At this point the bubble that is higher education will finally burst, and parents will stop blindly and mindlessly throwing money at these institutions for unworthy degrees.
* For more precise calculation check out “The proud parents”.
** Including Texas Instruments, HP, 20th Century Fox, Eli Lilly, IBM, Lexis Nexis, Merck, Burger King, IHOP, Hershey’s, Gillette, GM, Alcoa, J&J, Hyatt, Chevron, CNN, GE, AT&T, Fedex, Abbott, Procter & Gamble, Lilly, MTV, Coors, Trader Joe’s, Bristol-Myers, Microsoft, Apple, Sun, Adobe and many others.
