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Time for a Crash in College Tuition
By Jack Hough
Aug. 21, 2020
Welcome to freshman orientation. You’ll find the dining and lecture halls in the same place as the recreation center—your parents’ house, due to the pandemic. Underage drinking is prohibited, unless your old man is cool with splitting a Miller at dinner. For virtual fraternity pledges, there is zero tolerance for self-hazing, or backyard streaking, unless it goes viral on TikTok, in which case it counts as three credits toward a digital-marketing major.
Honestly, I don’t envy students entering college. Course work without campus life sounds efficient, but unexciting. It also seems like something that should be cheap—basic calculus hasn’t changed since the 17th century, and course materials and lectures are widely available online for free. But another 17th-century creation, Harvard University, says it won’t discount its $49,653 yearly tuition. Freshmen have the option of living on campus, but must take classes online, and be tested for Covid-19 every three days. Room, board, and the rest bring the bill to $72,391 a year.
In fairness to Harvard, most of its students receive aid or scholarships, and some of the rest are rich. The ones in-between might squirm, but at least they’re going to Harvard, where they will be branded for lifelong success. I wonder if lesser colleges risk a price crash, now that the central job of conveying knowledge has been stripped of all the extras.
“If a kid of mine came in and said XYZ state university has accepted me, but I have to pay $40,000 a year for the next four years—economically, it makes absolutely no sense,” Aswath Damodaran told me. He’s a New York University finance professor, and not the sort to talk loosely about dollar amounts. Some people call him the dean of valuation—he’s written four books on the subject. Barron’s published some of his thoughts on stocks earlier this summer. I asked for fresh takes on what hard-to-value things like Tesla (ticker: TSLA) and Amazon.com (AMZN) shares and bitcoin are worth—$625, about $2,000, and don’t do it, respectively. But in the course of talking about stocks gone wild, a conversation broke out about college turned coconuts.
Damodaran says that higher education is an example of stakeholder capitalism run amok; that it should serve students but instead serves overlapping and sometimes conflicting interests; that it should have been restructured a hundred years ago, but hasn’t, because of its control over the degree system, combined with inertia. Society has been trained to prize four-year degrees. Me-too-ism plays a role.
“What’s different about this crisis is for the first time the inertia might be getting shaken because parents are seeing their kids at home and recognizing how little substance there is behind so many university classes,” says Damodaran. “Students are looking at what they’re missing about universities, and classes are not even making the top 10 list.”
I’ve written many times that college has gotten so expensive that, although students should go if they can, it’s a losing financial proposition for many. That’s true even considering the higher earnings of graduates, and the wide availability of grants and loans. It doesn’t factor in the many non-financial benefits of college, like career fulfillment, and statistically, better health. But nor does it factor in dropouts and slowpokes; only 60% of college students have earned degrees within six years of starting.
Since I started writing about college prices just over a decade ago, they’ve climbed another 45%, double the rate of inflation. For me, college has been an excellent deal. But the system has become too burdensome for many.
I’m exhausted from tiptoeing around America’s endless culture wars. I realize that elite universities, like big cities, are frequent points of contention. Count me out. There’s much that can be improved for both, but America’s top universities are the envy of the world, and its cities, by the way, hold most of its people and produce most of its economic activity. I’m rooting for both. But I wouldn’t mind seeing an overdue restructuring that slashes the cost of higher education, and expands its reach. In the age of the internet, it’s absurd that our best colleges are also the ones that boast each year about letting in only 5% of applicants. If a hospital turned away the sickest 95%, we wouldn’t marvel at what a fine job it does healing the rest.
Damodaran says this crisis won’t cause students to abandon the university system next year. “But enough might decide to re-examine whether an education requires a four-year degree that it’s going to put at least the weakest colleges at substantial risk,” he says. “The Yales, or Harvards, even the NYUs, might survive. But further down the hierarchy, colleges without prestige and brand name are going to find themselves under assault.”
On one hand, that could worsen the supply problem. On the other, it could force a reckoning for the four-year degree. Alphabet (GOOGL) recently announced Google Career Certificates, six-month courses for in-demand jobs like data analysis, which it says it will treat like four-year degrees in its hiring. That’s helpful. But I’m hoping to see a breakthrough on full liberal arts educations, including non-vocational stuff like history and civics, offered at prices families can afford, and without the web of grants, tax perks, and subsidized loans that only puff up buying power in the face of constrained supply, and keep prices soaring.
Write to Jack Hough at jack.hough@barrons.com. Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.
By Jack Hough
Aug. 21, 2020
Welcome to freshman orientation. You’ll find the dining and lecture halls in the same place as the recreation center—your parents’ house, due to the pandemic. Underage drinking is prohibited, unless your old man is cool with splitting a Miller at dinner. For virtual fraternity pledges, there is zero tolerance for self-hazing, or backyard streaking, unless it goes viral on TikTok, in which case it counts as three credits toward a digital-marketing major.
Honestly, I don’t envy students entering college. Course work without campus life sounds efficient, but unexciting. It also seems like something that should be cheap—basic calculus hasn’t changed since the 17th century, and course materials and lectures are widely available online for free. But another 17th-century creation, Harvard University, says it won’t discount its $49,653 yearly tuition. Freshmen have the option of living on campus, but must take classes online, and be tested for Covid-19 every three days. Room, board, and the rest bring the bill to $72,391 a year.
In fairness to Harvard, most of its students receive aid or scholarships, and some of the rest are rich. The ones in-between might squirm, but at least they’re going to Harvard, where they will be branded for lifelong success. I wonder if lesser colleges risk a price crash, now that the central job of conveying knowledge has been stripped of all the extras.
“If a kid of mine came in and said XYZ state university has accepted me, but I have to pay $40,000 a year for the next four years—economically, it makes absolutely no sense,” Aswath Damodaran told me. He’s a New York University finance professor, and not the sort to talk loosely about dollar amounts. Some people call him the dean of valuation—he’s written four books on the subject. Barron’s published some of his thoughts on stocks earlier this summer. I asked for fresh takes on what hard-to-value things like Tesla (ticker: TSLA) and Amazon.com (AMZN) shares and bitcoin are worth—$625, about $2,000, and don’t do it, respectively. But in the course of talking about stocks gone wild, a conversation broke out about college turned coconuts.
Damodaran says that higher education is an example of stakeholder capitalism run amok; that it should serve students but instead serves overlapping and sometimes conflicting interests; that it should have been restructured a hundred years ago, but hasn’t, because of its control over the degree system, combined with inertia. Society has been trained to prize four-year degrees. Me-too-ism plays a role.
“What’s different about this crisis is for the first time the inertia might be getting shaken because parents are seeing their kids at home and recognizing how little substance there is behind so many university classes,” says Damodaran. “Students are looking at what they’re missing about universities, and classes are not even making the top 10 list.”
I’ve written many times that college has gotten so expensive that, although students should go if they can, it’s a losing financial proposition for many. That’s true even considering the higher earnings of graduates, and the wide availability of grants and loans. It doesn’t factor in the many non-financial benefits of college, like career fulfillment, and statistically, better health. But nor does it factor in dropouts and slowpokes; only 60% of college students have earned degrees within six years of starting.
Since I started writing about college prices just over a decade ago, they’ve climbed another 45%, double the rate of inflation. For me, college has been an excellent deal. But the system has become too burdensome for many.
I’m exhausted from tiptoeing around America’s endless culture wars. I realize that elite universities, like big cities, are frequent points of contention. Count me out. There’s much that can be improved for both, but America’s top universities are the envy of the world, and its cities, by the way, hold most of its people and produce most of its economic activity. I’m rooting for both. But I wouldn’t mind seeing an overdue restructuring that slashes the cost of higher education, and expands its reach. In the age of the internet, it’s absurd that our best colleges are also the ones that boast each year about letting in only 5% of applicants. If a hospital turned away the sickest 95%, we wouldn’t marvel at what a fine job it does healing the rest.
Damodaran says this crisis won’t cause students to abandon the university system next year. “But enough might decide to re-examine whether an education requires a four-year degree that it’s going to put at least the weakest colleges at substantial risk,” he says. “The Yales, or Harvards, even the NYUs, might survive. But further down the hierarchy, colleges without prestige and brand name are going to find themselves under assault.”
On one hand, that could worsen the supply problem. On the other, it could force a reckoning for the four-year degree. Alphabet (GOOGL) recently announced Google Career Certificates, six-month courses for in-demand jobs like data analysis, which it says it will treat like four-year degrees in its hiring. That’s helpful. But I’m hoping to see a breakthrough on full liberal arts educations, including non-vocational stuff like history and civics, offered at prices families can afford, and without the web of grants, tax perks, and subsidized loans that only puff up buying power in the face of constrained supply, and keep prices soaring.
Write to Jack Hough at jack.hough@barrons.com. Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.
