{NOTE: The following post is my longest one yet. I hope it's worth taking your time to read and reflect on its contents. But due to its length, you may elect to read it in bite sized chunks.
I believe college attendance and its financing are very important topics. Accordingly, it's well worth our taking the time to get to a "better reality" about selecting a college, its value proposition, the government's role in financing higher education, its similarity to the housing fiasco and so forth.
But that's enough for now. Please read on ....}
Choosing a College ... Incentives Matter
Most selling is about pitching dreams.
But sometimes those dreams later turn into nightmares. This is especially true when dream financing is heavily subsidized by the government.
Yes, incentives matter to both buyers and sellers. In that vein, my view is that most colleges are in the business of selling enrollments. That's how they get money to operate, grow and stay in business.
The business role of the college admissions officer is no exception to the simple rule that incentives matter. But incentives to do what? Increase enrollment and bring in lots of money to the college, that's what.
The Twin American Dreams of Home Ownership, College Degrees and Government's Role Relating Thereto
The recent debacle for too many home buyers was in substantial part due to the government's role in selling and subsidizing the American dream of affordable home ownership for all.
Now that home bubble debacle is being followed immediately by the developing disaster of the government's role in selling and subsidizing the American dream of affordable college attendance for all.
I'm not sure how many more dreams We the People, either as a whole or as individuals, can afford for government to help us to accomplish. If the current pace and track record of government assistance continues much longer, we'll soon be broke.
Dreams Defined
The best description of a dream that I've heard is that it's "a goal without a timetable." Goals need timetables attached thereto. Dreams don't.
Simply put, timetables require that we chart a path with respect to how we intend to get from where we are now to where we want to be at a future time. A 'how-to' step-by-step course of action intended to get us from our present reality to a better future reality, if you will.
Enter the government. To "help" us with achieving our dreams, government officials design programs and enact laws that encourage us to dream big. In other words, the government programs will help make our dreams come true if we follow the politicians' prescribed path to achieve personal success and happiness.
Although in the end it hardly ever works out that way, that's still the government's "sell" job. Remember, they're the government and they're simply here to help. Please remember also that the road to hell is paved with good intentions. It's the law of unintended consequences in action.
Of course, the politicians are always spending OPM and never their own, so it's easy for them to try to show us mere mortals the way to success and happiness. But more on that later.
The Value Proposition
Degrees of Debt is a lengthy feature article in the New York Times today. I recommend that all of We the People--young, old and in-between-- read it in its entirety. So even if you don't have the time to read all or any of it today, please try to do so at a later time. Subtitled A Generation Hobbled by the Soaring Cost of College, the article tells a compelling story that every young American needs to hear--and hopefully internalize soon enough to avoid needlessly and recklessly taking on what could become unnecessary lifelong financial burdens---related to picking a specific college, or even college attendance generally. It's about making good choices when considering the various "value proposition" alternatives.
The value of anything, including choosing a college, is simply a function of its current costs in relation to its future benefits. Thus, comparison shopping needs to come to the fore with respect to college selection and attendance, including whether and where to attend and how much to pay.
Sadly, the truth about the college "American dream" can't miss sure thing "investment" premise is frequently a piece of fiction. Yet the firmly entrenched story is one still pitched as the pure unadulterated truth by too many of our nation's politicians, educators and college administrators. Even by our fellow citizens.
So let's resolve here and now to tell and spread the truth.
The Truth as I See It
Succinctly put, the frequently told sure thing American college dream investment story is not unlike the long held sure thing can't miss American housing dream story.
These sure thing "investments," like all other sure things, can't miss until they do (see Chad's post last Friday titled "Investors: Beware of Sellers").
Then when the sure thing does miss the mark, big trouble arises unexpectedly for millions of largely uninformed, unknowing and until then unpaying but trusting individuals who are left surprised and holding a big and heavy bag of personal debt.
That's when the dream becomes a nightmare. But that's not the whole truth.There's more.
You see, what also is generally unknown, albeit knowable, is the big and influential contributing role that government had in enabling the fiasco to take place.
Government financed student loans create seemingly free lunches which are endorsed and pitched by intermediary colleges to unknowledgeable and uninformed "buyers," aka college students.
And worst of all, in the case of student loans and college attendance, the loan is heavily government subsidized--until later when it's time to pay it back, that is. The college is never on the hook financially, and the government steps in only after the student has defaulted.
Loan repayment is all up to the student, ready or not, aware or not, or even capable or not.
So When Considering Investments ... Remember Caveat Emptor ... Let the Buyer Beware
Chad posted excellent advice Friday in "Investors: Beware of "Sellers." Free markets are great, and always better than government controlled monopolies, but we have to know where the real interests of the seller reside. To the selling college pitchman, it's just another sale. To the student buyer, it's often a lifetime obligation to repay the boatload of borrowed money and forgo what perhaps "would-have-been" better buys.
But as for those things that "would-have-been," the student borrower will never know, of course, the horse having already left the barn.
Although Chad was advising us as individual investors, the same warning applies to listening skeptically to college admissions officers when they're pitching to prospective students, parents, grandparents and even taxpayers.
In cases where we're the target or potential buyer, the best advice is always to let the buyer beware. The seller's goal is simple. When he gets the money from the enrollee, the selling job is over. The transaction is complete.
Not so for the student buyer and those acting on his behalf. Their financial obligations have just begun.
The Basic College Business Model ... More Butts in the Classroom Equals More Money for the College Administrators
So here's the absolute and uncomfortable bottom line about far too many, if not most, colleges. By flashing the government's, aka taxpayers', backstop money in the form of student loans to induce the student "customer" to get hooked, the college increases its take. Its revenues grow.
As the targeted buyer of the college seller, it's essential that the prospective student and allies (aka parents, grandparents and taxpayers) recognize this real selling proposition for what it is. The potential customer can then exercise caution and take the necessary time to become fully informed before making the best long term decision, both for himself and his family members as well.
To repeat, the job of most college admissions officers is to increase enrollment and bring more money to the college. To sell the college, in other words, and put more butts in the classroom seats.
And the more revenue colleges get through higher enrollment, the more money (whether from students, parents, grandparents, government grants, student loans, endowments or taxpayers), the college will have to recruit, operate, build buildings, pay salaries and conduct fund raisers. Most college recruiting activities are simply Marketing 101 in action.
Thus, college admissions officers "sell" prospective students on the merits of attending their particular college. When they're wearing their selling shoes, the emphasis is never on why the buyer should carefully weigh the value proposition--the relationship of costs and benefits of one alternative versus another.
Instead the sell is on the benefits associated with attending that college alone. The out-of-pocket cost of attendance is generally something to be minimized in the selling discussion. It's all about the benefits of the "investment." It's never about the long term costs of taking out and repaying student loans. Neither is it ever about the wisdom of avoiding student loans entirely. That wouldn't be good "selling."
Hence, the story is put forth by admissions that choosing college A is a great can't miss "investment" and that the college A is definitely "affordable" to attend.
College Affordability
Not said is that this affordability is largely attributable to government "help" in the form of expensive and perhaps unnecessary loans which will have to be repaid down the road.
But loan repayment is not now and never will be college A's problem. That problem will always rest with the student or, if the student fails to pay, then the taxpayer. Not the college.
What Students and Their Families Need to Know ... It's Up to You
Here's some knowledge students and their families need to have prior to choosing to attend any college.
The most critical things probably won't be mentioned or highlighted by the admissions office---such as the total costs and possibly lifetime financial burdens being undertaken by the prospective student.
Going to college is serious business.
In other words, don't start college unless and until you're confident and serious about finishing.
In that regard, don't borrow what will end up being wasted money. And don't borrow what will end up being wasted time either.
So promise yourself before going that you'll work hard while there to get the best "stamp of appoval" diploma possible when seeking that all important first job.
Meanwhile, internalize the simple fact that many, if not most, enrollees won't ever graduate, let alone secure good jobs upon graduating. Yet, they'll be stuck with the debt.
And for their failures, they very well may be unable to pay off the amount borrowed. But even if they are able to pay back the loans in full and with interest, they will spend many years doing so.
And while so doing, they'll have to postpone buying and doing other things that "could-have-been."
In other words, the "value proposition" to the non-serious buyer of attending college A often sucks.
Alas, that's also frequently the case for the nation as a whole and its taxpayers, too.
Summing Up
The basic goal of college A is simple--get all the money it can from all available sources. The way to do that--enroll more students. Grow the sales base by increasing the student body.
Of course, as the government's financial backer, We the People are subsidizing these one sided college marketing pitches to help themselves (community, public, private and for profit, cooking schools, truck driving and related institutions, one and all) enroll as many "students" as possible.
When one recruiting season has ended, then it's time to move on to the next batch of "student" targets.
Student loan repayment is of no particular concern to the college.
Neither is the graduation rate.
Nor for that matter, the quality of the education received for money spent.
Meanwhile, college A will keep on selling and marketing the "benefits" of "investing" in a college degree from college A.
Finally ... The Politics
The foregoing is a sad but true story. It's also one which is not often told.
And never told by politicians.
Thus, the currently hotly debated interest rate on student loans isn't the real issue. It's not even in the top 10.
But that's the only one the President and Congress seem to be focused on these days.
Meanwhile, the colleges are in the midst of selling themselves to this year's high school graduates.
There's a whole new crop of vulnerable and naive fresh meat college "prospects" out there, just waiting and even wanting to be sold on attending dear old college A.
What a crock.
Thanks. Bob.
