A Shocking Thing Happened To College Tuitions In 2016...

Tyler Durden's picture

The staggering inflation rates of college tuition over the past couple of decades has been a frequent topic for us.  As the Wall Street Journal notes today, the cost of educating our snowflakes has soared since the early 90's and outstripped overall inflation by nearly 4x.  It seems that the liberal indoctrination of an entire generation is very expensive business.

U.S. college tuition is growing at the slowest pace in decades, following a nearly 400% rise over the past three decades that fueled middle class anxieties and a surge in student debt.

 

Tuition at college and graduate school—after scholarships and grants are factored in—rose 1.9% in the year through June, broadly in line with overall inflation, Labor Department figures show. By contrast from 1990 through last year, tuition grew an average 6% a year, more than double the rate of inflation. In that time, the average annual cost for a four-year private college, including living expenses, rose 161% to about $27,500, according to the College Board.

 

Some schools are offering more discounts and cutting prices.

Alas, there may be hope yet as for the first time in nearly 30 years college tuition rates in 2016 only increased at approximately the same rate as overall inflation...shocking.

Student Loans

 

Of course, it's no surprise how we got here.  The combination of yet another massive debt bubble in student loans, rising government subsidies and soaring demand from a generation of snowflakes programmed to believe their self-worth is directly correlated to how much money their parents drop on their anthropology degree resulted in a predictable supply/demand imbalance and massive prices increases.

Student Loans

 

So, what caused the 2016 slowdown?  Among other things, Congress decided to stop arbitrarily hiking the student loan caps back in 2008.

Another factor: Congress last increased the maximum amount undergraduates could borrow from the government in 2008. Some economists have concluded schools raise prices along with increases in federal financial aid. A clampdown on aid, in turn, could limit the ability of schools to charge more.

Meanwhile, as anyone who has ever invested in commodity markets is undoubtedly aware, supply/demand gaps tend to normalize over the long-term.  And, with college's extracting massive price increases year after year, it should be little surprise that the number of colleges looking to get in on the action also soared.

Abundant supply is running up against demand constraints. The number of two-year and four-year colleges increased 33% between 1990 and 2012 to 4,726, Education Department data show. But college enrollment is down more than 4% from a peak in 2010, partly because a healthy job market means fewer people are going back to school to learn new skills.

 

Some of these trends may persist. The number of high-school graduates is projected to remain flat through 2023, according to an analysis by the Western Interstate Commission for Higher Education. White graduates, the most likely among races to attend college, are expected to decline over this period.

 

“The competition is bigger now than it has been, and I think we have more informed consumers,” said Sarah Kottich, chief financial officer at College of Saint Mary in Omaha, Neb.

Of course, it could also be that students and their parents are finally realizing that that silly little piece of paper passed out at graduation ceremonies every year may not be worth as much as it used to be. 

For now, the shakeout is hitting private schools hardest. For-profit trade schools and many private nonprofit colleges are under pressure to justify high prices, particularly because some graduates are failing to land high-paying jobs. The broad decline in undergraduate enrollment since 2010 has been concentrated mostly among small nonprofit colleges, for-profit trade schools and public community colleges, federal data show.

 

Izzi Moraschi, 19 years old, said she chose Rosemont College, a small private college near Philadelphia, after seeing a flier advertising a sharp tuition reduction. She wanted to reduce the burden on her parents.

 

Combined, she and her parents took out $15,800 in federal loans to cover her first year’s tuition. “It was just really important for me that I was able to make it so that my parents wouldn’t have to pay anything out of pocket,” said Ms. Moraschi, now a sophomore, who said she plans to pay back her parents’ portion of the loan.

 

Sharon Hirsh, Rosemont’s president, said her school reduced tuition to ease concerns of middle-income students, who seem more willing to choose public schools to save money.

 

“We are surrounded by private institutions that are openly talking about right-sizing,” Ms. Hirsh said. “Families have gotten to a point where they cannot consider a private institution with a high price.”

And, since we doubt anyone will go through the hassle of actually running the math, we decided to take a quick look at the return on invested capital of a college education.

First, according to Quora.com, attending college these days can cost anywhere from $22,500 per year for a public, in-state university to $75,000 for a private education.  So, lets just assume that, on average, our snowflakes are spending $30,000 per year on a 4-year bachelor, or $120,000.

  • Attend a public in-state university for four years, living on campus ($22,500 per year for four years) for $90,000
  • Attend a public out-of-state college for four years:  $35,000 per year for four years for a total of $140,000
  • Attend a private four year college in an expensive area like Manhattan at $75,000 per year for a total of $300,000

So what do they get for that?  Well, per the Bureau of Labor Statistics, that $120,000 degree in Anthropology will earn you roughly $464 extra dollars per week or ~$24,000 per year.

Wages

 

So, doing some quick math, we find that $24,000 tax-effected at a 25% tax rate equals about $18,000 of extra annual earnings for a college grad and implies a 15% return on invested capital. 

Not bad...but, unfortunately, the story doesn't end there.  You see, by choosing the college route our snowflakes not only incur the cost of college, in the form of massive student loans, but also forgo 4 years of earnings, which equates to roughly $110,000 ($692*52*.75) on a tax-effected basis. 

So lumping in that opportunity cost brings the true average cost of that Anthro degree up closer to $250,000, implying a roughly 7.2% ROIC. 

Of course, that's assuming that young Tripp Hollingsworth III actually graduates in 4 years and then promptly finds a job shortly thereafter rather than returning to mom's basement.

So you decide, is a 7.2% return on invested capital sufficient to take on a life time of debt?  

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Looney's picture

 

Throughout history, the Indoctrination of Youth was conducted on the governments’ dime.

OUR young people PAY for their own brainwashing – just compare the Student Debt Bubble with the Student Indoctrination Bubble, they match perfectly!  ;-)

Looney

yomutti2's picture

Yup. If the Republicans had any brains, they would be trying to gut financing of undergraduate degrees, at least for any non-technical majors.

 

Personally, I would do it by making the university guarantee the loans of its students. If Suzy the Social Justice major defaults, then Yale is on the hook to pay Uncle Sam back. I imagine that would work wonders for the practicality of the university curriculum.

 

 

 

 

 

 

NoPension's picture

Utilize the loan portfolios for teacher pensions.

merizobeach's picture

I completed my university degree in under two hours on Photoshop, and it didn't cost a penny.  (Except Photoshop--that cost a couple bucks in Bangkok.)

Still, though, either before or after I got the paper, I've never needed it.

Arnold's picture

Got paid well for that O'Bama birth certificate did ya?

The Iconoclast's picture

It would be nice if Congress did something to end the gravy train, but unfortunately too many banks are making money risk-free (thanks, taxpayers!) and will continue to spend some of those profits on campaign contributions to make sure the status quo continues.

Still, the decrease in the rate of increase is a welcome development.

College is ripe for disintermediation by the internet.  They've managed to escape that so far, but as the price goes up and the results go down, I think it's inevitable that many colleges and universities will suffer the same fate as so many shopping malls.

artichoke's picture

It's all about market acceptance.  There is already Coursera and EdX, as well as Khan Academy and other sources of courses.

Stuck on Zero's picture

A college near here has received numerous complaints from the female student body. The university is nearly 80% female and the women are complaining that there are no men to date.  Almost all of the non-STEM classes are 100% female. Meanwhile a group of college administrators has looked at the statistics and concluded that white males are the most discriminated against in admissions. Their conclusion was that they could not allow white males to be labelled as under-represented or disadvantaged because then 100% of all students would then be labelled as such. The conclusion of the meeting was that they would continue the current discriminatory admissions policies.

Wrenching Away's picture

If that's true, that is quite amusing.

Bananamerican's picture

do you have a link? that would be great to share

 

artichoke's picture

During the campaign, I think even before the RNC Convention, Trump gave an education speech.  He floated the idea of having private lenders partially underwrite student loans.

Then the engineering student in good standing gets a loan, the gender studies student doesn't, except at Yale where even the gender studies student (which they actually have at Yale, unfortunately) gets a loan because it's a Yale degree.

Am waiting for DeVos to get around to implementation.  At least she's starting to talk about how Title 9 has been abused on campus -- the star chamber courts whenever a girl complains about a boy.

VZ58's picture

Brillian idea. That alone would change education quick time.

SubjectivObject's picture

Looking at those average weeklies, if you got a math/physics competant progeny, think about materials selection in the context of petrochemical processes.

Just sayin.

medium giraffe's picture

"OUR young people PAY for their own brainwashing" whilst enriching some lender somewhere who conjured the loan money out of thin air. 

Sometimes you really have to marvel at the despicable genius of it it all. 

It's like watching cows calmly walking into an abattoir.

Lockesmith's picture

Does this take into account the heavy selection bias towards intelligence in college admissions?

i.e. is it not possible tha tthe smarter peope going to college would have outperformed their peers regardless of their education status?

venturen's picture

in it for $75k for the next 4 years...but no gender studies here

Too-Big-to-Bail's picture

Everything has become a racket -- tell me something I don't know

adr's picture

I went to one of the top 10 colleges in the US from 1995 - 1999. In 95 the base tuition was $22k with $2500 room and board. By 99 the base tuition went up to $38k. I still lived in University housing but without a food plan the housing was only $500. The other nice thing was I qualified for a $5000 in state tuition credit. I also got ten grand in tuition credit and a few more grants to drop my per year load to $5000. $20k in debt for a four year $120k education wasn't that bad, but it didn't mean much in the Dotcom bust. 

Base tuition is now $45k with $5000 room and board. Even with the credits most kids will be in it over $100k. The coming bust will be the mother of them all and it will end the snowflake dream pretty quick. 

Bobportlandor's picture

What a sucker. I wouldn't pay a whore that much money to talk to me.

YouTube type education program could easly be done for the bulk of learning. Add in some on job training @ min wage and costs would be minimal.

VWAndy's picture

 And they are even more useless than before. Most of the ones in there now are going to come out what we skilled guys call hard core unemployable.

strickler's picture

They totally ignored the government mandated 2.5% annual inflation that will grow future earnings relative to the original investment.

CJgipper's picture

Actually, what they missed was the current 7% interest rate which makes the ROI over the next 25 years of payback 0, not 7.

youngman's picture

4 years my arse...its a party..they go for 6-10 years now....

Ex-Oligarch's picture

"... college enrollment is down more than 4% from a peak in 2010, partly because a healthy job market means fewer people are going back to school to learn new skills."

Oh, right, that must be it -- the job market is just so robust right now!

It couldn't possibly be that the large backlog of unemployed, heavily-indebted college graduates are reluctant to incur more debt for another degree?

Or that those who actually landed a decent job are holding onto it for dear life, and wouldn't dream of giving it up to return to full time study?

Or that the smarter prospects are doing a simple cost-benefit analysis and realizing that they won't materially benefit from a(nother) degree?

Bigly's picture

That's right. Do not put yourself underwater like that.

I got my former employer to pay for my graduate degree.

That is the only way to go if you can get them to do so. I paid for books- big deal.

RenoCarlino's picture

7.2% return on invested capital to go on parties, get drunk on Spring Break, get fat with nightly pizza binging, quell your critical thinking for fear of professors deducting your marks, not take the extra initiative to learn new things because it's not gonna be included in the tests, learn awesome argumentative skills like throwing ad hominems and interrupting others from talking, go on attending protests on the streets all day instead of studying, get STDs from all the rampant hookingups? Learn financial irresponsibility by taking on debt instead of not buying things you can't afford? Sign me up bro.

Agstacker's picture

Then vote for Bernie who will give it all to you for free!  By free I mean the taxpayers pay for it.

January Jones's picture

Starve the Beast until it stops churning out Snowflakes and returns to the real world.

John Law Lives's picture

Speaking of soaring tuition and associated costs, the following estimated cost information was cut and pasted directly from the Southern Methodist University (i.e. SMU) website today.  Imagine shelling out this kind of dough (per year) if your kid didn't get any sort of scholarship or grant:

 

2017-18 Estimated Costs Tuition & Fees

$52,498

 

Housing & Meal Plan

$16,510

 

Books & Supplies (estimate)

$1,000

 

ANNUAL TOTAL $70,008
WTFUD's picture

Is a Methodist someone who manufactures Meth in a Lab?

John Law Lives's picture

I don't know about Meth, but the tuition is absurd.  However, Walter White probably could have afforded it...

chosen's picture

Demand is falling off as people realize that universities and colleges are just a scam to fatten the salaries and pensions of over-paid professors and useless administrators.

WTFUD's picture

4 times the price for half-baked courses'll never catch on. sarc. Let's make it that you dole out a qualification with a job placement/ guarantee at the end of 3/4 years. This way a further learning institute's certificate's worth the paper it's written on.

Watch how many of these snowflakes are turned down as high risk entrants to such a programme.

CJgipper's picture

Just mandate that school endowments invest 100% in their own students loans, and the problem will solve itself in under a year.

 

Mandating the sane of professor and admin retirement funds might fix it even faster.

lester1's picture

Where's the part when they talk about greedy professors like Senator Elizabeth Warren being paid $400,000 a year to teach just 1 class? 

 

No wonder tuition is expensive..These liberal professors need their pay day!

Agstacker's picture

But hey, she's a native American, so, you know, reparations and stuff.

In Stasis's picture

“You wasted $150,000 on an education you coulda got for $1.50 in late fees at the public library.”

- Matt Damon, Good Will Hunting.

VZ58's picture

Uni. has become a complet racket and scam. Anyone with a brain will succeed in the real world without Uni. but it is  huge pnzi scheme that needs to keep running to keep a whole lot of useless people employed. If your kids are in anything other than STEM you are wasting our moeny and their lives. Let them get a trade and be successful.

MuffDiver69's picture

I enjoyed college...I had a job waiting in my dads company if I earned a economics degree and I hunted down my wife..Hands down the hottest women on a campus of 20K...Same for my kids..Four years or no job and out the door...

If a company will sponsor a student after a brief internship it should be done like that for many ...really know different then what I did...We need to cut off the snowflakes...

Golden Showers's picture

Really?! So you hunted down your kids on a campus of 20k too? Or are your kids the hottest women on campus? Or is you with two bitches? Did you go to BYU? Wish my daddy bought me all that.

Then when you really know different...

What the fuck? ENGLISH, MOTHERFUCKER: DO YOU SPEAK IT?

Fucking trick. I bet you have that same sticker on your CHEVVY TRUCK and tattooed on your ass next to the fukin TAZ.

Dumb mother fucker.

gammab0y's picture

The math is even worse than in the article.

That $24K/year difference in salary is partly due to self - selection.  Virtually all smart kids and hard workers currently choose college...its the standard next step for kids in the top 50%.  Even without college,  these kids would likely all be earning well 10 years later just based on talent and drive, but because the social norm is college,  they end up in that bucket. 

The vice versa is true for the bottom 20%.  They generally dont attend college,  but even if you sent them to college,  they would still be low earners in a decade. 

To really see the value of college,  you really need to control the underlying data for IQ, family socioeconomic status,  etc.  I'm sure the result would be far less than $24K/year.

not dead yet's picture

One thing they don't do when considering unemployment rates for "educated" is how many of them are employed in jobs that don't require a degree. Like the main driver of jobs since 2008 waiters, waitresses, and bartenders which many with degrees have gravitated too. In the right establishment tip money is fantastic. Another is that those with degrees gravitate to the very expensive big cities, or Silicon Valley, where the big salary gets negated by the outrageous cost of living. In my area one can get a decent 2 bedroom apartment in an older building for $600 a month heat included. Or a very nice one for $800. Contrast that to the $3500 one bedroom closet size dumpy apartment in Frisco. Shelling out almost $35 grand extra per year plus even more as almost everything costs more in the city. Awhile back my college degreed son had a job offer in Frisco that was going to DOUBLE his salary. After figuring in the cost of living his lifestyle would take a huge hit for the worse. Blows a hole in the BS that going to college gets one an extra million over a lifetime when cost of living is figured in. Of course we don't have the bistros and pubs so the younger ones can pretend they are living an episode of friends. We may not have the museums or other "culture" but they are only an hour or 2 away. Plus we don't have traffic jams and have cleaner air and water. Quiet too and no dindoo BLM marching in the streets looking for government handouts and Soros money. A lot of those on the bottom end of the rung that are listed as unemployed have jobs that pay under the table.

XBroker1's picture

Glad I didn't take my English teacher's advice and go to college instead of fininshing my associates degree in automotive tech.  I ended up as an insurance broker, working against and often along side people w/ expensive college degrees, that they had to constantly remind me they had.. .  After all, what good is an expensive degree if you can't 'try' to convince ppl how smart you are...

I'd often make appointments that they would miss bc their car was down. lol

Money_for_Nothing's picture

"fewer people are going back to school to learn new skills"

Rioting, demanding more free stuff, sloganeering.

Except for the sloganeering, people know how to do this by the time they are three.

College has turned into young adult day care. Isn't doing a good job even at that.

Guess most of Colleges time and effort is in billings, just like the medical profession.