Skin in the Game

How can colleges be encouraged to control their costs?

College costs are ridiculous. As our economy becomes more knowledge-based, additional training is more necessary than ever in order to add value to an employer. A four-year degree from many private schools now costs between 200 and 250 thousand dollars. For most families, the prospect of paying upwards of half a million dollars for their children’s education is daunting.

Federal subsidies, such as guaranteed student loans, Pell grants, tax credits, and other programs appear to have been captured by the schools themselves, as administrative and other non-educational costs have soared. And higher private school cost-increases have been mirrored by those of public colleges.

It’s not just a personal issue, as aggregate student debt now exceeds $1 trillion. This excessive personal leverage makes our economy even more fragile. If you ask a college administrator why an undergraduate or graduate degree costs so much, they will note that tuition only covers a fraction of the cost, and that a college degree is more economically valuable than ever. But that doesn’t answer the question.

So how do we encourage colleges to compete on cost? One idea would be to require the colleges themselves to extend credit to their students. If that school believes that its graduates have superior job prospects and earning potential, they can invest in their enrollees by financing part of their education. And those loans, like almost every other form of credit, should be dischargeable in bankruptcy.

At least then the schools will have some skin in the game.

By | 2017-07-17T12:34:54+00:00 May 29th, 2012|Recession|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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