Keeping College from Becoming a Ripoff

When I made my decisions on what I wanted to be and where I would go to school back in the early 70s, my family's modest finances made me determined to be as frugal and practical as possible. Although I had a number of interests, my aptitude in math and science (especially electricity) suggested that I become an electrical engineer, a job that paid well and would give me reasonable job prospects.

Then it was a choice of college. Deciding to stay local to be able to commute and thus save money on room and board, my choices were between a good public university, Pitt, and Carnegie-Mellon, a private university renowned for its engineering school.

But Carnegie-Mellon costed three times as much and I didn’t believe it would provide an education that was three times better. So rather than apply someplace our family couldn't afford, I foolishly put all my eggs in one basket at Pitt. Fortunately, Pitt accepted me. And since I still commuted from home, I was able to find an evening and weekend job in a restaurant near home that allowed me to pay my own tuition in full. (Today with the price of tuition skyrocketing, minimum wage jobs do not pay enough to do this anymore.)

So what was the result of all of this? I received an education that was adequate but was decidedly more impersonal due to the large size of the school. And without experiencing any of campus life by living there, my social life was frankly not much of a life at all.

But I got through it all and although I took several months after graduation to find my first professional job, it happened and I then started to earn a comfortable living – all without any college debt to worry about. This all worked perfectly until my engineering job was eliminated in my late 40s. I then discovered that those over 50 with college educations nowadays are not in demand to say the least. So although my college education is now useless in finding work, it served me well for much of my adult life.

One thing I noticed back in the times when employment prospects were more normal was that many of my colleagues did not have engineering degrees like I did. Instead of learning a trade like I did in engineering school, there were many others who graduated with an assortment of liberal arts degrees. But that was OK. At that time, a prospective employer often used a college degree to judge whether somebody had enough brainpower to be able to make a meaningful contribution to the company. If they were smart enough, they could be then be trained in whatever specialized work the company needed. It all worked quite well – but that was then.

In a previous posting, Our Jobs Crisis, I argue that unlike previous downturns that were cyclical in nature, this one is structural in which many of the jobs we have lost through outsourcing and other overseas competition may likely never come back. Even more alarming, many of these lost jobs have been in college educated professions like engineering and even law.

In my time, going to college with the expectation of using that diploma as an entry into the middle class was a reasonable one. But today, many college graduates who have borrowed heavily to get that diploma (especially to go to that prestigious private school) have encountered a nightmare where their degree is no longer in demand while at the same time they are expected to start paying off their debt – which cannot usually be discharged through bankruptcy.

While many of the degrees they offer may no longer have as much economic value in the workplace as before, schools that make money from student tuition have no real incentive to warn prospective students about all of this. Jack Kelly in a recent op-ed, The costly college scam, summed it up this way.

The biggest consumer ripoff in America today is a college education.

The scam exists for the benefit of college teachers and administrators who make a comfortable living ripping off the gullible. If only people capable of doing college work were admitted to college, and only courses with academic value were offered, there would be fewer colleges and far fewer faculty.

But in addition to the traditional colleges, the for-profit education and career training industry has grown explosively in no small part due to the GI Bill which pays for veterans’ education. This worked well for our veterans after World War II when the economy was rapidly expanding, but in today’s economy with its chronic shortage of jobs, it appears that the schools are reaping all of the benefits far more than the students which has resulted in a Senate investigation of industry practices.

A wide-ranging examination of for-profit colleges by the U.S. Senate has homed in on how the schools recruit and educate veterans -- a lucrative source of federal funds for [Pittsburgh]-based Education Management Corp.

From August 2009 to July 2010, EDMC -- which runs the Art Institutes, Argosy University, South University and Brown Mackie College -- took in about $60.5 million from the Department of Defense and Department of Veterans Affairs. According to data compiled by the Senate Health, Education, Labor and Pensions Committee, EDMC was the third largest recipient of such funds in that span, behind Apollo Group Inc. -- which runs the University of Phoenix -- and ITT Technical Institute.

The HELP Committee, led by Sen. Tom Harkin, D-Iowa, has been holding hearings on the practices of for-profit schools -- exposing aggressive and sometimes fraudulent recruiting tactics, and the high debt loads and failure rates of their students.

So am I saying that we should all give up on higher education and accept a career that pays little more than minimum wage? Hardly. It is marketable knowledge and skills that allow some to command a higher wage than others.

For those who desire it and are fit for a white collar occupation, college is certainly worth considering. But with the selective job market we now have, it is crucial to research up front how present graduates in a certain field are doing before investing the considerable amount of time and money to obtain a particular degree. While college does have certain benefits outside of career training, the expense also has to justify itself in the form of increased income after graduation. And white collar occupations are far from immune to outsourcing; in fact some of them have been hit especially hard in recent times.

Is a private college really worth all of the extra expense (and debt) over a publicly supported one? As I noted earlier, my educational experience in a large public university like Pitt was a somewhat impersonal one. Private schools offer smaller class sizes and more personal attention. But the same can be said for the smaller branch campuses of public universities like Pitt. In addition, community colleges are a great value and worth considering for a year or two before transferring to a 4 year college.

Of course, not everybody is cut out for college or a white collar career. Learning a trade that is in demand can provide just as much pay and satisfaction as many white collar careers. With the many unemployed sitting at home watching TV, commercials for different training institutes are blanketing the airwaves. But there is always the disclaimer in the fine print that employment and salary are not guaranteed. Do these places really enable their students to find jobs as advertised? Or do they leave their graduates high and dry with little more than a pile of debt to deal with? It takes some research up front to find this out – preferably by talking to previous grads of these institutions.

So although college can be a ripoff, it doesn’t have to be. When dealing with anybody who asks us to part with some of our money, we have the responsibility to be informed consumers – and education is no exception!

Post Script - January 12, 2011

Being an informed consumer is especially difficult when the schools who are supposed to be providing objective information on the employment prospects of its graduates resort to fudging their figures or are outright lying about them.

A recent NYT article Is Law School a Losing Game? is about the rude awakening many recent law school graduates have received when they discovered that the expensive degree they borrowed money to earn isn't yielding any job offers in the field despite law schools encouraging even more students to enroll.

[Michael] Wallerstein, who can’t afford to pay down interest and thus watches the outstanding loan balance grow, is in roughly the same financial hell as people who bought more home than they could afford during the real estate boom. But creditors can’t foreclose on him because he didn’t spend the money on a house.

He spent it on a law degree. And from every angle, this now looks like a catastrophic investment.

Well, every angle except one: the view from law schools. To judge from data that law schools collect, and which is published in the closely parsed U.S. News and World Report annual rankings, the prospects of young doctors of jurisprudence are downright rosy.

In reality, and based on every other source of information, Mr. Wallerstein and a generation of J.D.’s face the grimmest job market in decades.

This article is a 'must read' for anybody studying for or contemplating a legal career.

To get a perspective from someone on the street, I forwarded a link to the article to a friend of mine who is a lawyer to get some feedback. Her response below is pretty self-explantory.

It's very sobering, but not a surprise, we have usually have at least 2 unemployed attorneys volunteering for us to get experience, and our youngest attorneys have loan balances close to $200,000. (our starting salary is less than $40,000). I have no idea why anyone still thinks law school is a good idea.

Our Tax Cut Insanity

Imagine this scenario. A shopper brings $100 to the store to shop for groceries. After filling the cart she goes to check out and discovers that the total comes to $125. So what happens then?

In the practical world, she would ask the checkout person to take away $25 worth of groceries from the bill. Or if she felt that all of her purchases were really necessary, she can put the shortfall on her credit card to pay back later.

Of course she could have complained about how much food has gone up. Or perhaps about how the store charges what she feels is too much for her food. She could have even promised herself that next time, she would go to the store with only a $75 shopping list of groceries.

But try as she may, she just couldn’t find $25 worth of groceries she could do without. So she puts the extra $25 worth on her credit card for this and future trips to the store.

So why not bring $125 each time to the store? Because she is convinced that each time she goes to the store, she will find a way to cut out that extra $25 and not have to put in on the credit card. But that never happens and the credit card balance keeps going up and up.

This grocery store scenario is a pretty good match to the behavior of Congress when it comes to our annual federal budgets here in the US. We don’t have enough tax money coming in to pay the total bill. So we borrow the rest and vow to spend less next year so we don’t have to borrow more.

But it never works out that way. While we all have our own ideas on where to cut the budget, there is not enough of a consensus to ever make it happen. For example, most liberals feel that we spend far too much on our military. But most conservatives feel that the military budget is untouchable. And many conservatives feel that we spend too much on entitlements such as Social Security and Medicare. But liberals feel these are untouchable. So the process of making any significant cuts in the federal budget invariably leads to Congressional gridlock.

So it would stand to reason that if we can’t cut spending to balance our budget and not put more on the credit card, we need to raise taxes to make up the difference. But instead, the supply side economists starting with David Stockman who was President Reagan’s budget director, advocated for and helped to pass tax cuts with the idea of stimulating the economy to make up for the lost tax revenue. But instead, the lack of tax money simply resulted in a greater shortfall and the need to put more money on the credit card.

Paying less in taxes with the idea of “starving the beast” to reduce the size of government has long been a part of the conservative ideology. But tax cuts without corresponding spending cuts only puts us deeper in the hole which requires us to borrow even more.

But instead of learning our lesson under Reagan that tax cuts do little more than create larger deficits, President George W. Bush passed another major tax cut in addition to a major spending increase in the way of the Iraq and Afghanistan Wars. The result was more record deficits and more borrowing – mostly from the Chinese. With the Chinese now owning so much of our debt, trying to deal with them on their often unfair trade practices that have drained us of jobs has become increasingly difficult.

A legacy left from the Reagan and Bush tax cuts is an attitude by the conservatives that we can get all of the government we need without having to pay enough taxes to balance the budget. Instead of being “deficit hawks” we now started to get Republican excuses for the deficits.

Vice-President Dick Cheney famously told former Treasury Secretary Paul H. O'Neill, that "deficits don't matter." What's interesting and alarming, however, is that different Republican factions believe deficits don't matter for opposite and incompatible reasons.

Supply-siders believe deficits don't matter because tax cuts so boost investment and productivity that the economy grows its way out of debt. The opposite, "starve the beast" faction, epitomized by tax tactician Grover Norquist, hope tax cuts will indeed create deep deficits that will then force spending cuts. But both things can't be true.

Under George W. Bush, the merry ideology calls for tax cuts in all seasons for all reasons. Spending has increased faster than under Clinton, and deficits have ballooned, yet tax cutting marches on.

Another huge byproduct of the Bush tax cuts was their benefit to the wealthiest which has resulted in a huge concentration of income and wealth at the very top of the food chain.

With the middle and lower classes now suffering economic hard times, it is hopeless to try and balance the budget by asking more taxes from them. This is what I argue in a previous posting Make the Rich Pay Their Fair Share!

Due to technical reasons, the Bush tax cuts could not be passed as a permanent measure but instead are due to expire at the end of 2010. Logic would dictate that the tax cuts for the wealthiest Americans that created so much of the deficit should be allowed to expire. But for Republicans, tax cuts are a religion and the Senate Republicans have vowed to kill all legislation including unemployment compensation extensions until the tax cuts for the wealthiest Americans (their political base) are extended first.

Despite these tax cuts having been shown to do little more than increase the deficit and our credit card balance (the National Debt) now approaching $14 trillion, the conservatives’ insane fervor for tax cuts continues unabated, even for those who claim that they believe in balanced budgets. The classic definition of insanity – doing the same thing over and over and expecting different results certainly applies here.

Even David Stockman, the man who helped to start it all has finally admitted to the insanity in a recent 60 Minutes interview.

(Extending the Bush tax cuts is) rank demagoguery. We should call it for what it is. If these people were all put into a room on penalty of death to come up with how much they could cut, they couldn't come up with $50 billion, when the problem is $1.3 trillion. So, to stand before the public and rub raw this anti-tax sentiment, the Republican Party, as much as it pains me to say this, should be ashamed of themselves!