Tuesday, November 3

Rethinking the USA: Breaking up the college cartel and avoiding the THX-1138 syndrome in higher education

American parents saving for their children's college education will have blood shooting out of their eyes, to steal a phrase from Glenn Beck, by the time they finish reading the discussion from the October 31 airing of Paul Gigot's "Journal Editorial Report" on Fox News Cable. The panel, led by Paul Gigot, examines the reasons for the skyrocketing cost of a college education in the USA.

At the end of this post is the portion of the transcript for the broadcast that deals with the topic. But in brief, the discussion brought out that colleges have learned they can charge whatever the traffic will bear for tuition, even during a deep recession, because they know the government will keep increasing financial aid for low income students. As long as the aid spigot is turned on for the poor, the colleges can get away with gouging middle income families because those are the ones that traditionally put up and shut up.

This means middle income parents who're trying to get their children through four years of college are beaten up twice: first, by an industry that functions much like a cartel by raising their varying tuition prices in concert, then by taxation going toward college aid for which the middle class doesn't qualify.

The upshot is that the college cartel bleeds middle income parents dry, keeps their children in debt for years after graduation, and inexorably drives the USA toward fully socialized higher education.

Is there any way to break up the cartel? Yes, but it would take a revolt against the university system, which started out as benign and progressed to a tyranny that is wholly supported by society's inertia, in the manner of the factory in George Lucas's THX-1138.

The system that leads to a college degree was supposed to support higher education but once the degree became the only sure ticket to a decent wage, non-college/university routes to education became neglected. The more the cycle progressed, the more power the universities gathered -- until they reached the point (which came about a quarter century ago) where they could make life hard for companies that wanted to hire workers straight from high school graduation; the universities accused the companies of trying to start a guild system and even accused them of promoting indentured servitude.

The only indentured servitude going on that I can see is graduating students who received aid having to work off their debt at a government-chosen job, or having to direct a chunk of their income for more than a decade to paying off crushing debt with high interest accrued from other types of student loans.

One of the panelists on the "Journal" show, after noting it can now cost $200,000 to get a bachelor's degree, suggested that parents write a check to their children instead of the college.

That's a great idea. Let the most mature high school graduates invest the money earmarked for their college education while they work as interns learning the field or trade that interests them, or invest the money in starting a business. This is the perfect time in American history for high school graduates who want to start a business; that's because there's a huge and diverse knowledge pool among retired Baby Boomers, who can advise high school graduates about starting and managing a business.

The same solution can be applied to some extent in the scientific/engineering fields.

All this would return universities to what they were conceived for, which is to be a place of study for those wishing to be scholars in a subject. At the least it would thin the forest of students who are only attending college because they need a degree in order to compete in the workplace.

There are other less radical ideas for breaking up the cartel, or at least putting a crimp in it, such as placing more emphasis on online universities; that would be also be another way to thin the forest. One of the most surprising revelations from the "Journal" show is that studies have shown that the lifetime earnings for a graduate of a top-ranked university such as Harvard are about the same as for someone who attended college at say, the University of Arkansas.

Yet I believe we're overdue for a revolt against attitudes that have made the university system the key route to a good job in the USA. Speaking of Glenn Beck, he began working full time on the weekends as a disk jockey when he was a junior in high school. After graduation he went straight into a job at a radio station. Except for brief times between jobs he has been working since then in radio, until he added his own business, a television show, and book writing to his radio career.

One may argue that Glenn was lucky to find the vocation he loved while he was so young. The other side of the argument is that his work in radio at a young age spared him the social pressures of the college scene, which can divert huge amounts of a youth's energy and attention from finding and focusing on his 'passion.'

That is not true in all cases, of course, but I think many college-age people are not suited by temperament to spending years in an academic setting.

Glenn has spoken of his ADHD as being a significant factor in his emotional problems and earlier substance abuse. Yet his ADHD did not prevent him from being a highly productive tax-paying member of society from an early age.

Glenn's ADHD has also been blamed for his inability to take a course at an Ivy League university that Joe Lieberman arranged for him years ago. But Glenn gobbles up books; he's always studying -- an amazing achievement for someone with his heavy work load. Maybe he wasn't always such a bookworm but his Fox audience knows he's a prolific reader who shares with the audience what he learns from his studies.

There are people who have great difficulty studying unless they can immediately apply what they learn. The university system can be very rough on such people.

And, more darkly, I suspect that many children who're tagged with ADHD or as chronic problem students or poor learners are those who tend to feel like the protagonist in THX-1138 when forced to spend hours a day sitting in class.

I'm not calling for a repeal of child labor laws. But Saturday's discussion on the "Journal" show indicates we're at a point where the high cost of a college education should spur alternatives that are acceptable credentials in the work world.

There is one other feature of college life that has become very problematical, as more and more Americans have been put through the system: whether the setting is an Ivy League university or a small community college the routines are virtually the same. This has led to echo-chamber thinking, to a sameness of approaches to problem-solving.

There's an old saying in the USA, born of the days of door-to-door salesmen: The louder the Bible-thumper the more closely you have to watch your wallet. In the same manner today's American university, which preaches the most loudly about the need diversity in school admissions and curricula, tolerates no diversity when it comes to alternatives to the college system of preparing children for a career.

Journal Editorial Report October 31, 2009; excerpted from the 'rush' transcript:

"PAUL GIGOT: It's a trend that most parents are keeping an anxious eye on, the skyrocketing cost of a college education. According to a new report by the College Board, those costs continued to rise last year despite a 2.1 percent decline in the consumer price index. Hit hard by state budget cuts, four-year public colleges raised tuition and fees by an average of 6.5 percent while prices at private colleges rose 4.4 percent. Add room and board and the average cost of attendance at a public four-year college is now more than $15,000 a year. At private colleges, the price tag is $35,000.

The sticker shock has led some, including Tennessee Senator and former education secretary, Lamar Alexander, to push for a three-year degree program at the college level.

We're back with Dan Henninger and Steve Moore. And also joining us, the Wall Street's deputy Taste Page editor, Naomi Schaefer Riley.

Why do cost levels rise even if the price doesn't for everyone else?

NAOMI SCHAEFER RILEY, DEPUTY TASTE PAGE EDITOR: It's a third-party payer system. Basically, what you have is colleges know they can keep raising the price and they know that the government, through financial aid programs and various grants that they give to universities both public and private, is basically going to pick up the difference. Unfortunately, for middle class parents, it doesn't always work out that way. They're not picking up all the difference for them, but colleges keep raising the sticker price.

GIGOT: Because there's income limits on who gets the subsidies, but the subsidies are vast and the Pell Grants, direct grants for people. They're based with these subsidized loans and then there are subsidies for savings for school too, which is how a lot of middle class parents get help. Are you saying there's a kind of chasing-your-tail quality here? The tuition goes up, subsidies follow and then the people say, tuition can go up again, and then subsidies have to go up again?

SCHAEFER RILEY: That's true. In addition, you also get an arms race among the colleges. I mean, you get a situation where, first of all, it turns out that parents think the college is better if they raise the price. So if you see a $50,000 cost on college tuition, which by the way, happened this year --

GIGOT: Where is that?

SCHAEFER RILEY: Middlebury College. It costs $50,000 for tuition, room and board.

GIGOT: In Vermont.

SCHAEFER RILEY: Yes, this year. Vermont, a very high-cost-of-living state.


[...] But parents see that sticker price and assume that must be a great college education. So it's — all the wrong incentives are in place and colleges are spending money on things like landscaping and fancy food programs and Wi-Fi in the bathrooms.


SCHAEFER RILEY: It's really hard to figure out where the quality is.

GIGOT: I have a hard time imagining. I barely use a P.C., Dan.

DAN HENNINGER: It's going to get worse. The College Board just reported private loans last year for college dropped by 50 percent while the public federally subsidized loans rose 15 percent. Now, we also know that the Congress has taken — is going to disadvantage the private loan program, which means that the federal program is...

GIGOT: They're going to put it out of business.


HENNINGER: They're going to put it out of business, right, which means that basically colleges are going to become a wholly owned subsidiary of the federal government. You'll never get countervailing price pressure under those circumstances.

GIGOT: Steve, is this going to lead to you wanting to send your kids to college for only three years?

STEVE MOORE: Well, you know, Paul, I have an 18 and 16-year-old.


I'm listening to these prices that Naomi is talking about and I'm going to need a big fat pay raise.


My kids are going to be with me another four years, which is a nightmare.

Look, this is a real issue. It's going to cost now $200,000 to put a kid through college. You have to start asking yourself the question: Look, I'll give you a $200,000 check. Maybe that's a better way to start your life than going to college. But Naomi put her finger on the problem. The two areas — I was looking at inflation rates in health care and education, both of those have booming costs. Education costs have gone triple the rate of inflation over the last decade. And it's because the people that are getting the service aren't the ones who are paying for it and that leads to exploding costs.

GIGOT: Naomi?

SCHAEFER RILEY: I want to say something about the three-year college cost. It's funny, if you go back to the 1970's, which we've been thinking about a lot lately -- a lot of colleges actually reduced the length of their semesters, and they said this was to save costs for parents. But of course the semesters stayed shorter so kids got less education overall. And the prices never went down. So I think you also have to take these big ideas from schools about saving you money with a grain of salt.

GIGOT: The likelihood is that they would find a way to charge the same amount anyway, even if you only went for three years.

SCHAEFER RILEY: Exactly. That's exactly right.


HENNINGER: But you get out work earlier and start to work and pay back those loans.


GIGOT: That would be the benefit. It's an opportunity cost, would be lower.

But, Dan, the government is going to — isn't going to change any of this. If anything, they're increasing the subsidies. they want to make Pell Grants an entitlement. Right now, it has to be passed with annual appropriation. They want to make it automatic.

HENNINGER: Yeah, and, know, there is a social aspect of this as well. It's pretty well proven that the payoff to a college education is higher lifetime earnings. The demand for college now is tremendous. People are just going to these colleges. Probably what we need is probably online colleges or more colleges to meet the supply.

GIGOT: But which college doesn't necessarily help, does it?

SCHAEFER RILEY: No, no. There are a lot of studies that show if you're a person who got into both Harvard and, say, the University of Arkansas, and you chose the University of Arkansas, your lifetime earnings would not be that much different. One solution is improving K-through-12 education.

GIGOT: That would help enormously. And you might get higher returns on people who don't go to college or go to community colleges.

SCHAEFER RILEY: Yeah, the way it used to be.

[End excerpt]"

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