Where’s The College Money Going? – By Joel Aaron

May 31, 2013

The value of a college education is increasingly coming into question alongside rising student loan debt, soaring costs for a standard bachelor’s degree and new findings that suggest the price tag is often unnecessarily high. The college value proposition has always been simple–“a college degree is an investment in your future success”. Now, that future is starting to look more and more distant and the investment is beginning to resemble a “rat hole” epidemic with dubious employment opportunities.

Georgia student loan debt averaged $22,443 in 2011, ranking us 36th highest in the nation. Fifty-eight percent of Georgia grads carry debt out of college, ranking the Peach State 28th nationwide. Some schools, like Albany State University, SCAD and Spelman, run as high as $32,000, $35,549 and $35,138, respectively, with between 61% and 90% of graduates holding debt obligations. None of this includes the “sunk cost” of the nearly 30% of college students, nationwide, who drop out and don’t finish but still incur debt in exchange for their jaunt through academia.

All of this comes as no surprise, given the rising cost of higher education. Between 2001-2010, fees for undergraduate tuition, room and board at public universities, rose by 42% nationwide while prices at private not-for-profit schools rose 31%, after adjusting for inflation. In fact, college tuition costs have risen faster than inflation every year since 1981.

Despite the investment, underemployment – the proverbial barista with a bachelor’s degree – stands at 41% for graduates who are two years or less removed from college. We aren’t talking about the kind of low-wage, high school, burger-flippin’ teenage job applicant that has Justin Bieber crying tears of empathy–sort of. These are college graduates working jobs that do not require a college degree.

In 2009, peak unemployment for recent male graduates hit 26.6 percent. The number was far lower among women, though, still high. The most recent Bureau of Labor Statistics data pegs the unemployment rate for 20- to 29-year-olds who graduated from college in 2011 at 12.6 percent.

So where is all the college money going? Is the expense justifiable? Let’s take, facilities. A recent University System of Georgia study reveals that, statewide, classroom utilization rates are extremely low – as low as 31% at the University of Georgia, with the highest in the University System at 77% at Georgia Gwinnett College. The findings suggest that facilities and college expansion models are no means of explaining away the rising cost.

What about administrative costs? According to U.S. Education Department data, a trend shows employment within degree-granting institutions far outpacing student enrollment over the last two decades. University employment was up 60% nationwide between 1993-2009 while student enrollment grew by only 11% between 1990-2000 and 37% between 2001-2010. If it’s about student development, it would seem we need more students. This cost concern is compounded further by a move toward online learning that should be driving down the brick-and-mortar facilities and administrative burden, even as it continues to climb.

The skyrocketing cost of higher education for students becomes even more problematic when you factor in outside financial resources flowing into colleges and universities from enormous grants, endowments and taxpayer subsidies. In 2009, the federal government contributed $33 billion dollars, at taxpayer expense, to total national university Research and Development (R&D) spending of $55 billion. This does not include other grants like student federal Pell grants to help cover student loans. On top of government grants, inflation-adjusted endowments held by U.S. colleges and universities quadrupled between 1989-2008 to fix at $400 billion dollars, much of it reserved for student financial aid. Endowments at the Ivy League, alone, can range from $1.3 million dollars per student at Harvard to $1.85 million per student at Princeton. And what about taxpayer funded subsidies through direct government support and tax breaks? A recent AIR/Nexus study finds that the taxpayer subsidy to cover operational costs for colleges and universities averages from $8,000 to $100,000 for each bachelor degree awarded, with most public universities pulling in $60,000 per degree.

Frank Hu, Chancellor and Dean of UC Hastings College of Law, explains the phenomenon of rising tuition costs as a function of slick marketing, citing the embattled “Chivas Regal effect”. The “effect” shows how universities package financial aid so each individual applicant feels special. Financial aid packages are designed to offset the cost of an often arbitrary an exorbitantly priced college tuition structure where price is set to signal perceived value. The applicant is encouraged to think he is “getting a deal” because of his merit scholarship or other form of financial aid. Hu doesn’t cover with euphemisms, explaining that “…in most instances, the “merit” scholarship is handed out for credentials — predictors of future performance — rather than performance itself.”

All of this begs the question, why are Georgia taxpayers spending $1.8 billion dollars on our University System as a part of a nationwide trend where states spend $140 billion dollars, annually, on higher education? That’s 14% of overall state budgets, the largest of any single category expenditure outside of health care and K-12 public schools. In an age of diminishing returns for many college and university graduates, it is time we begin re-tooling our focus to support alternatives like vocational training (where jobs readily exist), lower cost online learning and private sector research and development without outrageous federal subsidies. The current model leaves many students brewing French Roast and Sumatra for far too long.

Joel Aaron is Communications Director of Americans For Prosperity GA and owns a media company in the Atlanta area.

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