The Bubble of the Bachelors Degree

8/10/2019 The Bubble of the Bachelors Degree

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Check this out -http://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.html

A solution to the College Education Bubble

Higher education in the United States is in the latter stages of a bubble. Bubbles arecreated when thinking and reality diverge in large proportions. In this aspect,almost all paradigms and ideas have potential to become bubbles. In fact, it happensto us daily. The vast amount of information and cognitive biases makes ourunderstanding imperfect. The reason most ideas dont reach bubble proportion isbecause reality forces a perspective to evolve to best match the facts. The bubbleanalogy is often used in investing, but is as applicable to higher education as it wastowards technology companies in the late 1990s.

A bubble can be described as a fertile fallacy. It is fertile because the misconceptionproduced positive results before the deficiencies were discovered. It is a fallacybecause it is based on imperfect understanding. The fallacy grows in social

paradigms because they are rooted in accumulated biases. Such biases have atendency to have a large part in shaping a society. False ideas can prevail for a longtime, especially if they have previously produced positive results. A prolongedfertile fallacy embedded in the collective consciousness produces widespreadnegative societal outcomes.

A college education is the quintessential fertile fallacy. A college degree onceassured a certain standard of living. It was structured nepotism. Prospective
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students from the upper middle class and upper class were the only ones who couldafford it. Once the degree was attained, the recent alumni had the seal of approval.When the opportunity to attend college increased to lower classes, it seemed like ano-brainer. The value of attaining a college degree has changed significantly fromprevious generations, but remains a societal stepping stone.

Adolescents are highly influenced by their culture and family. Many kids go tocollege because it is the socially acceptable or it is the parents wishes. Many parentshold conservative views on the job market and college. The problem is that at 17years of age, most kids have very limited knowledge on the world, so they deferreasoning to the parents. This problem gets compounded because most kids viewtheir parents knowledge as almost infallible.

The decision to attend college is rooted in the emotions of past generations.Parents often live vicariously through their children and are as susceptible to socialconditioning. Most mothers, from the day their child is born, sadly extract their

value from the child. Their will-to-power is expressed through the child. It hurts amothers ego when her child is not viewed as a societal success. The same is true forfathers, but to a varying degree depending on his ability to express his will-to-powerin other forms. The problem arises when the parents shape the childs views inextinct or conservative thought paradigms; like the value of a college education.

The inefficiency of higher education has and will continue to create problems for jobseekers and society. The embedded beauracratic nature of higher education hascreated a lagging mechanism. Colleges alter or eliminate a degree program after asustained trend of decreased enrollment. This is exasperated by the fact thatdecreased enrollment occurs once the public realizes the demand for the degree in

the labor market has diminished; which can take a long time.

Why is a college degree not as valuable as it once was? There are a few factors tothis. The labor market is like any other market. It is a function of supply anddemand. On aggregate, the supply of college graduates is increasing and demand isnot keeping pace.

The supply of people with college degrees has increased significantly. From 1970 to2011 the amount of enrolled college students has increased from approximately 7million to 18 million. The enrollment of girls enrolled has increased greater than300%. It is problematic to look at such a statistic and claim how well the society is

doing as most politicians would. Like any other market, if demand does not exist orfar outstrips supply, then the value is diminished.

The demand of a college graduates labor is multifaceted. The work force is workinglonger. This is due to many factors. The real wage decrease, debt increase, excessiveconsumption, and lack of long-term planning are a few of the reasons. The reasonwhy this has an effect on college graduates getting a job is due to the trickle downeffect and the profit motive. For example, when an experienced middle manager


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works longer, it prolongs the promotional process. When the promotional processslows, it delays the entry level hiring.

In conjunction, the rapid increase in technology has increased corporateproductivity greatly. A task that previously took three workers now only takes one.

This creative destruction has not only decreased the demand for manufacturingjobs, but also corporate entry and middle level positions.

Globalization has also had a profound impact on the labor market. As the rest of theworld catches up in economic production, it creates a deflationary pressure on theUS economy. If a Chinese company produces a similar good/service at a lower cost,then the American company will have to lower its costs. If the equilibrium in the jobmarket is changing; what is the value of a college degree?

The intrinsic value within an education is supposed to be to gain productiveknowledge in a field of study. The difference between productive knowledge and a

college education is a pervasive misconception. There are two reasons for enrollingin a college program. One is to create a cash flow from the investment and the otheris strictly to attain knowledge for its own sake. Both reasons provide the same effectof attaining knowledge in the field of study.

For someone who just wants to obtain the knowledge, say in philosophy, would itmake sense to do your own independent study or enroll in a degree program? Thedegree paper would provide no upside other than maybe boost youre ego. The


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cost would be significant. Not only that, but you would have to study many othercourses such as intro-to-college and biology. On the flip side, if you did anindependent study, you could learn at your own pace and model the curriculumafter the Oxford philosophy course description and reading list. The only drawbackfrom the independent method would not having structured feedback from a

professor. This drawback has been mitigated significantly since the advent of theinternet. You could join a philosophy group, or even hire a tutor or ex-professor toreview youre work.Ironically, most universities even structure some of theircourses where a Ph.d speaks out of the book and the effective learning takes placewith the teaching assistant at another time.

The same logic of independent study could be proposed for the person interested inmaking a career in their field of study if society chose to evolve. The catalyst tomaking this a reality would be businesses not making the degree a requirement. Acompany could ask prospective entry level employees to present research, provideknowledge on the industry, or even take a test to prove knowledge and

understanding. To mitigate a long-term commitment to a nonperformer, thecompany could implement a trial period similar to an internship.

Changing the entry level requirements would have enormous value to society. Itwould cut the cost of learning down significantly. Students that would preferattending a four year college program would also get a cheaper education. It wouldreverse the $1 trillion student debt. Below is a graph on the cost difference:

The above chart assumes the independent learner would continue living with theirparents, a textbook cost of $900, and a tutoring service for $1000. This cost of $1900

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

room &board

books tuition &fees

tutor total

college

independent


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encompasses the entire explicit cost to the learner. The college educaton is based offPennsylvaniasaverage 2014 in-state public university costs.

There are infinite paths a learner could take. For instance, they could spend the firstyear at home clarifying their career interest and learning money-management.

Throughout the rest of their study they could move overseas to immerse themselvesin other cultures and languages. There are a lot of options to take with the averagecollege budget of $80,000.

This method would also stimulate responsibility and passion since the student hasmore independency over his coursework and life. Many college students havemanipulated the learning process so they get the highest grade with the lowestknowledge retention. Although these maneuvers might be shortsighted, they areperformed because the student is either not interested in the material or they findno real-world applicability.

Below will not be used in the article-but for an investment

proposition

The Congress has specified that Federal Reserve Banks must hold collateral equal invalue to the Federal Reserve notes that the Federal Reserve Bank puts in tocirculation. This collateral is chiefly held in the form of U.S. Treasury, federal agency,and government-sponsored enterprise securities.

Cost of the 4 year degree- include debt and opportunity cost

How the debt market played a role

Total student debt is now over $1 trillion. Like most bubbles, debt has played a vitalrole in the consumerist education.

In any investment decision, debt financing is a precarious proposition. In modernsociety, debt can be used for asset purchases ranging from televisions to housing.What makes financing a college education unique is the mix of social narrative and

uncertainty. The social narrative, as discussed earlier, pressures a person to take onthe investment. The uncertainty arises due to its potential long-term and volatilepayoff.

When an investment opportunity is evaluated in corporate finance, a net presentvalue is calculated. This methodology projects an estimated cash inflow anddiscounts it by the financing cost. 17-year-old kids lack the to create a net present


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value for the education investment. They, and there parents naivly believe that the

benefit will be greater than the cost.

This is synonymous to the housing bubble. Low interest rates mixed withgovernment financing and subsidies was the foundation. Aggressive underwriting

due to the profit motive instigated the narrative that people should finance realestate.

Measure of unemployment

The vagueness of unemployment rates also propels the consumerist educationfertile fallacy. Colleges at best provide biased statistics and at worst make non-quantitative statements.

The U.S. Bureau of Labor Statistics reports on the unemployment in the U.S. Theremethodology is questionable.

Catalyst to bubble burst-ppl cant pay loans/societies views conform with reality

A catalyst to the consumerist education bubble burst could be from a few areas. Ifthe student loan repayment has large defaults, then the debt market will likelychange its terms or stop offering the financing.

Check this out -http://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.html

National center for education statistics nces.ed.gov
http://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.htmlhttp://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.htmlhttp://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.htmlhttp://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.htmlhttp://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.htmlhttp://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.htmlhttp://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.htmlhttp://www.federalreserve.gov/econresdata/notes/feds-notes/2014/a-few-thoughts-on-the-recent-deceleration-of-student-loan-debt-20140219.html

The Bubble of the Bachelors Degree

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