Measuring The ‘Value’ of College – Part 1: College Industrial Complex
By The Phi Phi Phi’s I Give
If you having money problems I feel bad for you son, Ya’ll got $1,570,000,000,000 problems and regret is one. PAY ME!
– JP Banker
Quick Summary:
Advice around college is full of misleading statistics, platitudes, and midwits justifying their own choices that lead to meager success
Part 1 of 3 explains what the college industrial complex is and how it is incentivized to keep funneling students into expensive degrees
A college degree has become an ever increasing toll ‘tax’ to young adults that they are required to pay on the way to a (mediocre) career
However, college is still table stakes for many careers and can be a good choice. But you need to go in with clear eyes and see the bigger game going on to maximize your success
Introduction: Not your typical article about the value of college
You are a senior in high school and looking at the biggest decision in your life so far. You just got an acceptance letter. Now loans are coming in left & right as lenders are offering more money than you can even fathom.
“It only makes sense to take some of this money and go to the school of your dreams right?” you think to yourself. It is ‘investing in my future’.
Or maybe you are a parent watching your little precious miracle go through the college decision. Johnny got into GLAU!!! (Generic Liberal Arts University). I couldn’t be more proud…”Go [insert generic and non-offensive mascot…are people offended by trees yet?] …Mighty Cedars!!!!”.
You are responsible person. Therefore, you are going to do some research on college value. You fire up the computer to see if college is a good choice…
“College grads earn $30k more a year starting. That is a million more over a career!“. Well I am sure whoever Ms. Sallie Mae is, she is looking out for your best interest.
“Find a college that resonates with you“. hmm high school was ok, but if I find this magical university, just imagine. I am sure the overweight middle-aged author who gave that advice is a real guru. They definitely are not some schlub trying to validate their own poor choice to take out loans to go to an overpriced dream school.
“Major in something you are passionate about. You know what they say, if you do what you love you never work a day in your life“. I wonder what a career in watching anime pays, I’ll look that up later…
“These are the best 4 years of your life, don’t worry about the cost“. Well, that other article said I would make $1 million more by going to college. What is another $50,000 of loans? It isn’t pathetic to peak in your early 20s or anything.
“You will get time to find yourself and experiment“. Well, I thought I knew myself, but I guess this adulthood thing can wait while I ‘experiment’.
“True Enlightenment can only be found at the end of an epic keg stand after getting wrecked with your boys”
-Buddha (Either the spiritual teacher or a portly frat bro , can’t recall)
Have fun being poor. Every single piece of advice a typical person gets about college is terrible.
Should you go to college? That is a 100%, definitive, “it depends”. But you should at least get truthful information before you make the decision.
Part 1 in the series is going to provide background into the college industrial complex to lay the background into why the system is what it is. (hint, its $)
Part 2 I will cover the correct way to actual calculate the tradeoff of going to college and your future career choices
Part 3 will go over what I would recommend as the path for the best foundation to future economic success.
College Industrial Complex is Destroying Lives
The number in the quote to start this article, $1,570,000,000,000 is $1.57 Trillion, and is the total student loan debt in the US in 2020. Here is a quick breakdown:
$1.57 Trillion total student loan debt in US in 2020
40-45 Million borrowers
$35,000-$37,500 average amount owed
10%+ of borrowers behind on payments
$40,000 average amount owed by people over 50 years old (likely parents taking on parent PLUS loans)
I would say that graduates starting careers over $35,000 in debt and parents entering retirement age taking on $40,000 in debt for their children all to go to college is a problem.
But didn’t Mr. Fasfa (sounds exotic) say I would make $30,000 more a year as a college grad vs. high school grad on average? $30,000 is almost enough to cover the full $35,000 of debt. Maths. I wrote a post about why basing decisions around averages is a bad idea. Review it if you want a deep dive into the flaw in using quoted averages. However, the gist is that you can have a few college grads making a ton of money who drive up the calculated average value even if the majority of college grads make about the same as high school grads.
I went through the top 20 results for numerous searches for terms like ‘college value’, ‘college degree pros & cons’, etc. and all of them regurgitated unhelpful nonsense or half-truths like the above quotes.
Valuing College -What is the College Industrial Complex?
The College Industrial Complex (aka CIC) is all the industry that surrounds colleges that makes trillions of dollars a year. Who benefits?
1) Hiring departments at companies drive degree inflation
These are probably the biggest grifters off college. Instead of looking for real talent, they are able to use a college degree as a hurdle. This limits the pool to those who were able to get a degree. Hiring departments know that the graduate can probably meet a deadline, listen to directions, and not do something so heinous that they got thrown out of college. Since the recruiter isn’t going to be the manager, they don’t need to take a risk, they just need someone who doesn’t immediately get fired. Therefore, they end up requiring college degrees even for roles that don’t need them. The result is hiring departments have forced significantly more people into the college pipeline.
2) The actual colleges are an oligarchy that benefits from the need of a degree
All those involved with the actual university, including presidents, deans, professors, etc, benefit from the ability to continually raise prices. Tuitions keep going up since a college degree has become a necessary item to even get in the door. Additionally, it seems most of it goes to larger administrative staffs, bigger salaries, and nicer buildings. In order to pay for it, tuition runs in the $10s of thousands, room & board adds over $8,000 a year, and books & supplies over $5,000 more. Hell, colleges start making money before you even enroll by charging to have your application reviewed. They also encourage applications despite knowing they need to reject the majority as denying 95% of applicants make the schools more prestigious.
College sports are nearly $19 Billion annual revenue to college, which is driven largely from students, parents, and alma mater support.
3) The endowments that barely fund the school but pay huge salaries to managers
Endowments are big business and what many schools have is a tax-free hedge fund they call their endowment. Harvard is the largest by far with a $41 Billion endowment. It has its own Harvard Investment management company and is federally tax-exempt. Managers of the endowment make millions.
With around 7,000 undergrads and about $50,000 tuition cost, Harvard could go over 25 years offering free tuition to students if they put that endowment in just cash. And that assumes no alma mater contributes any additional money to the endowment and a 0% return.
4) Standardized exams and exam prep services are a monopoly
The College Board is another ‘non-profit’ that has a near-monopoly on exams by administering the SATs, PSATs, and AP Exams. The exams cost $60-$140, sending scores to colleges cost $10-$40 for each school, and it adds up to over $1 Billion in annual revenue. Again, this is a ‘non-profit’ that rakes in billions and then pays the president of the college board over a million and executives make $300,000-500,000. But the College Board company pays no taxes.
Test prep will cost $50 for a book to $5,000 for high-end tutors, so the test prep market is likely multiples larger than even the $1 Billion the exams rake in.
Oh yeah, and the tests are questionable at even providing a measure of intelligence or future success. They largely are a measure of who was able to pay for the most help to learn how to beat the test.
5) High Schools get a measurable target that is easier to achieve
There is a lot of nuance and subjectivity in true teaching. Ask any good parent who has their child do additional home schooling. Talking about esoteric concepts and philosophical intricacies is harder to ‘grade’ than a true or false question. It is much easier to teach to a test. However, high schools across America are pretty underwhelming and still can’t meet this bar. The goal of high school should be to graduate well-rounded 18 year old adults who can be successful. But that is hard. It is much easier to just go over the material from a standardized test and pass students off to college.
Private high schools are largely in existence as a pipeline to college. Do you think parents are paying taxes for the public school and then opting to pay private tuition for the kid to not get into a good college? What is the easiest way to advertise your private schools success? Boasting on the college acceptance rates.
6) Student Loan Industry
Most loans are now federal loans owned by government. Although there are over $130 Billion private student loans still outstanding and many students need to take private loans to help fill gaps not covered by federal loans. Regardless, there is a lot of money being lent with interest being paid on it. Not to mention, student loans are nearly impossible to get rid of in bankruptcy, therefore this interest is being collected.
The big grift with student loans is the way the industry supports all the other grifters. The only way most 18 year old children are able to afford any college is with loans. Therefore, loans allow for the inflated college tuition costs. Don’t believe me? What would happen tomorrow if student loans were made illegal? The price of college would have to drop to the level that could be afforded. This is a great transition to…
7) Politicians…
If there is one thing that is bipartisan, it is grifting. We can ignore the politicians who make a $400,000 a year to teach 1 course while railing against student loan debt. I can mention the biggest con politicians play is setting up loopholes and handouts to donors who in this case are from academia, banking, the College Board, etc. DC is basically driven by donors & lobbyists paying for kickbacks to their industry/company.
Let’s not forget that it allows for a great issue to run a campaign on. Politician Turdsandwich needs the youth vote? Let’s float the idea of forgiving student loans, that’ll work. Oh wait, his opponent, politician Giantdouche counters by railing against those lazy kids looking to steal money from social security to pay off loans. He just picked up 10 points with the old retiree voters. Jokes on all of us though, it is just a rug-pull and nothing happens. Again. And Again.
8) College Text Book Industry
This should be self explanatory. No one would buy these if not required. There is much better sources of the info out there. However, as a way to further enrich themselves, professors write books for the college classes and then require them. The result is another $1,000 a year in cost to students for something of minimal value.
Book publishers keep most of the money from the sale. Another large industry that exist solely around the grift.
Bonus: Adults pushing college for their own benefit
I am not numbering this last point, so lets call it a bonus. This group doesn’t make money by being part of the CIC, however they play a large part in it. It is all the adults who push college on all kids. Largely this is done for both self-validation and ego-defense of the adult, whether knowingly or unknowingly. Self-validation since more students attending your alma mater increases its prestige and makes you feel better about your choice to go there. Ego-defense since most people who attended college are making pittance and seeing someone succeed without college would be a strike to their ego.
Imagine your typical, angry, disenfranchised 40 year old has-been. What if a generation of children avoided college and became super successful. That shines a big spot light on their own failures and most people don’t want that. By pushing all kids to follow a similar path, it allows for adults to feel better about their own choices.
Relatedly, there is also the “crabs in a bucket” phenomena or the “monkey ladder” experiment. Both are similar. In short, the monkey ladder experiment is where scientist put 5 monkeys in a cage with a ladder with bananas at top. Each time a monkey tried to climb the ladder the scientist sprayed it off with cold water from a hose then sprayed the other 4 monkeys. Eventually the monkeys would stop each other from trying to climb the ladder. Then the scientists started replacing the monkeys one at a time. The new monkey would go to climb the ladder and get stopped by his peers. At the end of the study, there were 5 monkeys who never got sprayed by the hose, but wouldn’t try to get the bananas because they were taught not to.
If you are an adult who read this and felt a visceral reaction to it, you need to look hard at yourself. Only reason to be upset is that you know deep down this is true.
I may be missing pieces, the college industrial complex is large, but at this point you should see there is a lot of incentives supporting the push to go to college.
Valuing College – Drop Out Rates & acceptance rates
There are 3 additional costs that largely go ignored in the conversation of college.
First, it is assumed all those with student loan debt have a degree. However, nearly 1/3 of college student drop out in the first year. Additionally, 4-in-10 don’t graduate. Unfortunately, these numbers get even worst for lower income and first generation college students. The big issue is the cost and the inability to make enough money working while attending school or needing to support family back home. This 40% of college drop outs get the honor of still having to pay loans, but no degree to show for it. There are no refunds with college. If you drop out, you still owe the cost you incurred. So not only do you miss out on the potential higher salary of a graduate, you now have student loan debt for a degree you never received.
Second, when you hear ‘4-year degree’, you assume it is only 4 years. However, it takes over 4.2 years on average to finish a 4 year degree. There is a cost in the extra time spent in school both from the cost of another semester as well as the lost year of earnings.
Third, colleges encourage students to apply in order to reject the application so they can show high rejection rates as it makes the school more prestigious. Ivy League schools routinely reject 90-95% of the applicant (O they will keep that $100 application fee thank you very much. What did you expect us to take it out of our multi-billion dollar endowment plebe?). This is another burden for poor students as they run the real risk of not being able to apply for any reach schools as they can’t afford the non-refundable application fee. At a minimum it is another cost in the process.
Conclusion
Some of the above may sound like jealousy. It is not. I was very well served by attending university.
However, as you grow older you are able to recognize where the rules of the game are rigged and call it out, while also continuing to participate in the game. The entire College Industrial Complex is full of people getting ridiculously rich by forcing young adults to take irresponsible amounts of money in loans under the guise of helping them. As the current gatekeepers to “good” jobs, colleges are employer-sanctioned cartels. The need for a degree has insulated college from non-degree competition. This allows colleges to hold students hostage and force them to spend substantial time and money to get a piece of paper. This is regardless of whether students want to attend college or if the degree actually conveys relevant skills or knowledge.
To conclude part 1, I will point out that this entire post is laying the foundation for an informed decision. If you or a loved one is looking at colleges, the goal should be to go into the process with “clear eyes”. See the decision for what it is. Recognize most of core college isn’t there to teach you anything more than the basics to be a wage slave. Much of college is a way to extract money from you before you get to pass the gates into a career. There is a huge system in place around this grift. And you should base your decision around maximizing your value you get out of it. With “clear eyes” you can turn the tables and set yourself up to get ahead of your peers and avoid the pitfalls of the system.
Part 2 will go through how to calculate this value to make a good financial choice on which college and which career to pursue.
We will finish up with Part 3 to help you optimize your decisions, and show doctors are not a good financial profession.