Wednesday, January 21, 2009

"The Great College Hoax"

In a post on October 1st ("The Next Bubble to Burst in the Deleveraging Process: Higher Education?") I wrote,

Like housing, spending on higher education has been fueled by cheap credit facilitated by a government sponsored enterprise (Sallie Mae, in the case of higher ed). As with housing (up until the burst of that bubble), all this cheap credit has led to higher prices (interestingly, politicians who call for increased spending on higher ed every election year never seem to consider that this increased spending may have helped drive up tuition costs). Now, the common sense observation that, for many, college is a waste of money and time has started to seep into the mainstream.


How long until a clear-eyed consideration of the return on investment (of time and money) of college educations becomes part of the conventional wisdom?

Later that month, as I noted in another post ("The Coming College Bubble"), Forbes published an article with a similar thesis. The current issue of Forbes features another article on the topic, "The Great College Hoax", by Kathy Kristoff. Below is an excerpt from it.

Higher education can be a financial disaster. Especially with the return on degrees down and student loan sharks on the prowl.

As steadily as ivy creeps up the walls of its well-groomed campuses, the education industrial complex has cultivated the image of college as a sure-fire path to a life of social and economic privilege.

Joel Kellum says he's living proof that the claim is a lie. A 40-year-old Los Angeles resident, Kellum did everything he was supposed to do to get ahead in life. He worked hard as a high schooler, got into the University of Virginia and graduated with a bachelor's degree in history.

Accepted into the California Western School of Law, a private San Diego institution, Kellum couldn't swing the $36,000 in annual tuition with financial aid and part-time work. So he did what friends and professors said was the smart move and took out $60,000 in student loans.

Kellum's law school sweetheart, Jennifer Coultas, did much the same. By the time they graduated in 1995, the couple was $194,000 in debt. They eventually married and each landed a six-figure job. Yet even with Kellum moonlighting, they had to scrounge to come up with $145,000 in loan payments. With interest accruing at up to 12% a year, that whittled away only $21,000 in principal. Their remaining bill: $173,000 and counting.

Kellum and Coultas divorced last year. Each cites their struggle with law school debt as a major source of stress on their marriage.

The clever picture above, by Alex Nabaum, is from the article.

1 comment:

Sheila Tone said...

I agree with the overall concept, but that specific couple's troubles confuse me. I graduated law school with close to $60,000 in loans and my monthly payment is $260 -- not exactly ruinous. It was worth it, even though I've never made six figures. Hasn't bogged me down in qualifying for real estate loans either.

I also wonder how the hell anyone who graduated from Cal Wastern got a six-figure job -- the school isn't even ABA accredited. The guy must have either had very low LSATS or bad undergrad grades. A more appropos example would be the many people I've known who weren't really law school material who went there or to similar private, fourth-tier schools, got heavily in debt, and couldn't pass the bar or get a decent job. But two six-figure incomes?! They've got no excuses.