University of Ponzi

Every story needs a villain.  We still haven’t made up our mind who we will make the official villain for the recent financial meltdown—will it be the Ivy League elites who manipulated the markets from their glass and steel towers, craven bureaucrats at the Fed who knew they were creating false prosperity or the grubby mortgage specialists operating out of bucket shops in down-at-the-heels strip malls? History is still counting the votes.

So, since the voting is still open, is it too late to nominate someone else?

How about cynical university presidents and their lazy academic posses, who have sold millions of kids worthless degrees at inflated rates, and convinced them to take on crippling debt loads to finance them?

Whoa, Sambo. That seems a little harsh (and perhaps a little foolhardy, since many readers of this blog are academicians.) I don’t think it is harsh.  I have a stack of e-resumes from kids asking me for help in getting them a job, and it breaks my heart to tell them I just can’t find anything for them.  And I have any number of friends who will be mailing checks from the nursing home to pay down their kid’s student debt. I know many more people who have been harmed by student loans than by sub-prime mortgages.

Undergraduate institutions provide a “product.”  (I know not everyone is comfortable with the idea of higher education as a product, but that’s the way the for-profits in the field think about it, e.g., Kaplan, UOP, and they compete directly with not-for-profits.) The product has three components.

  • First, of course, is erudition.
  • Second, universities sell what are essentially extended packaged holidays.  That is, they provide opportunities for young people to mature away from home, complete with luxury gym facilities, maid service in the dorm, prepared meals, discounted tickets to sporting events, and chaperoned excursions (semesters abroad.)
  • And finally, they sell degrees, which are distinct from education and are primarily designed to facilitate career progression.

All three of these components have genuine value.  The question, though, is “how much value” and “is that value worth what educational institutions are charging?”

The specific problem is that a college education has become a huge purchase, one that can put families in debt for decades. When parents, particularly middle class parents, are making the decision to invest in college, they are encouraged to make the purchase based on the argument that a purchase is an investment that they will recoup.  Each year the College Board does a study, which is widely repeated and trumpeted by academic institutions, touting the value of a degree. This year’s study said, “those with bachelor’s degrees suffer less from unemployment, earn enough to pay off debt by age 33, live healthier lives.” Wow. Healthier lives, too?

Those statistics are undoubtedly true. On average. The problem is those stats comingle degrees in engineering and accounting with degrees in Sports Marketing and Recreational Therapy. Anyone you know with a degree in Sports Marketing got a job in sports marketing?  I didn’t think so.  Many of the degrees that institutions now sell are junk, and the odds of ever recouping the costs of those degrees are not good.  And the institutions selling those degrees know it, but hide behind the blatantly untrue assertion that degrees always pay for themselves. Other studies by the Board have put the value of a college degree at $800,000.

Mind you, I went to University of Chicago. I have no problem with selling whatever the market wants and for whatever price you can get.  If a “for profit” university can sell a sociology degree for a million dollars, great.

(Even better if they can sell it to rich parents, since fleecing the children of the rich is an essential part of the economic cycle. Smart person gets rich. Marries beautiful but dumb person. Has dumb kids. Some smart poor kid takes their money away. Balance is restored in the economic eco-system. Since we don’t have inheritance taxes, we need mechanisms to pry the money out of trust funds and get it back into the system. In that regard movie financing, Gucci handbags, cocaine and liberal arts degrees fill the same function.)

But when a not-for-profit institution sells a sociology degree for a hundred thousand dollars and helps finance it, I think it is predatory in the same way sub-prime lending is predatory.  Parents tend not to be educated purchasers of the product. They are emotionally vulnerable because they want so badly to provide for their children and because of the insecurity attendant with not being able to give their kids the best possible start. And they trust not-for-profits. When academic institutions sell junk degrees to people who can’t afford them, they are taking advantage of the ignorant and the vulnerable.

When I say this to my friends in academia, they sniff and mumble something about the “value of education.” And they are correct, education is a wonderful and valuable thing. However, it is irresponsible to sell education if it creates a crippling economic burden on the purchaser without warning them of that risk.  Also, you don’t need to buy a degree and a vacation to get an education. What about the library or community colleges? Have the degree discussion up front. Advise parents on alternatives. Show them a chart with the placement rates and starting salaries for each degree they offer.

But they don’t do that. Instead they give a tour and then send wide-eyed kids and confused parents into a room with the financial aid officer. There’s no difference in that and the realtor who shows a lower middle income family a McMansion in a new development and ushers them into the back room to talk to a mortgage broker. Wait, there is a difference. The mortgage broker is obliged by law to warn you of the risk of your purchase. The financial aid officer isn’t. In other words, we expect better behavior out of a mortgage broker than we do an academic institution.

People trust universities. It is wrong of them not to live up to this trust in every dimension.

For the record, I have two kids. My wife and I paid for their undergraduate education without loans. Both got what I would consider “junk” degrees, but I am OK with it because I knew that going in

9 comments on “University of Ponzi

  1. I have reached the point where I dread any conversation about education in America. And I live in stark terror of being asked “what, exactly, do you think is wrong with our educational system?” Not because I don’t have an answer, but because I have too many answers. Because my brain trips all over itself trying to decide where to start. Because I know the questioner has just given me a mountain to climb and ten seconds in which to do it. It sounds like a cop-out, I guess, but it’s not far from the truth to just say “everything” and walk away.

    You’re doing a nice job at articulating part of the problem. It costs SO MUCH and students are often getting so little in return. Why? Well, in addition to the points you make, we have also neutered education, beginning at the earliest levels, of the things that are most important to its value. Like critical thinking skills. And a colleague has noted that perhaps nothing you can ever spend a dollar on returns greater value than early childhood reading programs – boy, is he right.

    But I’ve taught university seniors (and even grad students) in journalism and communication programs who can’t write as well as I could in 9th grade. Literally.

    The upshot of all this is that by the time kids get to college, it’s often too damned late. It’s four years of half-assed remedial work and when all is said and done they’re as prepared for a career as a high school grad was 25 years ago. That is, the early failures guarantee failure later, and worse, those early failures produce students who aren’t even capable of asking the right questions ABOUT their educations.

    Ponzi University, indeed, but a lot of PU campuses are just trying to survive what has been thrust upon them by idiot public servants. It’s a horrible thing to stand in front of a room full of college students and know, KNOW, that there’s damned near nothing I can do. Why did I get out of it after inflicting that PhD process on myself? I couldn’t stand the helplessness and I knew that I had to get out of the way so that maybe somebody better suited to it could have a shot.

    Still, maybe all isn’t lost. What a shot in the arm of the economy it would be if the federal government, in a brazen attempt to stimulate the economy, forgave all existing student loan debt. And then starting instituting ed policies that genuinely understand the long-term ROI value of a dollar spent on real teaching.

    Call me a dreamer….

  2. The rising costs of higher ed just aren’t sustainable. I’m not sure how this is all going to come crashing down, but it’s got to as some point.

    I know you can’t blame rising higher ed costs on rising faculty salaries… :-/

  3. Oh man, to have my student loans forgiven. It wouldn’t change the fact that I wouldn’t spend the newly freed-up money (I’d put it into paying down other debt and/or saving for my own kids’ college tuition), but it would help me hugely over the long run. But we stopped planning for the future beyond this fiscal quarter in the 1980 sometime, and Congress couldn’t have passed that kind of a stimulus because it would hurt loan companies like Nelnet (HQed in Nebraska, home to so-called Blue Dog Democrat Senator Ben Nelson).

    I’m really curious how the hell they got that 33 years old number – I’m 37, make a good wage working as an EE in aerospace, and I expect to be paying for my student loans for the next 15-20 years. Now, I refinanced it to lock it in at the lowest interest rate of any of my loans or sources of credit (it’s cheaper to pay off the house than the loan), but even without doing that I still wouldn’t be done with my loans yet.

    I bet they failed to take into account the credit card debt for buying books (which aren’t usually covered under financial aid) or the fact that most people get married and/or have kids and/or have a mortgage by the time they’re 33.

  4. Here’s an idea: if you’re a college professor completely fed up with the mess primary and secondary educators have made of your incoming students, why not dedicate yourself for a few years to public service and teach in public schools? It’s terribly easy to do with an advanced degree – most states are so desperate for warm bodies in needed subject areas that they don’t even care whether or not you know anything about teaching (as opposed to subject area competence). You could be in the trenches within a month or two, working for something you claim to believe is of paramount importance to the survival of civilization.

    And if you truly want to make a difference, you can take a few courses in education before getting that emergency certification. Education departments, although routinely treated as the stepchildren of bigger universities, are some of the most practical and at the same time creative and innovative groups of people you’re likely to run across in academia. I’m not sure why a tradition of excellent teachers passing on their wisdom to those who also want to be excellent teachers, researchers and public servants is seen as somehow “less intellectual” than other degree programs. Perhaps it’s the lowbrow concept of an education which actually trains and fits you for the jobs it promises… and that comes right back to the original post, doesn’t it?

    A gap year (or two or three) in which a young person supports him or herself in a low-level job, grows up a little, learns the value of money by earning it, looks around to see what’s out there before going on that directionless five-year vacation – I wish it were standard instead of the exception for college-bound kids.

    • …why not dedicate yourself for a few years to public service and teach in public schools?

      Because I’d be horrible at it. I’m realistic about what I’m good at and what I’m not good at, and at anything below upperclass undergrad level I’d be very, very bad.

      The problem isn’t that we lack people who are good at teaching younger age public schools. The problem is public policy that makes the task as futile as it is unrewarding.

  5. You don’t know that, and I really, really doubt it. Many of the things that drove you nuts about college students are either fixable or inapplicable in public schools. Or tutor. It’s the age at which you can actually change the course of lives

    • Trust me, I DO know. I’ve analyzed the question a LOT and believe it or don’t but I have thought about it. There have been a couple of times where I seriously contemplated teaching at lower levels. But I have enough experience to know that I’m at my best with graduate-level students, and preferably very smart ones. Others are at their best at various other places along the continuum.

  6. Great article. Don’t forget about the graduate Ponzi Universities out there. I had the bad fortune of going to the original PU, chiropractic school. These schools are the masters of churning out false data to unsuspecting students such as job placement and inflated average income rates. The school I attended has on their website that the average graduate makes $90K per year. They charge $150K for a degree. The truth is that most graduates do not practice for more than a year or two because there are no jobs. The average associate position pays around $25K if you can find one. Chiropractic institutions are also hugely profit driven schools that parade under the guise of a non-profit. One of the presidents makes over $800K per year. Predatory lending at its finest as the default rate is sky high.

  7. Yeah, I could write my own long article about this if I could stomach it,or anyone else could for that matter. I graduated from Chiro High, Northwestern in Bloomington MN in 1990 and due to impossible to explain consolidation program which I was forced to sign up for as there were no other alternatives, I now owe more than when I graduated even after paying tens of thousands of dollars of it back. Too depressing to think about. Being a chiropractor is gratifying in that you truly help people, but except for a very few, no money to be made. I always think of it as a calling.

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