Thursday, March 14, 2013

College Costs Have Ignored Value for Far Too Long ... That's Changing Now and It's About Time

For far too many institutions, a solid college education is not an affordable value offering in America today. That's the lesson of easily attainable government backed loans and grants in combination with a non-market driven cost structure and an all too willing but unwise and unsophisticated 'buyer,' aka 'sucker' of a student.

On one hand, an affordable and high quality American system of higher education (preschool and K-12 too) is absolutely essential to the future success of both individuals and society as a whole.

But on the other hand, an indebted group of young graduates who are burdened by heavy student loans will be very detrimental to the future success of both individuals and society as a whole.

Accordingly, making the effort to reconcile the need for a quality educational opportunity for our American youth with the need to avoid unnecessary debt for these same graduates is a problem which is very much in need of a solution. And it's been a big problem for a long time.

But now there's gathering evidence that we're gaining on the problem. Exactly how much of the solution will result from embracing MOOC, online learning via the flip method, school choice, vouchers, or getting serious about employing the principle of subsidiarity (local control), we have no way of knowing currently. But we do know this --- as a nation we have to measurably improve the affordability and value of our nation's system of education, including preschool, K-12, college and graduate programs.

In simple terms, the value of anything is simply the price of that thing in relation to its quality. When markets work, buyers always want to get the most quality and quantity at the lowest possible cost. In other words, when making a purchase we aim to get the biggest bang for our buck.

But here's the question du jour. If that's really the case, and it certainly is with almost all things that we decide to purchase, why don't we unfailingly adopt that same 'value analysis' approach when investing in a college education?

Why, for example, are we willing to pay a great deal to attend a small to medium private institution in order to earn a degree which isn't going to be worth any more, and perhaps less, than one granted by a less expensive public institution?

And to better manage the costs associated with earning a college degree, why don't we choose to take more courses online instead of getting all the hours necessary for graduation while in residence at the public university? And why do we often select distant out-of-town schools to attend where the cost of commuting and room and board add greatly to the cost of getting that degree?

For the value conscious buyer, making these more costly choices instead of going for the greatest value offering make no sense. And they make no sense to me either.

But maybe we're finally beginning to understand that the value equation (cost in relation to quality) applies to college in the same way that it applies to other purchases we make, and if so, that's a good thing.

Colleges' Latest Offer: Deals is subtitled 'Liberal-Arts Schools Dangle Bargains in Response to Concern over Cost, Value:'

"A growing number of liberal-arts colleges are supplementing their traditional glossy brochures touting ivy-covered libraries and great-books seminars with more pecuniary pitches: Buy seven semesters, get one free. Apply today, get $2,500 cash back. Free classes after four years.

The schools are adjusting their marketing to attract students at a time when families are struggling to foot the bill for college—and increasingly concerned about the potential payoff. Some of the most aggressive offers come from the most financially vulnerable schools: midtier, private institutions that are heavily dependent on tuition and sit in regions with shrinking pools of college-bound high-school seniors.

To show it is serious about students finishing in four years, Alma College in Alma, Mich., started this past fall promising free classes for those who need to stay longer—as about one in five Alma students typically do. . . .
 "We're 127 years old, but doing business the same way as we always have isn't going to work for the next 127 years,". . . .

Nationwide, the number of graduating high-school seniors this year is expected to decline to 3.32 million from a projected all-time high of 3.41 million during the 2010-11 school year, according to the Western Interstate Commission for Higher Education. And fewer college-bound seniors are choosing private four-year schools: Between 2006 and 2011, the percentage of students at those schools dropped to 20% from 22%, according to the College Board Advocacy and Policy Center.

For students headed to college, tuition is a bigger issue than ever. The average cost of public and private schools jumped 92% between 2001 and 2011, compared with a 27% rise in the consumer-price index. Last year the average amount that students at public colleges paid in tuition, after state and institutional grants and scholarships, climbed 8.3%, the biggest jump on record, according to the State Higher Education Executive Officers Association.

"It's white-knuckle time here," said (the Nebraska Wesleyan University Provost). The 126-year-old school has always had to be careful with money, "but this is different, it's trickier now," she said. "Family attitudes toward the value of a college education have changed. They're in a new world and so are we.""
Summing Up
Market based competition is finally coming to colleges and their students.

And as a result, the competitive 'market' for acquiring a valuable college degree likely will be firming up all across America. And that will prove to be a very good thing.
Since the concept of getting the biggest bang for the buck is sought by prospective purchasers in free markets everywhere, it only makes sense that it's finally coming to the market for a college education, too.
And one more thing about value needs to be said. Going deep into debt to get a college degree is definitely not a smart thing for smart 'buyers' to do. {NOTE: See A Dangerous 'New Normal' in College Debt.}
To repeat, a more informed buyer is finally coming to college.

And most colleges know that and are taking steps to remain viable institutions of higher learning in the 'brave new world' of 'value based education.' 
That's my take, and it's one more thing that makes me optimistic about our country's future.
Thanks. Bob.

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