College Education is Almost Broken Enough to Change

Rodney Johnson | Friday, April 25, 2014 >>

College is a great time for instruction and learning, and sometimes the classroom is instructive as well.

Over the last two years, my son has been away at college receiving a great education in life. He’s had to deal with bureaucracy and paperwork that seem to exist only to thwart students.

Recently, he’s run up against a cost structure that only a government official could love: paying the school in order to work for free.

Let me say that again: My son had to pay to work for free…

Here’s the backstory…

My son ended up in line for an internship over the summer at the local police department. While discussing this with the desk sergeant, he was told that internships are handled through a professor on campus at the university.

This was a good thing, since my son had already taken the professor’s class.

Then it got better.

It turns out that the internship would fulfill a required course and provide several hours of college credit. It seemed to be perfect — but things aren’t always as they seem.

With the paperwork filed and the internship secured, all was in order. Then I got an email from the university showing my son had a balance due.

I figured it was another parking ticket. I asked my son about it and he couldn’t remember any tickets, but promised to check on it.

As it turns out, the charge was not $30 for a parking ticket, it was just over $6,000 for taking one summer class. The only problem is, he hadn’t signed up for the summer session — or so he thought.

In the eyes of the university, the unpaid internship at the police department is indeed a class, which they justify by pointing to the hours of credit earned.

Granted, there’s no teaching by the university, and none of their facilities are used. But that’s beside the point. They have the paperwork. They give the credit. Therefore, they want their money.

When faced with this logic at the student receivables office, my son could barely speak. He asked the clerk to explain why he would be charged over $6,000 to provide six weeks of free labor to a local government agency.

There was no credible answer.

He called me soon after leaving the Bursar’s office, as he made a beeline for the Registrar’s office to drop the “class.” He recounted the story and was still incredulous that the situation existed.

I’m not. I understand it completely: Higher education is broken.

Institutions are so top-heavy with administration, personnel costs, and maintenance of facilities that teaching has become a secondary concern.

Moody’s rating service estimates that at 60% of the colleges it tracks, expenses are outpacing revenue. Colleges work to raise revenue at every turn, which leads to idiotic episodes like this one, where my son was to be charged $33 per hour so he could provide free labor.

It would’ve been the reverse of a great job, as the amount he was asked to fork over would have equated to a position that paid $66,000 per year.

Clearly, the college model is broken when it comes to cost, but it’s not quite broken enough.

This situation didn’t occur overnight. As state budgets grew during the 1980s and 1990s, so did their contributions to state colleges.

Meanwhile, the economy was growing, money was flowing, and there was a rising tide of kids reaching college age. All of this meant that there was a lot of cash being poured into universities — both private and public — while demand for their product continued to grow.

The financial crisis slashed the amount of funding that universities received from states, and also reduced the ability of many families to pay what colleges charge.

But there remained a saving grace: student loans.

With no eligibility requirement other than enrollment, these loans are free and easy to get, but are proving stunningly hard to get rid of. Graduates face dim job prospects and high student loan payments.

Many programs have been developed and discussed to assist with loan repayment, such as pledging part of one’s income or competing for loans from private lenders. But none of it deals with the true issue: The cost of higher education is too high.

Eventually, this will turn students away. They’ll simply wash their hands of such programs and choose other paths to get the education they want and need, much as my son, on a small scale, told his university… “Thank you, but no.”

As this happens, it could lead to an implosion of the higher education system.

Harvard Business School professor Clayton Christensen warns that up to half of the 4,000 institutions of higher learning in the U.S. could fail in the next 15 years as students turn to online learning and other methods of education.

That estimate might be an exaggeration, but still, something needs to be done.

When colleges are at the point of charging students for the privilege of working, clearly the system is broken.

The question is: Are they broken enough to change?


Rodney

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About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.

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