Forget Healthcare Inflation. College Costs are Double That!

One of the people I most enjoy reading is Mark J. Perry who writes some very interesting articles for the American Enterprise Institute (AEI).  Mark is a professor of economics and finance for the University of Michigan at Flint.

In one of his latest offerings, he put together this amazing graph which shows selected costs and how they have risen, and fallen, over the last 20 years:

Not only are college costs double that of healthcare, they are nearly 4 times higher than the Consumer Price Index (CPI), which represents a market basket of items that a normal consumer would buy on a regular basis.

In my opinion, this shows why student loan debt is so high and why the defaults on that debt are rising.  As I have said before, as long as colleges and universities stay in the position where they can continue to turn away applicants, they can keep raising tuition; unabated.  We need to get to a point where the demand for college entrance falls.  Perhaps this will finally happen when it becomes so expensive that no one can afford to attend.  But, with proposals from Hillary Clinton to make college "free" by putting the costs on the taxpayer, that "affordability test" will be taken out of the hands of the people, who should be paying the bills, and who could actually change the direction of the rising rate of college tuition.

Reference:

Source of Graph: http://www.aei.org/publication/do-you-hear-that-it-might-be-the-growing-sounds-of-pocketbooks-snapping-shut-and-the-chickens-coming-home/

Making college debt-free and taking on student debt | Hillary for America: https://www.hillaryclinton.com/issues/college/
 

What the Obama's Aren't Saying in Commencement Speeches

Michele and Barack Obama have each given commencement speeches this year.  Both have injected politics into those speeches.  However, what neither of them are saying to these newly minted college grads, is that thanks to the bad economics under this presidency, the chances of getting a good paying, college-level job right out of college, aren't too great.

In fact, even though the actual unemployment rate is 5%, this country's underemployment rate sits at 14.5%.  In other words, we have 22-1/2 million people working below their skill and education levels and/or working part time when wanting full time positions.  The pre-recession rate of 2007 was around 8%, and usually, it is below 10%.

So, here's the truth as Newsweek puts it: "Millennial College Graduates: Young, Educated, Jobless".  That's what is really facing this year's 1.8 million bachelor-degreed graduates.

References:

Michelle Obama Injects Politics Into Commencement Speech: http://collegeinsurrection.com/2016/04/michelle-obama-injects-politics-into-commencement-speech/

Obama swipes at Trump in commencement address - PressReader: http://www.pressreader.com/usa/the-washington-times-daily/20160516/281578059886674

Millennial College Graduates: Young, Educated, Jobless: http://www.newsweek.com/2015/06/05/millennial-college-graduates-young-educated-jobless-335821.html

Current Underemployment rate: https://www.google.com/search?q=underemployment+rate&ie=utf-8&oe=utf-8

Underemployment rates 1994 to 2010: http://www.economytrack.org/underemployment.php

Fast Facts:  Education enrollment and graduation numbers: http://nces.ed.gov/fastfacts/display.asp?id=372

Bernie Sanders' Phony Free College Claims

Whether it's during a debate with Hillary Clinton or at a campaign appearance on the road, Bernie Sanders continues to hype his plan for tuition-free college by arguing that "countries all over the world" provide this benefit to their students.  Usually, he mentions socialist Sweden as his shining example.

The problem with Sanders' "all over the world" comment, is that only 9 countries in a world of nearly 200 have tuition-free college: Denmark, Estonia, Finland, Germany, Norway, Slovak Republic, Slovenia, Sweden and Turkey.  That is not the impression he leaves you with when he says "countries all over the world". Also understand, that when he uses the term "tuition-free" many seem to think that all the costs of going to college will be paid for; just as in Sweden.

Now here's the truth:

College graduates in Sweden enter the workforce with the highest ratio of college debt-to-income in the world, because in order to pay for all the "free stuff" they get, the worker taxation rate is about 60%.  Whereas, in the U.S. the average worker pays 31% in taxes.  And, yes, they do have college debt, which Bernie implies doesn't exist. In fact, 85% of Swedish college graduates have debt equaling $19,000; when, in the U.S., only 50% of students have any debt. When they do, it averages $24,800. Also understand, that free tuition doesn't include fees, course materials, room, board, and transportation costs; and these are typically the highest costs for those not living at home. Also, because of the high debt-to-income ratio and high costs of living and taxation, Swedish graduates take years longer to pay off that supposedly smaller debt.

Sadly, Bernie Sanders is distorting the issue of tuition-free college for pure political gain.  Once again "the grass isn't always greener on the other side".

References:

Sanders said, "Making public colleges and universities tuition free, that exists in countries all over the world, used to exist in the United States.": http://www.politifact.com/florida/statements/2016/feb/09/bernie-s/was-college-once-free-united-states-and-it-oversea/

The High Price of a Free College Education in Sweden:  http://www.theatlantic.com/international/archive/2013/05/the-high-price-of-a-free-college-education-in-sweden/276428/

Free College and Student Loan Forgiveness?

Last week, college students across the country rallied, demanding free public college tuition and the erasure of all student loan debt.  Obviously, they'd gotten their cue from socialist Democratic candidate for President, Bernie Sanders.  Their simple solution to pay for this is to tax the richest 1% at 90%.  Thus, the lowest paid 1%-er would be left with $34,400 after a 90% income tax was collected against his/her $344,000.  Less than that when state taxes are also applied.  But, that's only fair in their minds.  After all, why should a senior law partner and Harvard graduate be paid more than a high school dropout garbage collector?

However, my biggest problem with "free" college is the fact that we already graduate too many college students who never fully utilize the degrees they have.  In a study conducted by the New York Federal Reserve,  one-third of all college graduates will never work at a job in which the degree they earned was a requirement; including all too many jobs that require no degrees.  And, for recent graduates, those under 27 years of age, that underemployment rate jumps to 45%.

According to the same study, of those underemployed, 45% will spend their working life in non-degreed but good paying jobs.  15% will never achieve a good paying job.  And, another 15% will spend their lives working part time.

To put it bluntly, these protesting students are asking the tax payers to pay for a full third of degrees that are, at times, more like hobbies than productive  or job creating.  For example, 63% of the people working in the Leisure and Hospitality industry have a degree, but are working in jobs that don't require one.

There's another side to this story as well.  American college students don't always dedicate themselves to a degree program.  From another study covered by U.S. News, we have this chart:

While lack of funding may be the case for some, most of the low on-time graduation story has to do with students making bad choices or not being prepared for college.  Twenty percent of all new undergraduates lose time towards their degree by having to take at least one remedial course.  Delays in graduation are also caused by changing majors or by losing credits due to transferring to another school.  Also, too many students prefer not to take a full course load in any given semester.  Or they simply  dropout for a variety of reasons not necessarily related to money.  Also, lets not forget that another study found that 30% of high school seniors, moving on to college, are doomed to flunk out.

In my opinion, making college free, will only exacerbate the problems outlined above.  College should not be a "right" as some would say. In fact, the goal should be to reduce college enrollment by focusing on better qualified students enrolled in degree programs that have a realistic chance of getting them a good paying job.  Does anyone really believe that the fastest growing degree program in this country should be in the fields of parks, recreation, leisure, and fitness studies?  31,667 degrees were earned in the last 10 years; most will never be used as originally intended. 


References:

Students across U.S. march over debt, free public college:  https://ca.news.yahoo.com/students-across-u-march-over-debt-free-public-110404606.html

Lowest Income For Top One Percent: https://www.google.com/search?q=lowest+income+for+1+percent&ie=utf-8&oe=utf-8

New York Federal Reserve:  Are Recent College Graduates  Finding Good Jobs?: http://www.newyorkfed.org/research/current_issues/ci20-1.pdf

Most College Students Don't Graduate On Time: http://www.usnews.com/news/blogs/data-mine/2014/12/01/report-too-much-freedom-hurts-college-graduation-rates

20 Surprising Higher Education Facts: http://www.usnews.com/education/blogs/the-college-solution/2011/09/06/20-surprising-higher-education-facts

Over 30% Of High School Seniors Are On Track To Flunk Out Of College: http://www.forbes.com/sites/jmaureenhenderson/2014/08/20/over-30-of-high-school-seniors-are-on-track-to-flunk-out-of-college/

 

Hilllary's Debt-Free College Plan

Probably, the most well known rule of economics is the Law of Supply and Demand. Simply, when demand is higher than supply, prices will rise.  When, supply is higher than demand, prices will fall.

For decades, college tuition has been rising faster than inflation because of high demand and limited supply.  There is just too much money available in the form of loans and grants to send nearly anyone to college; qualified or not.
 
Now, in an effort to garner the votes of current and future college students and their parents, Hillary Clinton has announced a $350 billion dollar tax payer giveaway to essentially make tuition non-existent for public colleges and universities; and, as such, increase demand.  This will do nothing but accelerate the cost of a college education.  And, instead of the student bearing that cost, the tax payer will be on the hook for it.  This is what is so wrong with the "free" mentality of liberal Democrats.

If we want to reverse the high cost of higher education in this country, we need to lower the demand and increase the supply of post-high school education alternatives.  Last December, CBS news reported this:

"At most public universities across the U.S., only 19 percent of full-time students manage to earn their bachelor's degree on time. At flagship schools, which typically serve as the premiere public university in their respective states, 36 percent graduate in four years."

While CBS News (and Hillary) might argue costs as one of the primary reasons for this failure, US News & World Report says that college readiness is the primary reason.

The reality is that we are sending too many people to college who are unprepared.  That is a waste of both time and money and why we need to reduce the demand for college by better screening those who are unprepared to attend.  We shouldn't give loans to people who won't graduate and who won't get good enough jobs to pay those loans back.

At the same time,  this country would be better served by spending billions of dollars to create trade schools in conjunction with major businesses.  We should also invest in alternatives to brick-and-mortar schools with the increase in taxpayer funded online Universities.  That, to me, would be a plan.

References:

Hillary Clinton to roll out $350 billion college plan - CNN.com: http://www.cnn.com/2015/08/10/politics/hillary-clinton-college-affordability/

Why your child won't graduate from college on time: http://www.cbsnews.com/news/why-your-child-wont-graduate-from-college-in-4-years/

High School Students Not Prepared for College, Career: http://www.usnews.com/education/blogs/high-school-notes/2012/08/22/high-school-students-not-prepared-for-college-career

Obama's Delusional Stance On Higher Education

In the 2015 State of the Union address, President Obama said that "by the end of this decade, 2 in 3 job openings will require some higher education.  2 in 3!  Yet, we still live in a country where too many bright, striving Americans are priced out of the education they need".

So, as is always with this President, his solution is to throw money at the problem by providing free community college tuition.  However, despite what Obama says, we don't have a real funding problem for higher education; especially for the poorest among us.  There are enough federal and state grants, scholarships, and low interest student loans to send any "bright, striving" American kid to college.

The major problem is that there are too few bachelor and associate degreed jobs for the number of graduating students.   In the latest projection for those completing a 2-year or 4-year program in 2014, 31% will not find a job and will wind up living at home with Mom and Dad.  Of those who do find work, 45% of the 4-year degreed students and 57% of the 2-year degreed students will end up only finding jobs that don't require the degrees they hold.  Simply, trying to graduate more college students will only exacerbate these statistics unless, and until, more college level jobs are created.  Something that just isn't happening with Obama's over regulation of the economy.

There's another problem with higher education in this country, and why graduates can't find work that is equal to their educational level, and that is their chosen course of study.

All too often, students graduate with majors that give them little or no chance of finding related employment.  Very few businesses are interested in hiring someone with a Bachelor of Arts in Literature or Poetry, or some obscure and specialized antiquities' degree.

Beyond that, too many college students are being graduated without the necessary business skills of "critical thinking, analytical reasoning, document literacy, writing and communication".  A College Level Assessment test by the Rand Corporation found that 40% of those graduates being tested lacked those very critical skills.  Another study found that the average college student can only read at a 6th or 7th grade level.  As a result, those students get weeded out at job time by presenting a poorly or illogically written resume or by coming off as less well-educated in the interview process; leaving them to only find non-degreed work.

Additionally, because our students lack skills, 65,000 jobs a year go to legal immigrants with H-1B work visas that require a college degree.  Thousands more are taken by L-1 Transfer visas that allow foreign workers to fill U.S. jobs as long as they are transferring in from within the same company.

Essentially, Obama's "free" community college proposal makes a false promise that he is solving a problem when, in fact, the real problem lies with our broken pre-college educational system, plus the fact that he has failed miserably in creating quality high-paying jobs.

References:

Obama: Community college should be ‘as free and universal in America as high school’: http://www.pbs.org/newshour/rundown/community-college-tuition-top-theme-state-union-speech/

 More Than Half 2014 College Grads Are In Jobs That Don't Require Degree: http://jobs.aol.com/articles/2014/10/09/more-than-half-2014-college-grads-are-in-jobs-that-dont-require/

Test Finds College Graduates Lack Skills for White-Collar Jobs: Forty Percent of Students Seen Ill-Prepared to Enter Work Force; Critical Thinking Key: http://www.wsj.com/articles/test-finds-many-students-ill-prepared-to-enter-work-force-1421432744

The average college freshman reads at 7th grade level: http://campusreform.org/?ID=6174

Nearly three-quarters of hiring managers complain that millennials – even those with college degrees – aren’t prepared for the job market and lack an adequate “work ethic": http://www.thefiscaltimes.com/Articles/2014/01/29/Surprising-Reason-College-Grads-Can-t-Get-Job

Obama Imposed 75,000 Pages of New Regulations in 2014: http://www.thenewamerican.com/usnews/constitution/item/19803-obama-imposed-75-000-pages-of-new-regulations-in-2014

Work Visas: http://www.immigrationvisausa.com/Immigration_Law/Work_Visas.aspx

Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones: http://www.nytimes.com/2014/04/28/business/economy/recovery-has-created-far-more-low-wage-jobs-than-better-paid-ones.html