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|Friday, April 04, 2014|
BY ERIC FRUITS
College is expensive and it’s getting more expensive every year. Over the past five years, according to the College Board, in-state tuition and fees at Oregon’s public universities has increased 30 percent, while private institutions have seen a 19 percent increase. Over the same period, average student debt in the U.S. has increased 31 percent to more than $27,000.
The rapidly rising cost of higher education has left even the smartest researchers and the wonkiest of wonks wondering what’s happening and where’s all that money going. More and more, prospective students—and their families—are asking: Is college worth the cost?
Over the past few years, the salary comparison website Payscale.com has collected salary data from its users and ranked U.S. colleges and universities based on which schools deliver the best bang for the buck, measured by Payscale’s calculation of the net return on investment (ROI). They measure ROI as the difference between a typical graduate’s earnings over 20 years and subtract out the cost of attending the school. The data are far from perfect, but there are enough data points to make some broad generalizations.
The figure above turns Payscale’s rankings into a scatterplot. The green dots represent in-state tuition and fees for Oregon public universities, excluding Portland State University. The red squares represent Oregon’s private colleges and universities.
Two things stand out:
While Payscale accounts for the variation in the time it takes a student to complete a degree across institutions, it misses some key costs of higher education. For example, the typical student graduates with about $27,000 of debt. Interest payments on this debt reduce take-home pay and reduce the return on investment for higher education. More importantly, Payscale misses the fact that, in most cases, full-time students give up full-time employment. In addition to spending money on tuition and fees, student are giving up money from four or more years of employment.
The figure above adds some very back-of-the-envelope estimates to account for interest payments on student debt and the opportunity cost giving up employment while in school. It assumes the average amount of debt and that a student would give up full time work at the federal minimum wage. Yes, I know that’s not very realistic, but it’s pretty conservative and you’ll get the idea.
As with the ROI scatterplot, the dots are all over the place. In fact, there is hardly any relationship between the opportunity cost of higher education and future earnings.
What is most striking, however, is how small the net benefits are—even for students paying in-state tuition. Students at Southern Oregon University and Western Oregon University just about break even on their college educations. If it took them a little longer than average to graduate, or if they incurred a bit more student debt, these students would have been better off skipping college altogether.
Keep in mind that the data presented here looks only at the “average” student. The benefits and costs of education are unique to every individual. Having the right test scores, choosing the right major, and having a supportive network of family and peers can make huge differences in the payoff to higher education.
Nevertheless, a look at previous Payscale studies shows that over the past few years, the return on investment in higher education is declining. Students seem to be paying more, but getting less. Research suggest new administrative positions—particularly in student services—have driven a 28 percent growth in the higher-ed work force from 2000 to 2012. At the same time, universities have shifted to a growing army of part-time instructors and full time faculty salaries have barely kept pace with inflation. The result is a set of institutions that have shifted their focus away from research, education, and training and more toward providing social services to employees and students.
Unfortunately, I don’t see this trend ending soon. It will take a major student debt crisis for policy makers and educational institutions to refocus their direction away from growing the university bureaucracy and back to providing an education that is valuable to students and employers.
Eric Fruits blogs on economics and finance for Oregon Business.
Monday, June 30, 2014
Oregon Business magazine won two silver awards for excellence in writing in the National American Society of Business Publication Editors Western region competition.
Monday, July 14, 2014
BY VIVIAN MCINERNY | OB BLOGGER
Some people think Amazon’s winking eye logo is starting to look like a hoodwink.
Tuesday, July 01, 2014
BY HANNAH WALLACE | OB BLOGGER
Demand for organic food continues to soar: Last year, sales of organic food rose to $32.3 billion — up 10% from 2012. In Oregon, organic produce wholesaler Organically Grown Co. has been championing organic growing methods for four decades.
Thursday, July 24, 2014
BY CLIFF HOCKLEY | OB GUEST CONTRIBUTOR
With the increasing retirements of Baby Boomers, a massive real estate shift has created a significant increase in demand for NNN properties. The result? Increased demand has triggered higher prices and lower yields.
Thursday, July 10, 2014
BY TOM COX | OB BLOGGER
Tom Cox interviews Dr. Mark Goulston, author of Just Listen, Discover the Secret to Getting Through to Absolutely Anyone.
Monday, August 25, 2014
BY JASON NORRIS | OB GUEST BLOGGER
Ferguson Wellman’s investment views on the economy and capital markets.
Wednesday, July 02, 2014
BY JESSICA RIDGWAY | OB WEB EDITOR
Dress for Success Oregon promotes the economic independence of disadvantaged women by providing professional attire, a network of support and career development tools.
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