still too much college, again
In the past, I have argued that it is erroneous to assume that all people must go to college. Some people don’t have the academic or emotional capacity for higher education. Many don’t learn much when they do go to college. Still others spend years getting degrees as a labor market signal. Individually rational, but not efficient. College is definitely good for *some* people, but not everyone.
Now, Paul Campos, a Colorado law prof, gives a succinct economic argument against the over-investment in college. I quote at length from his discussion of legal education:
Consider how American legal education is funded:
- Law schools calculate a total annual cost of attendance, based on their tuition and the cost of living in the area where the school is located. For example, American University’s law school estimates this year’s cost of attendance as $70,204.
- Any student a law school chooses to admit can, assuming he or she is not currently in default on an educational loan, borrow 100 percent of the cost of attendance for that particular school from the federal government, in the form of educational loans that currently carry interest rates of 6.8 percent and 7.9 percent.
- The federal government puts no limits on how much money a school can make its students eligible to borrow, nor does it make any effort to determine whether the federal loans students are taking out have any reasonable prospect of being paid back.
- Interest begins to accrue on these loans as soon as they are disbursed. This means that a student who enrolled, for example, in American University last fall will have — assuming a 3.5 percent annual increase in the cost of attendance — approximately $260,000 in debt when the student’s first loan payment comes due, six months after graduation. The student will owe monthly payments of more than $3,000 on the standard 10-year repayment plan, and nearly $2,000 on an extended 25-year repayment schedule.
In effect, the system allows any 22-year-old American University chooses to admit to borrow a sum equal to the average home mortgage, but without a single one of the actuarial controls that are supposed to minimize the risk that homeowners will borrow too much money.
The situation isn’t much different for college students. As long as an accredited college accepts a student, they can take out a home mortgage without (a) showing they can pay it back, (b) having any collateral backing the loan, and (c) placing any reasonable limits on the amount of the loan. This is bad.