Monthly Archives: March 2015

Is a private college education worth it?

Private versus public higher education is a consistently controversial topic. In my up-and-coming book, the third of my trilogy, Excellence vs. Equality, the economics of a college education are discussed.

For in-state tuition (tuition only; not including fees, room and board, etc.) in 2013/2014, the University of North Carolina – Chapel Hill charged $5,800; the University of Texas – Austin charged $9,000; and Ohio State University cost $9,750.

Now look at the prices of private schools in the following year:

US News Report of the 2015 Most Expensive Colleges and Tuitions

US News Report of the 2015 Most Expensive Colleges and Tuitions

The College Board reported that between 2009/2010 and 2013/2014, the net average cost of a public institution rose to about $3,000. Meanwhile, the net average cost of a private institution rose to about $12,000. These numbers are averaged to include cheaper private institutions, such as Brigham Young University, and to include average grants/scholarships/aid money. However, it still follows a general trend that private institutions cost at least 4 times as much as public ones.

Increasingly, a number of pundits are questioning the economic value of a college education. Given $50,000 per year for four years (cost for college tuition and room and board for many private colleges), that is $200,000 placed in a money market or insurance account at age 18, compounded at 4% per year for 50 years (22+45 = 67 years, the age when Social Security starts), yields a better lifetime return ($1.4 million) than the difference earned between a college graduate and high school graduate (slightly more than $900,000). At 6% the yield is $3.7 million and at 8% the yield is a whopping $9.4 million or $8.5 million more than the lifetime income between a college and high school graduate.-Allan Ornstein, Excellence v. Equality

In my opinion, investing the money that could be spent on a private institution, which relies on elitism and biased judgments instead of only merit, is money better spent.

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Wall Street vs. Main Street

Edward Wolff, in a paper for New York University, wrote that wealth inequality rose rapidly between 2007 and 2010. Since then, it has allegedly remained stagnant. Historically, recessions have been marked with a piling of debt, a sharp increase of inequality, and then a gradual decline of such inequality. Why, then, has the United States failed to rebound? Why is our inequality stagnant?

By Guest2625 (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

By Guest2625 (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)%5D, via Wikimedia Commons

Classes Set in Stone in the U.S.

According to an MSNBC article, “only 6% of all Americans born in the bottom 20% (currently, households earning up to $20,000) will ever make it to the top 20% (currently, households earning more than $104,000).”

In my article published in the American School Board Journal, I explore how a lack of social mobility limits our country’s future prosperity:

“In stratified societies, privilege and wealth determine access to a good education and job. In democratic societies, families at the lower economic levels are handicapped, but those children with ability often find opportunities to succeed, although not everyone with ability will succeed. To be sure, a democratic society needs to provide opportunities for children of ordinary people in order to maximize its human resources and to foster its growth and prosperity. The problem is we are becoming a society of inherited wealth, not self-made people, just when we thought we had put behind the idea of hereditary privilege and old patterns of aristocracies and family, caste and class.” -Allan Ornstein “Excellence vs Equality: A Perennial Issue”

Richer getting richer

Part of the reason why the rich seem to be getting richer is the American investment gap. By its nature, investors with capital expect and usually obtain greater returns on their investments than labor receives in wages. People who invest capital look for at least 10 percent on returns. Labor usually receives 2 to 3 percent annual raises. In addition, investments generate dividends and capital gains which is taxed at much lower rates than the wages (salaries). Compounded over years, inequality continues to grow between the rich (with capital) and the rest of us (who work for a living).


Main St

Between 2007 and 2010, the middle class had 63 percent of their assets tied up in their homes, with home equity accounting for about a third since they have large mortgage debt. They were also constantly divesting and selling investments in order to partly pay off such debts. The middle class did not have the exposure or the resources to invest long term, leading to lower returns on investment. Meanwhile, they continue to work for a living and receive low return on their wages.
Wall St

The rich “haves” can invest at their leisure. An MSNBC article stated that the upper class put an average of three quarters of their income into investment assets. With so much exposure within the stock market, they saw an average of 5.9% return on investments between 2007 and 2010, as compared to the 3.3% return for the middle class. These “haves” also has access to Hedge Funds, which can do much better than other investments. They have the capital grow their money, without working for hard-earned wages that consequently gain lower returns.

Another factor is that the rich have the resources to take risks in the stock market, and they have the resources to put more of their income into investments. The haves therefore continue to increase their already high income, while the have-nots are disadvantaged by not having the resources to do so.

It is surprising that the middle class has not rebelled against the rich. However, as long as the idea of the “American dream” remains an ingrained aspect of our society, they probably never will.

Economic growth and development now

Recession

During the recession of 2007-2009 in the U.S, unemployment rates peaked at 10 percent, employment of young adults declined, and over 300,000 workers were laid off, according to the U.S. Bureau of Labor. For those of you affected by the recession, I’m sure you remember its impact.

Sectoral_Financial_Balances_in_U.S._Economy

User:Farcaster [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)%5D, via Wikimedia Commons

Recovery and Economic Growth

The United States economy has still not recovered from the recession, and inequality has risen as a result. For example, according to the U.S. Bureau of Labor, the unemployment rate in Nov. 2011 was still 4% higher than it had been pre-recession. However, the economy is making some progress, even if small to moderate in scale. The economy grew by 2.4% last year, according to The New York Times. This is not an accelerated rate, obviously, but rather a moderate pace in line with previous years. Mr. Obama has installed helpful policies for affordable housing and is working to increase the minimum wage. However, there is much more work to be done in order to even slightly decrease societal income inequality.

Future of the Economy

The future of the economy often can be traced and tracked through education. As the United States’ educational quality diminished, so did its economy.

“According to Richard Wilkinson and Kate Pickett, British social scientists, in rich countries where incomes are more evenly distributed, the citizens have higher education achievement, live longer, and have fewer rates of obesity and delinquency.”
Wealth vs. Work by Allan C. Ornstein. 2012.

Education is linked accordingly to income distribution according to this study. The reversal of our fortunes therefore relies upon what political leaders decide to do. However, the country’s political leadership oftentimes seems unable and unwilling to help the people or to provide a sense of common purpose. The United States can come back from the recession and its downfall… provided that reform is made through tighter regulations, early financial warning signs, and higher taxes for the rich.

*correction: The unemployment rate was 4% higher in 2011. A previous version had misstated that it was lower.