Is education not worth what we spend?

Economics editor Chris Farrell


Bill Radke: Last week, The Education Department reported the student loan default rate rose last year from about 5 percent to almost 7 percent. Marketplace's Economics correspondent, Chris Farrell, says not only are students struggling to pay their loans, the money they're spending may not be worth it. Hi, good morning, Chris.

Chris Farrell: Well good morning.

Radke: Why do you think college today might not be paying off?

Farrell: Well think about it, Bill: what's the message that's been out there for the past several decades? The reason why you go get a college degree and you take on all that debt is because you get these great job opportunities -- and let's be really clear here, you get a good income. But if you look at the earnings of college graduates with a BA only since 2000, those real earnings, adjusted for inflation, are down. At the same time, the real debt burden from the loans that you've taken on in order to go to college are up.

Radke: But I'm trying to save money for my daughter's future education, and I see tuition keeps on rising. Why is that?

Farrell: You know, I think that we have been living through -- I'm going to use this term, and I'm not going to use it lightly -- an education bubble. Now, not everything that goes up in price or gets more costly is a bubble, I mean let's be really clear about that. But think about education. Why is the price going up? I know there's lots of reasons, but I'm going to give you the main one: the availability of student loans. Colleges and universities can raise their prices, we've made student loans more available and the bubble is going to burst. And the sad thing it's gonna sweep up a lot of young people.

Radke: So are you telling a lot of young people: shop on price, your degree might not be what you think?

Farrell: I am telling young people going to college use to be the equivalent of a hot growth stock. It's now the equivalent of an insurance policy. You still want that college degree, because you're gonna to be worse off without the college degree. But it's an insurance policy, so price really matters.

Radke: So who loses if this bubble pops?

Farrell: Well, I think there're two main losers. First are the student loan lenders. They're gonna have less business, they're gonna have higher default rates. And my own guess, and I'm just gonna put it out there, over time we're going to rely less and less on student loans to pay for college. The second group are colleges and universities. They've gotten fat and easy because they can always raise their price, and that's no longer going to work. They're going to face a lot of financial pressure. But you know what? They don't know yet how to deal with it.

Radke: Chris Farrell is our economics correspondent. Chris, thank you.

Farrell: Thanks a lot.

About the author

Chris Farrell is the economics editor of Marketplace Money.
Log in to post9 Comments

I'm 47 years old and recently completed a BS in Accounting and an MBA. I had to weigh both the costs and time expenses with the benefits of income and security, and at my age, the justification is much more difficult than if I had done this at 18. For me, a degree that eliminates competition from non-college grads provided more security, flexibility and a decent income. There are basically 3 benefits of college:
1) Employers use college as a filter. If you can't get through the filter, your other qualification are useless.
2) There are some jobs that are not accessible without a degree, such as CPA's, Doctors, Engineers, Lawyers, Teachers, etc. There are others, such as Musicians, Artists, Actors, Salesmen, Businessmen, Electricians, Plumbers who might benefit greatly from a degree, but they should pay particularly close attention to the benefits of a costly 4-year degree versus 4 years of experience with pay and without debt. The benefits of college for these folks has been greatly exaggerated.
3) Life-enhancing knowledge.

The bottom line is that college doesn't always equal a good job. If you aren't into spending big money for intellectual pursuits, don't waste your time getting a BA. If you lack sales and entrepreneurial talent or drive and aren't interested in blue-collar work, go to college and pursue something that requires that major in order to get hired. Your ability to get and keep a good job will be greatly enhanced, and the stress levels that come from being easily replaced will be much lower.

My daughter is a HS sophmore. i just attended a one-hour promoi-nar and a follow up personal session with a college funding advisor this week. I've no education dedicated savings and just bought a post-divorce house with 30-year mortgage. The outcome of the advisors short "bare-minimum" analysis was an eye-opener. I'm not the sort to panic - but it looks like mountain looming in front of me and stormy weather moving in. College, like health care - is a a very large gamble - and in the end I can't say it going to be there as an asset. All that being said - i went to school 1978-1984. parents gave me almost no assistance, I worked and went to school - 6 years to get a degree that never made an impact on my career. It took 7 years to pay off the debt. Today - I'm looking very suspiciously at the value of "attending" college. There's a very large downside if your choice doesn't pan out - and bankruptcy don't free you of the mistake. Colleges and Univerities need to start thinking about their product.

As a student of Miami University who just recently went through the process of attending a career fair and trying to find an internship in my major field, I can greatly relate to this story. I agree that students have relied too heavily on student loans, and institutions too often raise prices to supplement low application rates. However, I also think that too many students are not focusing on the intangibles of a college education; research availability, peer involvement and academic advising. While many classes teach you technical knowledge about a certain profession, i.e. which side debits go on and what side credits credit go on, classes lack externally applicable education. This isn't to say that potential employers undervalue technological understanding, but rather that post-graduate applicants lack skills that can not be taught in a classroom. This article should note that university students should take a portion of the blame, as they not fully utilized many of the resources that their borrowed-tuition makes available to them, i.e. resourceful academic advisers, free lectures from industry leaders, research opportunities, etc. At a general public university, I argue that one would be hard pressed to find more than a handful of students who would like to publish a study they were responsible for (partly because none of them are responsible for a study.) There is no reason to be confused as to why formal degrees are nothing more than insurance policies. It is becoming more common that students just go to college to go to college. Borrowing money just to have your name printed on $80,000 parchment paper (diploma) arbitrarily drives down what a college is worth in the competitive global work force. The price of education is rising as the value of education is falling. I blame my peers and students who do not go outside the norm and go to college to learn, not get a degree.

A major problem today is that students get their degree and expect it to be a ticket to better paying jobs. Many have received no education and are not better people for having attended college. Their insurance policy is just a piece of paper. As Alan's comment shows, increased tuition isn't going toward education. Add that to student's unwillingness to learn and situation becomes a viscous double bubble of non-education and high debt loads.

This surface level "economic analysis" fails to include the many other valuable functions of higher education: the preservation and expansion of knowledge, services and programs of substantive benefit delivered locally, regionally, nationally and globally and the overall social benefit of large numbers of well educated citizens. The analysis also fails to cover in any basic way, how colleges and universities set tuition, service and fee structures and discount rates. The primary purpose and function of higher education for individual prospective students is not to be able to get a good job with a high salary, but to be able to think clearly, communicate more effectively, engage the world more fully and live more intentionally -- all things that usually result in higher levels of more fulfilling and rewarding vocations. Any thoughtful economic analysis of the costs and benefits of a higher education must take these broader concepts into account.

I appreciate the changing value of a degree and the importance of understanding academic costs and benefits. As a college educator for most of my professional life, I take umbrage to the implication that colleges and universities are getting fat as tuition and fees rise. I hope that as an economic program you will look more carefully at the other factors that have influenced these changes in pricing.
As little as 20 years ago, a student coming to college was afforded a bare-walls dormitory with a desk, bed, dresser, and closet. Said room was shared with 1+ roommate(s) and bathroom, common rooms and phones were shared among the entire floor. Computers were a rarity, email and internet non-existent, and dorm room voicemail was still a rare perk. Libraries bought a single book or journal subscription and kept them for the long haul. Students purchased a textbook, pad, and paper and sundry lab supplies. Cafeterias offered fundamental choices on meal plans. Faculty were supported by a few administrative personnel. There were fewer layers of administrators. The gym was just that, a gym.
Today, students are demanding more from their campus community with wi-fi, cable, and hi-tech computer labs all stocked with the latest version of all software programs. Computers must be kept under warranty requiring repurchase every few years to keep up with the power needed for newest software versions. Modern dorms provide amenities that rival most apartments. Cafeterias are supplanted or supplemented by coffee shops and chain restaurants. Faculty are now required to be trained on new software packages such as Softchalk and Blackboard. They are joined by a corps of multimedia specialists, web designers, help desk agents, technicians and programmers. Gyms are bastions of yoga, spinning machines, rock climbing walls, and Pilates. Libraries must now buy books, plus DVDs, CDs, licenses to full-text databases, and more online journals than could have been imagined 20 years ago. Add to this the rising cost of healthcare for all employees, plus the need to provide health services for students and it is no wonder schools are raising rates. At the same time, however, funding for public schools has been cut, and private school endowments are being hit hard. Harvard and its spending spree aside, colleges run on a shoestring and aren’t making big bucks off student tuition dollars.
All of this comes at a time when online education from for-profit schools is making the cost of attracting students rise at an astronomical rate. Faculty salaries are historically poor. Adjuncts are being hired instead of full-time committed faculty. Many smaller schools may not survive. All will have to examine new models for marketing their product and hiring their educators.
Bachelor’s degrees may be worth less than they have been in the past and money for attending college may be more easily available, but the cost of providing an education on a college campus is becoming more expensive every day and there is no end in sight.


I agree with the previous two comments but also want to point out that most of the tuition increases at universities over the past decade are NOT going toward education. If you are interested in learning more please read the Delta Foundation Report on Costs in Postsecondary Education at:


Universities play an increasingly large role in research that used to be supported by industry and use tuition money to support these secondary activities.

Your show in generally well informed, but today's showed some lack of understanding of the complex roles played by today's universities in society and the economic system. In general though, I agree with the basic tenet of your program that unless higher education can redefine its mission, the bubble will eventually burst.

To suggest that tuition increases result because Universities knew that students could just apply for more loans is a very narrow way to look at universities and what drives them. During the first decade of the new century, we have watched states disinvest from higher education, the Federal Government reduce emphasis on grants in aid, health care costs soar, pressure from the federal government and accrediting agencies to prove outcomes and increase graduation rates, etc. etc. Funding from states used to account for 75% of university budgets with students bearing approximately 25% of the cost - the percentages have now flipped. I would never argue that universities should not be looking for ways to reduce the costs of delivering quality education but to lay the blame for the loan debt of students solely at the doorstep of universities strikes me as an inadequate and incomplete way of looking at a very complex problem. I was disappointed. Examining the effect of student loan debt on students is worthwhile and on point but your analysis was lacking.

I think Chris Ferrell misses some very important points. He makes no distinction between public and private colleges, nor does he acknowledge that one of the primary reasons tuition costs have risen at public colleges and universities is due to the continuing and growing lack of financial support from their state legislature. With struggling state economies predicted over at least the next few years, this will only get worse.
I also disagree with his assumption that colleges and universities, especially public ones, have no qualms about raising tuition because of the availability of student loans. They raise tuition so that they can keep the lights on and pay faculty and staff, and provide the education and services that students and families expect, yet he implies they raise tuition simply because they can.
Lastly, he makes no mention at all of the intrinsic value of a strong liberal arts education. If we only wanted our children to go to college to "get a good high paying job" the world would be without fine artists, musicians, philosophers and a myriad of others who contribute to make this a better world.

With Generous Support From...