A College education bubble?

Coyote Blog has a very interesting post that compares and contrasts the housing bubble to what may or may not be going on with 4 year Liberal Arts degrees.

I can’t prove there is a trend, because I just can’t find a good online source, but 46% non-graduation rate strikes me as pretty high. And I would argue that there is, in addition to drop-out rate, a second figure one must consider. How many of those that did graduate could actually do with their degree what they thought they could? How many have a 4-year journalism degree from Michigan and now are working at Starbucks, either by choice or necessity? I call this the soft drop-out rate, the rate of, for lack of a better word, underemployment of one’s education investment.

Just as with home ownership, both federal and state policy encourages University attendance. The question is, does this bring people to the education market that really shouldn't be there? We've all heard about low income people who got $500,000 mortgages; is there a low income kid at Harvard majoring in Medieval Literature?

Now I must confess to being particularly interested in this question. Dad was a University professor, so we all grew up with the expectation that education pays. Quite frankly, this has been true for me and my older brother.

And #1 Son is a Junior in High School. College payments will be up close and personal Chez Borepatch, Real Soon Now.

So is it worth it?

I remember people saying that you make a million dollars more over the course of your life if you had a degree. That was a long time ago, so I'd expect that the number has gone up. But there are some pretty important variables that don't seem to be discussed much:

1. Some fields of study will pay better than others. I first majored in History and Economics, which put me in a good position for a low level job at the Federal Reserve or something. I quick like a bunny went back with an Electrical Engineering major, which did pretty well. I like history and economics (as you can see by looking at my recommended reading list), but I wouldn't want to live on it.

2. The return from top Universities is not clearly better than the return from state schools. I went to State U; older brother went to Washington University and Cornell. Both of us are doing well, but neither of us are working in the field we studied. He would have paid ten times what I did, but he is super smart, and had a National Merit Scholarship. Quite frankly, I haven't heard any of these schools publish data showing that the cost differential is justified.

3. Net Present Value Analysis is your friend if you're thinking of going to college. NPV analysis is the process of adding up all the costs of a project, adding up all the benefits of a project, adjusting for inflation, and seeing what Rate of Return (RR) you have. This is instructive, because you can compare the RR against the interest rate on the student loans. If the RR is less than the loan rate, you have a bad deal. The problem is figuring out what you'll be paid as a Russian Literature grad.

For me, it was a no-brainer. I got into a field where there was demand (so pay was good), I kept tuition costs down by going to State U (and living at home), and had very few student loans. In fact, my RR was kind of off the chart. This is very, very unusual, even in those days.

There's a point here, which is that young people are taking on very large levels of debt that very well may hinder, rather than help them achieve the American Dream. Coyote Blog again:

To illustrate this further, I want to end with something I have observed over the past year. During the last election, I sensed something in the average 20-something Obama supporter that went beyond just frustration with the incumbent President and the normal level of youthful flirtation with progressivism. I sensed a real anger that somehow some promise had not been kept to these folks. One interpretation of this is that these folks were all promised that a 4-year liberal arts degree would be the guaranteed ticket to success, and that their college degree would make them future leaders and the world would soon tremble at their pronouncements (seriously, just go read the marketing literature from any college). Having gotten this “promise,” they suddenly find the world doesn’t really hang on the every word of a 22-year-old who has never really been out of the womb, and the employers of the world are not beating the doors down to hire a gender studies major who wrote a really well-received thesis on the role of women in the Paraguayan post-modernist movement.

Coyote Blog points out the the Universities have been pretty much taken over by the faculty, who are running it for the benefit of the faculty - you could extend the argument to say that the same thing is true of elementary and secondary education as well, if you count the teacher's unions. This may be the trigger I talked about in Of What Use Is An Intellectual Class?

The Intellectual Class operates essentially as a Guild. The members (professors, senior newsroom staff, etc) have considerable control over who is hired and promoted. For many years, a small intellectual-left core group provided a subtle leftward weighting in hiring and promotion decisions. This has compounded over the course of many decades, until a slight leftward bias has become overwhelming. Over fifty years, the frog has been thoroughly boiled.

A result of the faculty control is an increasing political isolation - the faculty is much, much more liberal than the rest of the country. There is a trajectory in place that will be very hard to change, but which will almost certainly end up in a Really Bad Place. Untimately, it may get so bad that the system will get some much needed reform, but a lot of young Post Modern Analysis major will pile on crippling levels of debt first.

UPDATE 11 January 2009 10:18: TJIC has more.

UPDATE 21 January 2009 07:48: Megan McArdle has more here.