Saturday, July 04, 2009

Is a college degree worthless?

The higher incomes that college education brings may not make up for the savings it consumes or the debt it adds early in the life of a typical student

The four-year college degree has come to cost too much and prove too little. It's now a bad deal for the average student, family, employer, professor and taxpayer. A student who secures a degree is increasingly unlikely to make up its cost, despite higher pay, as I'll show.

The employer who requires a degree puts faith in a system whose standards, you'll see, are slipping.

Too many professors who are bound to degree teaching can't truly profess; they don't proclaim loudly the things they know but instead whisper them to a chosen few, whom they must then accommodate with inflated grades.

Worst of all, bright citizens spend their lives not knowing the things they ought to know, because they've been granted liberal-arts degrees for something far short of a liberal-arts education.

I'm not arguing against higher learning but for it -- and against the degree system that stands in its way.

Sometimes things we believe for good reason our whole lives turn out one day to no longer be true, because circumstances have changed. In 2007, for example, I argued, to the anger of many, that renting had come to make more financial sense than homeownership. House prices have since fallen 27% nationwide, wiping out recent buyers who had less than that in equity.

With college degrees, I don't want to persuade families not to buy. I want to explain the injustice of the system and introduce a better alternative.

College grads start out behind: Consider two childhood friends, Ernie and Bill. Hard workers with helpful families, each saves exactly $16,594 for college. Ernie doesn't get accepted to a school he likes. Instead, he starts work at 18 and invests his college savings in a mutual fund that tracks the broad stock market.

Throughout his life, he makes average yearly pay for a high school graduate with no college, starting at $15,901 after taxes and peaking at $32,538. Each month, he adds to his stock fund 5% of his after-tax income, close to the nation's current savings rate. It returns 8% a year, typical for stock investors.

Bill has a typical college experience. He gets into a public college and after two years transfers to a private one. He spends $49,286 on tuition and required fees, the average for such a track. I'm not counting room and board, since Bill must pay for his keep whether he goes to college or not. Bill gets average-size grants, adjusted for average probabilities of receiving them, and so pays $34,044 for college.

He leaves school with an average-size student loan and a good interest rate: $17,450 at 5%. The $16,594 he has saved for college, you see, is precisely enough to pay what his loans don't cover.

Bill will have higher pay than Ernie his whole life, starting at $23,505 after taxes and peaking at $56,808. Like Ernie, he sets aside 5%. At that rate, it will take him 12 years to pay off his loan. Debt-free at 34, he starts adding to the same index fund as Ernie, making bigger monthly contributions with his higher pay. But when the two reunite at 65 for a retirement party, Ernie will have grown his savings to nearly $1.3 million. Bill will have less than a third of that.

How can that be? College degrees bring higher income, but at today's cost they can't make up the savings they consume and the debt they add early in the life of a typical student. While Ernie was busy earning, Bill got stuck under his bill.

My example is a crude one. I adjust neither wages nor investment returns for inflation, resulting in something of a wash. I don't take out for investment taxes, since it would take Ernie only a few years to move his starting sum into a tax-shielded retirement account, and both savers could add to such accounts thereafter. I assume 2007's income-tax distribution holds despite pending changes that will shift it in favor of Ernie's lower income. I'm comparing only savings, not living standards. Bill will presumably be able to afford nicer things than Ernie along the way.

But maybe not: I assume that Bill completes college in four years. More than 40% of students who enter a bachelor's program don't have a degree after six years, according to Ohio University economics professor Richard Vedder, whose book "Going Broke by Degree" sounded an alarm over college costs in 2004.

Crucially, I also assume college-educated Bill will earn what his peers did in bubbly 2005, when bloated real-estate and stock prices stoked consumer spending, producing unusually large corporate profits and loose lending, and sending banks grabbing after grads at premium pay. The bubbles have since popped, and banks have shrunk.

"The economic downturn has worsened the cost problem," Vedder says. "There will be many more people for whom costs will exceed benefits."

More here

British council forced to drop fraud case against mother who 'cheated' to get son in school

Another episode in the battle parents in Britain have to get their kids into a safe school. Sending your kids to a school where other students (particularly blacks) arrive armed with guns and knives (and even machine pistols in some cases) is something most British parents go to great lengths to avoid. But the Leftist British authorities, with their usual hatred of success in others, do their best to force middle-class kids into sink schools. They send their own kids to private schools, of course

A mother accused of using a false address to get her son into a popular state school has escaped prosecution because of a legal loophole, the council who brought the unprecedented case against her said today. Mrinal Patel, 41, applied for a place for her five-year-old son Rhys at Pinner Park First School in Harrow, north London in January last year. She claimed on the form that she lived within walking distance of the school but after she was offered a place Harrow Council discovered that the address she submitted did not match that on her tax records.

Mrs Patel was due to appear in court next week but Harrow Council has dropped their case against her because they were unsure the Fraud Act 2006 would cover school admissions cases. Councillor David Ashton, leader of Harrow Council, said there seemed to be “a loophole” and they had withdrawn their action to avoid potentially hefty legal costs. “While we stand by the substance of our case, subsequent legal advice is that technical legal arguments over the interpretation of the Act could pose a risk to the success of the action,” he said.

The case will cast doubt on the power of councils to tackle the rising number of parents who cheat on their school admissions form to get their children into the best schools. "The difficulty is that there is no clear law of what sanction applies if parents puts false information on their application form,” Mr Ashton said.

Mrs Patel said she was relieved the council had dropped the case. “It’s been an extremely difficult ordeal and I’m happy to put the matter behind me,” she said. “I have from the outset denied the allegations and the council’s unconditional withdrawal of the proceedings confirms my innocence.” Mrs Patel said that when she made the application, she had been living at her mother’s address, within the school’s catchment area. She claims she was separated from her husband and had no intention of going back to her matrimonial home which is further away – but changed her mind four weeks later.

She acknowledged that she had wrongly stated on the application form that she had been living at her mother’s address for 14 years but said she had been under a lot of pressure at the time. "I still don't feel I have done anything wrong," Mrs Patel told Radio 4's Today programme. "My biggest mistake was that I didn't tell the council I had moved out [of her mother's flat] when I did. "When they rang to check with me and asked if I was still living there, I said no. “I totally understand how it may appear. I explained that to the council, I gave them my full circumstances. I was totally honest and truthful about them,” she said.

The school received 411 applications for 90 places available in September 2008. The council says it allocated places to children living closest to the school, up to a maximum distance of 0.685 miles.

Mr Ashton said; “This case was never about persecuting mothers who wish to do the best for their children. It was about defending the integrity of the school system against those who might seek to flout it. “We always seek to resolve issues over school admission by dialogue. However, we will continue to consider court action as a last resort when all other avenues have been exhausted.”


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