Wednesday, December 03, 2008

The Cost of College

One of the most insane consequences of the credit boom over the past 20 years has been the explosion in the cost of college tuition. Tuition rates have continued to spiral upward because demand has not been tempered rising prices. Why not? Every bump in prices has been met by an increased appetite for borrowing and an increased willingness of lenders to lend. Thus, the cost of college has risen by over 400% in the last 25 years while incomes have risen just 150%.

"Over all, the report found, published college tuition and fees increased 439 percent from 1982 to 2007, adjusted for inflation, while median family income rose 147 percent. Student borrowing has more than doubled in the last decade, and students from lower-income families, on average, get smaller grants from the colleges they attend than students from more affluent families.

“If we go on this way for another 25 years, we won’t have an affordable system of higher education,” said Patrick M. Callan, president of the center, a nonpartisan organization that promotes access to higher education.

“When we come out of the recession,” Mr. Callan added, “we’re really going to be in jeopardy, because the educational gap between our work force and the rest of the world will make it very hard to be competitive. Already, we’re one of the few countries where 25- to 34-year-olds are less educated than older workers.”

It's going to take a long time to correct this problem, but one of the small benefits from the credit crisis is that it may force cost controls on the colleges and eventually prices may fall. Ideally, our nation's largest corporations will develop their own network of training centers to by-pass the college system entirely (that idea is out there for free - I'm not charging for that one!).

In a related story - Harvard's Endowment has been WHACKED this year - Down $8 billion in the last four months! Harvard and Yale have been the poster children of diversification and long-term investing, but they both went very heavy into commodities in the past year - oops!

"Harvard University's endowment lost more than $8 billion in four months, a 22 percent plunge that is the steepest decline at the school in modern history.

The loss brings the endowment from $36.9 billion on June 30 to roughly $28.7 billion by the end of October. "

Looks like both of my kids will have to go to Princeton :)


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