In my last post and the post before, I discussed the public’s perception about higher education not contributing to the welfare of society.  One possible reason is that the cost of higher education has risen significantly and the funding mechanism for students to pay for these higher costs is loans.  A real harm to society could occur should these loans be so burdensome that they cannot be repaid.  Of course, should demand drop as a result of less subsidized loans, it is possible these costs could be lowered.  Otherwise, the result would be lower supply from the closing so some colleges that failed to manage their costs.  This conclusion would fall under the basics of economic theory that we typically teach to all undergraduate students.
I can hear the administration wailing as I write.  “We cannot afford to cut any costs”, the administrator say.  “We are already operating on a razor thin budget,” they continue.  They lament, “our funding from the state continues to decrease”.  They might even mention, funding from endowments continue to feel pressure by historically low returns.  “We have to raise tuition”.  These are excuses and assumptions based on narrow viewpoints.  Here are some basic facts about college operating budgets. 
The main cost of running a college is not the facilities.  The number one cost in running a college or university is faculty salaries.  Whether this is called instructional cost, compensation, or salaries with benefits, it is the number one cost from University of Florida, the University of Texas System, the University of Michigan, University of Southern California, Vanderbilt University, or Duke University.  Back when I was running businesses and before I became a professor, it became apparent that if I needed to reduce the operational costs, I started with the largest line items.  (Just an aside, if I had an operating budget of $100 million and my cost of raw material was $75 million, I was better of looking for a 2% savings, 1.5 million, in raw material than a 10% savings in a $10 million dollar line item).  So based on my logic, the best possibilities for efficiencies or cost reductions are available in instructional costs.  These savings can reduce cost of attendance and have a real impact on potentially lowering tuition and the subsequent student need for financial aid. 
Yikes, I can hear my colleagues in academia screeching now.  Seems we in academia like to make a lot of noise.   The accusations will fly about cutting the compensation of professors that are already woefully under paid.  This is a debatable argument for a position that pays full year compensation for 9 months of work.  That, however, is not the thrust of my argument.  Please, recall that my goal is around a 2% reduction in what arguable is typically 75% or more of the operating budget of the college or university.   I think we can do that without touching salaries.
First, I need to provide some background on a common practice in colleges and universities called course releases.  A course release is a decision by the college or university to excuse a professor from teaching one or more sections that would be their normal teaching obligation according to the professor’s contract.  So for instance, if a professor is contracted to teach three courses per semester in addition to their research and service obligations, a one course release would mean teaching two courses one semester and three courses another semester. 
As I stated in an earlier post, I believe this practice of granting course release sends the wrong message to everyone involved.   This approach fosters a culture of avoiding teaching.  I mean that the colleges and universities encourage professors both tenured and untenured to seek and receive a release from teaching.  The university or college is tacitly acknowledging the perception that teaching is burdensome.  By a release from teaching, a professor is ‘rewarded’.  This seems to imply that teaching is not the core purpose of being a professor.  Additionally, the replacement instructor is often an adjunct or graduate student that is demonstrably less qualified to teach the subject.
Eliminating the use of course release, except in most exceptional circumstances, has the additional benefit of likely being our 2% cost savings.  Now I am not going to go into a long list of citations about studies that have found this cost savings exists.  I do not think studies about the impact of course releases on college budgets exist.  Instead, I will walk you through my own experience as a department head and try to translate that into my projected savings. 
Just a quick reminder, I have run academic department at universities for 7 years.  In that time, I have always had one or more faculty that has been granted course releases.  Sometimes the course releases were offered as inducements during hiring.  Other times, they have been offered to faculty that agree to some University desired project such as Ethics training, Curriculum development, Implementation of Honors College, etc.  This list of reasons and the amount of releases is extensive.  The question is just how extensive.
Here is one way to calculate the impact.  In any given academic year, the department head knows the number of faculty and their contracted teaching assignments.  So for example, if I have 15 faculty and each is contracted to teach 6 courses in a year, then I have 90 sections of marketing ‘something’ that I can offer.  Unfortunately, it is not that simple.  I have to take into account the course releases (most of which are provided by the college and/or university).   In the last three years, course releases have reduced available teaching by 12%, 14%, and 10%.  Fortunately, for the students of my university, I have been able to fill about half of those teaching shortcomings with visiting professors with PhDs in marketing.  The rest of backfilling the teaching shortcoming comes from using larger class sizes.  I do not use adjuncts.
I do not think my department is uniquely burdened.  I believe this course release policy is common and represents a hidden ten percent cost.  Even a reduction of half of these course releases would represent a a 5 to 6% savings in faculty compensation costs.  Implementing a significant reduction in the use of course releases across all departments leads to a real savings.  That savings can be used to lower the cost of attendance and subsequent loan amounts.  If higher education really choses to address their customers concerns about potential negative impacts on society of high education, then solutions such as dramatically reducing course releases would be a great first step.
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Students have borrowed for college almost since the beginning of the college system in the United States.  Sometimes the money was for no more than living or spending expenses and the person loaning the money could be family, a friend, or even the bank.  Slowly and with many good intentions, governments both federal and state decided to subsidize students.  There were many programs but the guaranteed loan programs became the most popular.  These guaranteed programs were, up until 2010, available through private lending institutions under the Federal Family Education Loan Program (FFELP). In this iteration of government subsidized college education, loans were funded by the Federal government and administered by approved private lending organizations.  By underwriting the loans, the Federal government ensured the private lender would assume no risk should the borrower ultimately default.  As noted in last week’s post, the taxpayer or the target audience or taxpayer was/is the ultimate guarantor.

The last administration dramatically increased the subsidizing of college education and in 2010 loan guarantee system through private lenders was discontinued.  All guaranteed student loans are now processed, and disbursed, directly through the U. S. Department of Education.  Additionally, all existing student loans from 2010 and prior reverted to the Department of Education.  This latest version of the student loan system has four versions with varying interest rates, grace periods, and terms of repayment.  The current interest rates run from 3.4% to 8.25%.
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According to the Federal Reserve Bank of New York, the total student loan debt is - $1,407,200,000,000 ($1.41 TRILLION).  That is trillion not billion.   There are over 44 million people with student loan debt with a default rate of 10.7% and the taxpayers are footing the bill for over $100 billion in defaults each year.  Oh and the Average Debt per Student Borrower is $27,857 (studentloans.net 2017).  Just for some perspective, in testimony to congress in 1977 the GAO mentioned typical college student loans as being in the ‘hundreds of dollars’ (GAO 1977).

Just to be clear, the university or college financial aid office administers the processing of student loans and can encourage or discourage students from taking out this federally guaranteed loan (free money anyone?).  However, if the student does not apply for the loans and accept the money, that student may not attend the college or university thus suppressing demand.  Does anyone else see a conflict in interest?  It is not surprising that recently the number of graduating seniors with debt in the federal programs is exceeding 70%.

So while as a society we may be increasing the number of college graduates.  The question is at what cost to society.  You might recall from my previous post that some taxpayers are beginning to question the impact of higher education on society (July 10 Pew Research ).  This Pew survey does not ask what negative impact they see from higher education but it would not seem unreasonable that they worry about the size of the debt, the high default rate that they, the taxpayer, must annually cover, and that over 44 million US citizens are starting their careers in substantial debt.

It might also be important at this point to note that if in fact the subsidized college education is creating an artificial demand, then the natural economic outcome is an increase in price.  This of course is presuming that an increase in supply does not happen.  I think a review of the current closures of colleges and the wave of mergers would suggest that supply of college education opportunity is decreasing.  It is not surprising that the cost of college is on the rise. 

Even more painful is that there are a couple of solutions that can address rise in the costs of a college.  In the next two posts I will discuss two major cost areas that if properly managed could slow this rate of increase.  These solutions may even hold the possibility of lowering college costs.   

This past week the Pew Research Center released a report about their annual survey of American’s views of major institutions (July 10 Pew Research ).  The public’s perception of the positive impact of higher education on society continues to decline.  Because of the headline associated with the report’s release, a number of my colleagues in higher education took the opportunity to insult and refute the opinions of the respondents.  To me they have really missed the point and it is a classic marketing insanity approach.  So while I may rant a little in this post, bear with me.  This is convergence of two of my passions, the value of higher education and appropriate application of marketing principles.
The headline announcing the survey results focused on the fact that respondents that identified as Republican or Republican leaning mostly had a negative view of impact of higher education on society.  However, as we try to teach our students, I tried to look a little deeper.  I did this not because I believe that proposition that higher education negatively affects society is accurate.  I think you can read my previous posts to see I am a staunch advocate of the exact opposite.  Rather, as a marketer, I am concerned when a significant portion of my target audience holds a negative view of my value proposition and product.
Oh and yes, I do suggest that people that are politically active to the extent they identify with a political party are actually the same group paying the bills for colleges.  They are taxpayers, parents paying for tuition, and/or donors.  As taxpayers, they have influence on state funding.  They also have influence on the tax-exempt status especially property taxes of both private and public colleges and universities.  These same people are also ultimately the source of funding for the ‘federally’ guaranteed loan system but more on that later.
These survey respondents are in many ways our target audience and I wanted to know what exactly did the survey results tell us about this significant constituency.  As we try to teach our students, I wanted to investigate the report beyond the headlines and graphs.  Here are a few of the facts I was able to glean.  There are 2504 respondents of which 1050 identified as Republican and 1230 as Democrat leaving 224 not identifying with either political party.  These percentages are a huge divergence from the Gallup results (Gallup 2016) of 29% Democrat and 26% Republican but for purposes of this blog, we will let that issue go.
As best I can extrapolate from the reporting, these are the actual results.  Fifty eight percent, 58%, of those identifying as Republican or 609 people had a negative view of the impact of higher education on society.  Nineteen percent, 19%, or 233 of those identifying as Democrat hold a negative view.  Finally, it appears there are 174 of the combined Republican and Democrat that held neither a positive nor a negative view.   In a marketing analysis, these results would not be good.  Only 53.5% of our customers have a positive view of the value of higher education on society and this percentage is decreasing.
To coin the popular phrase, Houston we have a problem.  Members of academia choosing to refute the perceptions of their target audience compound the problem.  Attacking the target market is not a solution and I find it scary that colleagues are taking this approach.  The focus should not be on why our customers or target audience is wrong.  Perception is reality is a fundamental principle in marketing.  The argument our customers just do not ‘get it’ also disallows an appropriate scrutiny of what might actually be the negative impacts of higher education on society.
Some might suggest there are many negative impacts.  I will suggest three.  When I first started on this particular blog, I intended to delve deeply into each of these three issues along with suggested solutions.  That approach is too lengthy.  Instead, I will mention my main three negative impacts and give some insights into their connections.  Then in the next three blogs, I will look in depth at each of the three.  I hope that upon some reflection, my colleagues in higher education will give some thought to these potential negative impacts as well as the suggest solutions.  Then we in academia might begin to ‘see’ from our target audience’s perspective. Oh and I know, my views are not widely held in academia so a disclaimer that these are my suggestions and do not reflect the views of my employer J.
To me perhaps the most critical problem is the financial aid system that has built up around student loans.  It is a broken system.  And I am not commenting on the poor customer service issues (Money 2017) which include text messages during graduation ceremonies reminding students that their grace period is about to expire (true personal experience).  Rather the issues are systemic.  Colleges and Universities are looking for a growing number of students.  They use financial aid packages to attract students with “free money”.  The loan is often offered as a first financial aid option by the college or university’s own financial aid officer.  Evidence shows that in some cases the post-graduation career cannot provide the funds to repay the loans.  This is creating what some refer to as the college loan bubble (Motley Fool 2014).
Second is a culture of avoiding teaching that is beginning to permeate colleges and universities.  By a culture, I mean that professors both tenured and untenured seek and receive a release from teaching.  A release means that for a period of time the professor is required to teach one less course.  This is a two-fold mistake.  First, it sends a message that teaching is burdensome.  By a release from teaching, a professor is ‘rewarded’.  This seems to imply that teaching is not the corer purpose of being a professor.  Secondly, the replacement instructor is often an adjunct or graduate student that is demonstrably less qualified to teach the subject.
Lastly, we have let the collegiate athletics has become disproportionate in funding in comparison to the teaching operations of most colleges or universities.  The dollar amounts of donations and funding of college athletics is vastly disproportionate to the number of students involved.  In addition, the money associated with the collegiate athletic programs has led to unprincipled actions by university personnel.  Not the least is the collusion with preventing students to benefit from their efforts and achievements not because of principle but because doing so might infringe on the athletic revenue stream.
These three negative aspects of the current system are all connected by … drum roll please … money.  Professors do not like to talk money or operations.  However, the huge costs associated with college education, the financial burden from loans to afford these costs, and the ignoring of two major financial drains that could possible lead to reduced costs are all issues that need further discussion.  I will do so in the next three blogs. ​

There seems to be a two-prong set of problems associated with achieving the financial value of the college education.  One problem is, of course, the cost associated with the education.  Many of my previous posts have addressed the cost and associated debt-financing issue so we will let that pass in this post.  The second issue may in fact be a supply issue.   As the number of undergraduate degrees increase, this supply may be depressing price (the value).  It is quite possible that even though average starting salaries have increased, they are possibly lower than would be the case if policy makers had subsidized a lesser number of students in the form of student loans.

Running counter to the argument for less graduates are the intangible and tangible benefits to society for having an educated work force.  The critical thinking, problem solving, and proficient communicators produced in college help their organizations perform efficiently and effectively.  These same capabilities are essential to informed democracy.  The benefits are documents by others and in previous posts.

What if an additional system existed that developed the critical thinking, problem solving, and communication capabilities without relying on the collegiate experience?  Even more intriguing, what if such a system was less expensive and maybe even allowed the student to starting earning while learning?  It should not sound too farfetched.   The idea I am going to suggest existed back around the same time as the development of what became today’s modern liberal arts education.  It is the Artisan system.
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The artisan system progressed and with the guilds developed a system of Master Artisans that guided and educated the apprentices.  They were educated not just in skill but in creativity and artistry.  The Master achieved high recognition in society, as did the apprentice artisans.  They shift to mass production and less interest in skill decreased this system.  However, with the resurgence in customization and appreciation for skilled work, it is possible that a return to a modernized system of artisan education will supplement and add to the collegiate experience.  Next week’s post will expand on this subject.
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My last post started a pattern.  I plan to start expanding the scope of the discussion about the value of a college education.  Some future posts will address specifics challenges and remedies to delivering the collegiate educational value.  Other posts will address sectors and organizations with impacts on the delivery of the value.  This post addresses one such group.  The employer and their willingness to pay for a collegiate education are integral to the value proposition.

Employers that recruit college graduates seem to fall into two categories.  Both categories highly value the college education and are usually willing to invest in the form of starting salaries in the benefits received from college-educated employees.  I say usually as I do occasionally encounter companies offering starting salaries half of the typical starting salary.  Perhaps they should reread some of the earlier posts about the cost of college and the need for sufficient return on that investment.  Besides these outliers, the two categories that do value the college education vary in their perspective on essence of what they want from the newly graduated student.

The first group of recruiting companies value the liberal arts education (see this post The Liberal Arts or a General Education).  The transformation of individual through the development of critical thinking, learning judgement, honing communication skills, and enhancing problem solving ability are valuable to the hiring organization.  These organizations value the new thoughts and ideas brought to them by the recent college graduate.  Occasionally managers may rue some of the youthful enthusiasm but typically realize they need the energy and work the recent graduate provides.  These employers are likely to cast a wide net and look at all or many majors.

The second group has specific needs in addition to the characteristics mentioned above.   These can be engineering, chemistry, business, musical theatre, and so on.  There are skills that are associated with the career that go beyond the general education learning outcomes.  As an example, here is a recent set of requirements posted in a blog for one area of my department, digital marketing.

• Experience working within CMS (Content Management System)
• Experience working with various Social Media platforms and/or tools such as Hootsuite
• Experience working with paid advertising platforms such as AdWords
• Experience with broadcast Email marketing systems such as Constant Contact, MailChimp, Emma, etc.
• Content strategy skills
• Proficient writing skills
• Strong communication and organization skills
• Team leadership skills
• The more experience and skills you have the better!

From https://www.ironistic.com/digital-marketing-career-advice/
However, it is this second group that sometimes struggles in their recruiting efforts. They look for these very specific skills and then say all majors may apply.   Take for instance the quote that accompanied the skills listed above. “The major can play an influence in an employer’s decision, but the fact that you spent the time and effort to get your degree along with the experience you have received outside of traditional schooling and your work ethic goes further (at least in my opinion) than the specific degree you received.”   It is easy to understand the slippage that can occur from the desire for the essential skills from the liberal arts education to the specific major skills.  Despite that statement of empathy, I am not sure such a statement as in the quote would be made about an engineer or concert pianist.  These types of statements can confuse the student.  The all major may apply statement also confounds the value proposition.  Employers must become cognizant of their own needs and convey them clearly.
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It seems that clarity in hiring expectations is essential for achieving the appropriate return on the investment in specific majors.  Employers need to embrace in their recruiting that they are targeting best overall generalists.  This is the category one mentioned above.  These organizations should accept all majors as applicants.  On the other hand those organizations that are category two with hiring needs that match specific skills need to embrace that distinction and narrower their search to the appropriate major.  The advice and messaging from the employers needs clarity.  It will take this clarity of all the parties involved in the college education process to help insure the students achieve the return sought in the educational investment.
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Most, if not all, of my previous posts have a focus on the value of a college education and/or the purpose of that college education.  This overarching theme has been on the deliverables of colleges and universities.  This post will focus on the recipient of that education, the student.  While many authors address the modern student both in a positive and negative light, I build the theme of this post with the following quote (with my slight paraphrasing) in mind.   

The counts of the indictment are luxury, bad manners, contempt for authority, disrespect to elders, and a love for chatter in place of exercise. …
Children began to be the tyrants, not the slaves. They no longer rose from their seats when an elder entered the room; they contradicted their parents, chattered before company, gobbled up the dainties at table, and committed various offences against good tastes. They tyrannized over the pedagogy and schoolmasters. (Freeman 1912)

While the common attribution in this quote is from Socrates, it is not quite that old.  This early 20th century author is providing their interpretation of the writings from the ancient Greek philosophers about children and students.  So while the quote is not thousands of years old, the quote is over 100 years old and suggests complaints about the younger generation have substantially remained unchanged over time.  Hopefully, I do not descend into generalizations about generations and instead use some specific examples to explain the need for student responsibility.
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Unlike previous posts, in this writing, I will share specific examples from over 15 years of teaching at the university level.  I also will not cite a large number of outside statistics but instead express impressions from my experience at three different types of institutions.  Finally, my perceptions of the correct direction for both student and institution are mine and are not reflective of any institutional preference.

I will start with a great example of a student assuming responsibility and provide a compelling argument to his peers.  It concerns attendance in class.  Attendance at the university level is not a trivial matter so first let me explain the value of attendance. The positive story will follow this explanation of attendance. 

Twice in 30 semesters of university teaching, I have made attendance optional in the sense that I did not assign any component of the final grade to attendance.  Instead, I made it clear that I considered my lecture and in class assignments, the expansion and learning a student should expect beyond what they gain from just reading the textbook.  In other words, the value received from paying tuition rather than just reading the material. I strongly encouraged students to attend as I felt it would improve their learning but left the ultimate decision to attend as their responsibility.

In the first instance of the non-mandatory attendance policy, the pass rate was under 60% and the average grade was a D+.  I waited many years before the next attempt at letting students have full responsibility for attending class.  Again, this means attendance has no direct impact on their final grade.  Perhaps my explanation of why to attend was more compelling (I had the previous class example to share and I did) or perhaps the students were better.  The final grade outcomes were better but again significantly below my expectations and experience with other classes.   The average final grade was 72% and 10% failed the course.  It is critical to note that as a department head, I am aware my example crosses the boundaries of disciplines and professors.  Attendance is a systemic problem at most universities with most mandating that syllabi address the specific attendance policy in detail rather than allowing a simple but obvious statement such as “students are expected to attend all classes.”  As shown in the next story, the situation does not have to be this way.

With that context in mind, I relate a discussion I overhead before an 8:00 AM class.  One student that had car trouble was explaining to a group of other students why he made such an effort to be in class on time.  In fact, he had gone around his apartment complex and asked several strangers if they were on their way to the University and if he could get a ride.  The students in class were incredulous and pointed out that he could miss up to three classes without grade penalty according to my syllabus.  The other students were correct about my syllabus policy.  The industrious student explained that early in his college career he had calculate the cost per class and decided it was a huge waste of money to miss any class.  It was like burning that cash as far as he was concerned.  This story and reasoning is from a student that readily admits his parents pay for all of his college.  To me, the point of this story is that some students are taking responsibility for gaining the value of their college education.

The next series of examples, however, show a different view of responsibility as expressed by students.  The first is again from that most revealing of times, the minutes before class starts when various conversations are taking place.  This time a student and I are talking about the latest job interview she completed.  She is explaining the interview ended with a job offer and that she was now weighing her three job offers.  As the student and I began discussing the pros and cons of the various offers another student, who had been eavesdropping, interrupted with the comment he wished he had those kinds of problems.  I mentioned to the young man that if he had done the legwork that the female student had done he might indeed have multiple offers to consider.  I did not make that statement flippantly.  I had set up two networking opportunities for this young man.  He had not followed up on either.  As I continue to reflect on this incident over the years, I continue to return to the point that the opportunities are there but the personal responsibility is missing. 

The last vignette I share is on a systematic effort by my institution to offer clear career opportunities to students.  In this instance, my current institution is fortunate to have two great departments that offer complementary but different majors.  Students with a creative bent or desire should chose a major in a department different from mine while students with business acumen and analytical outlooks should chose a major in my current department.  As we tell students, you can achieve career aspirations with many different majors.  However, in today’s employment environment, the employers seek specific skill sets and it is easier if you are in the major expected by the employers. 

This career outlook situation has existed for many years and starting four years ago a systematic and extensive campaign was instituted to make sure all prospective students and current students were aware of the situation and the need to take personal responsibility for their choice of major.  The university and departments train every advisor on the different career options for these alternative majors. Every student receives information on the career paths associated with the various majors through written, verbal, and social media communications.  Finally, each student when choosing these majors meet individually with the department head of their respective major and again have a conversation about the career options associated with the prospective major.  This is an intentional and extensive effort to help students chose a major that advances their career aspirations. However, during all of this process, it is stressed that the choice of a major is the student’s responsibility.

This year, as part of the senior exit survey, students had an open-ended question; “What one thing would you like to share with the department?” Fourteen out of 80 responses or 17.5% expressed a lack of awareness about the career distinctions between the two departments and the alignment with career goals.  I certainly can and do look at this as an opportunity to improve messaging to all students.   However, I also wonder at what point does the student’s personal responsibility to pay attention to the advice and guidance begin.

One nonfinancial goal and benefit of the college education is developing the individual’s awareness of their personal responsibility.  It seems as if the institutions are providing the students with many opportunities in a variety of learning and growth settings but the full engagement in the learning process about personal responsibility is lacking by large percentages of students. I argue this large percentage statement because my exemplar examples which are by no means unique to me and are only a small portion of the many personal examples I could share boil down to the following.  I found that between 10 and 40% of my students have failed courses that do not have a mandated attendance policy, meaning that students must be compelled to attend.  Close to twenty percent of students are unaware of the systematic messaging about critical paths and decisions related to their major and career.  A number of students, though I have no percentage, do not avail themselves of the personal and institutional resources provided to help them in their first career search.

It appears that personal responsibility can exist. See the example of the student that knew the cost per class.  Perhaps it is time for the universities to let the pendulum shift over to increasing the personal responsibility of the student in gaining the value of the education and learning.  Universities may need to believe in their own value proposition, provide the opportunity, and let the student execute attainment of the value.  The implication is obvious that the university should prepare for those students that fall short.  The costs of the college education are high and the consequences of failure are challenging.  However, not providing consequences seems to diminish a core learning, students are responsible for their value of their collegiate education.  It is possible that by mitigating these consequences during college, that the benefits of a true understanding of personal responsibility through a lifetime may be severely diminished.

Cost of attending college has grown exponentially.  The how and why has seen lots of debate but rarely if ever does any one writer try to refute the fundamental fact that college is expensive.  More often, we see this argument.  “Sure college is expensive but look at it as an investment which as a tremendous ROI”, (return on investment).  Actually, that is a great argument in vast majority of instances. However, as I hope to outline in this post, the approach used is often biased and does not fully consider all factors that are typically included in most business ROI models.

Whoa, you say, aren’t you a marketer.  Are you getting ready to take us down a finance path?  The answer is yes.  Marketer or not, if the argument for a college education is based purely on the financial model, then an informed customer needs some layperson terms and definitions to explain the ROI model.  It is also helpful to provide some full disclosure on types of costs, investments, and periods.  Therefore, that is the approach of this post.  I begin with a few definitions and explanations of concepts first.  After each definition, I discuss some problems and implications with these common definitions.  Then I provide some examples of the application to the college investment model after making some common sense adjustments to the current assumptions. After reviewing these examples, we can see if we reach conclusions about the viability of the college education on a purely financial basis.

I will begin with the most common cost discussed.  This is what is now becoming a federal government mandate cost, cost of attendance or COA.  COA has its roots in the Federal Financial Aid literature and this is a typical definition. “The COA includes tuition and fees; on-campus room and board (or a housing and food allowance for off-campus students); and allowances for books, supplies, transportation, loan fees, and, if applicable, dependent care. It can also include other expenses like an allowance for the rental or purchase of a personal computer, costs related to a disability, or costs for eligible study-abroad programs.”

This is a fine definition to help compare costs across colleges and programs.  However, when used in the financial model for ROI (as it most certainly is in most cases), it violates a basic assumption of ROI models.  You should only include costs or expense that would incur if you take the investment action.  That assumption would exclude on-campus room and board (or a housing and food allowance for off-campus students), transportation,  and dependent care.  Whether a person goes to college does not determine having housing, transportation or the need for dependent care.  Even the need for a personal computer seems essential across all life situations these days.  However, the tuitions and fees are substantial and are a major portion of the investment.  Associated with college costs, would be the student loans but only the portion of the loan as it relates to tuition and fees.  Taking loans that allow for high standards in housing, transportation, or food is an issue for a different kind of blog.

An additional issue with the COA is that excludes an essential cost, opportunity cost.  Opportunity costs in our ROI model would be income that is forfeit because the majority of the person’s time is spent in class and studying.  At a minimum that would be 4 years of at least minimum wage in a full time job, though it could be substantially more as it would seemly likely that a recent high school graduate that earns admission to college is likely to secure more than a minimum wage job. 

Finally, the ROI model discounts future earnings and costs to a present day value so all dollar values are equal.  Any model should discount back to the decision point of choosing to attend college.  That would mean to the first month of attendance.  The period is neither to a graduation date nor to a date of acceptance.  Therefore, with those assumptions in mind, we can explore some alternate scenarios. There is one other time related assumption, the length of time to pay off loans.  Most federal models assume a ten-year time though research cited by US NEWS in 2014 shows an average closer to 24 year Link. Since, most interest amortization is based on 10 years and most discount models in business use 10 years, we use the 10-year assumption.  

Next, it is time to build out some scenarios.  This may seem boring at first but I assure you that I used the most unbiased sources I could find.  I also made sure to disclose the date of the studies.  College costs are changing and estimates from even a decade ago can be poor representations of current conditions.  Oh and by the way,  if bored with the numbers you can jump down and see the conclusions.

First, we start by noting some of the research on the returns earned from a college education.  The first thing that jumps out is these returns really do depend on the degree earned.  This degree earned means not only what school but also relevant is what major.  These factors will add quite a bit of variation in earnings.  We try to stick to using on average with a big caution that keep the college and major in mind.  One very commonly cited study comes from the US Census Bureau Link (however it is from 2002) showing over 10 years the college graduate earned $195,000 more than the high school graduate or $19,500 more per year.  Again not the full story as we have to factor in the opportunity cost of earning $75,600 over the four years of college, which we subtract from the 195,000.  Therefore, for this scenario we will use $119,400 in additional earnings for the college graduate. The Pew Report from 2014 does not show a great deal of difference though the gap is decreasing Link.  For this scenario, the gain over 10 years is $175,000 and the opportunity cost is $112,000.  Therefore, we have an effective gain of $63,000.
Next, we need some estimates on cost of tuition, fees, books, and supplies. The College Board Link  estimates in 2014-15 that the average tuition and fees for 4-year public institutions is $9,300 per year.  Books and supplies add approximately $700 for a nice round figure of $10,000 per year.  Assuming that the student borrows the 31% estimate provided by Sallie Mae in 2014 Link, and then the discounted amount of interest is added on.  We have another $13,500 of college cost.  Our total cost for attending college for four years is $53,500.

Now to revisit the additional earnings estimates for college graduates. Using the same discount rate on the cost of student loans, we have additional earnings of $103,725 from the 2002 census date versus the $53,500 cost of 4 years of college costs with interest on student loans.  Under the Pew Report of 2014, the picture is not so positive.  The discounted earnings surplus for the college degree is $54,730 versus the $53,500 cost of 4 years of college costs.
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It seems clear that should earnings go up because of major or the brand of the university then the return on investment is still likely to be even better.  However, using the more recent Pew numbers, should the amount of college funding by loans go up substantially and/or the cost of tuition and fees go up, then the positive return on investment is not likely to become negative.  While I am a firm believer in the additional non-financial benefits of a college education (see my previous posts), the ROI financial model with significant student loans just does not seem to make a strong case at this time.
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