College costs get out of control [Financial Perspectives]

I was flipping through the pages of last weekend’s Wall Street Journal (August 24-25) and I came across an article titled, “The Real Reason College Costs So Much.” The article was really an interview with Dr.  Richard Vedder, who is a professor at Ohio University, and an expert on college funding.

He has been a professor since 1965 and politically he admits that he is left of center.  The article touched on President Obama’s newly revealed Education plan and Dr. Vedder’s assessment of its viability.  He also provided his view on the state of our higher education system.

In large part, he believes that we are experiencing the bursting of the higher education bubble.  The evidence comes from the fact that there are large numbers of college graduates who are not able to get jobs in their fields of study.  The second factor is the alarming increase in student loan debt, which is having a crippling effect on students and their families.

His contention is that these issues have, in large part, been fueled by the government’s subsidy of higher education over the last several decades. These subsidies have helped push tuitions to the extreme levels we are dealing with today.   The tuition increases allowed many colleges to increase their spending on all sorts of things.

The article goes on to provide examples of schools that have created campuses with spa like amenities.  It also mentions some state institutions that have seen their administrative payrolls balloon.  Since the recession of 2008, and the sharp reduction in government spending (at the state level), many schools have been forced to make hard decisions and implement significant cutbacks.

The President’s new plan calls for federal funding to be based on number of graduates schools produce.  Dr. Vedder seems to be of the opinion that this will do nothing more than degrade the value of a college education as many schools will push students through to help ensure they keep their federal funding.

He also indicates that overall there are too many students being funneled into four year colleges.  This is not what happens in Europe.  Europeans have a much better program to help students to identify their strengths and guide them into career training best suits them.

Vedder thinks that the government needs to get out of subsidizing higher education and he strongly believes that the market cost for a college education will have to come down.  He also believes that technology advances will help drive the costs of delivering higher education down.  He references that the for profit colleges where they have very low operating costs and they have been able to deliver education in very efficient ways.

So what does this mean to you if you have a son or daughter who will soon begin applying for college this year?  It is really important that you child give consideration to what they want to study.  Selecting a major that has seen graduates have a difficult time in getting a job, they may want to think twice about that field.  I cannot tell you how many young education graduates I know that are working in other fields since they cannot find full-time teaching positions anywhere.  I use this just as one example.

A second consideration is to find out if your child can work in their intended field with a two year degree? There are a number of career fields that only require a two year degree, but in many cases students have opted to go earn a four year degree (and in many cases they still earn only as much as the two year graduates).  Finally, if your child decides that they want to pursue a technical program (such as becoming an electrician, mason or plumber) hear them out.  Not all kids need to go to college.

Good luck with you planning!

The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC 8725 Frankford Avenue Philadelphia, PA 19136 jim@familywealthservices.net 215-332-4968

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.