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  March 29, 2013
Learning Economics...

 


Our friends Mark and Joanne host a backyard wine tasting each Friday evening for neighbors and friends. It’s not a formal affair... just stop by with a bottle of wine and an appetizer to share.

A backyard evening event in March is  one of the benefits of living in the mild climate of San Diego (although you pay dearly for this privilege in other ways).

The company at their wine tastings is unique and the discussion is generally lively. 
 
At one point during the course of the evening, their son Travis decided to come out to the patio to join us in the conversation. Travis is a junior in high-school.

As the adults tried to engage Travis in polite conversation, the topic turned to where he might be thinking of attending college and what field of study he was leaning toward.

Travis explained to us that college applications weren’t due until the fall but that he had created a "short-list" of possible schools that he was considering.

His possible schools included Tulane in Louisiana, Drexel in Pennsylvania, University of San Francisco, and San Jose State.

When the subject arose as to a possible major, he told the group that he was planning on becoming a CPA like his father.

It was his belief that the accounting field would continue to grow and that job prospects would be good in the future either in public accounting or as a CFO at a private company.

I couldn’t help but be impressed with the maturity of this young man. He wasn’t yet 18 but yet he was certain of his education and career paths.

This event led me to begin thinking about higher education and its purpose.

In my opinion, the pursuit of a four-year undergraduate degree at a college or university only serves three primary purposes:

  1. To provide a student with the access to some broad based knowledge while living independently in a somewhat safe and controlled environment (to learn how to learn while being away from their parents watchful eyes).
  2. To prepare a student for future employment.
  3. To prepare a student for the pursuit of an advanced degree.

I’m certain that there are other aims of a college undergraduate degree program... but those three purposes constitute the majority of reasons why kids venture off to college after high school.

My conversation with Travis also started me thinking about the cost-benefit of a college education if the intention of the student is one of the first two items on the above list.

Travis mentioned that he was applying for admission to four schools: Tulane, Drexel, USF and SJSU.

According to U.S. News and World Report, here is the breakdown of Travis’s choices:

______________________________________________________________________
School Type Enrollment 4-Year
Cost*
School
Ranking
Tulane Private 13,359 $244,664 51
Drexel Private 11,899 $236,360 83
USF Private 19,719 $235,296 106
SJSU Public 24,804 $100,272 38
(regionally)
_______________________________________________________________________

Perhaps you can see where I’m heading with this analysis...

Travis is paying a university to teach him the fundamentals of accounting and preparing him to pass the CPA exam (or I should say Travis’s parents are paying).

What exactly is the extra money (just shy of 250% more) actually buying at a private university?

Now a case could rightly be made that if the private schools in the above comparison were exclusive academic giants such as the Ivies, Stanford, University of Chicago, MIT, Duke, UC Berkeley, UCLA, etc., then a case could be made that their pricing is determined by sheer demand... however, while these schools are highly respectable... no one would ever confuse these schools with the likes of Harvard, Princeton or Yale. (I’m truly not trying to pick on Tulane, Drexel and/or USF... there are literally a hundred of similar schools I could of chosen for my example... but these were Travis’s choices).

Now being admitted to a top academic university is a difficult feat. Due to the limited space and high demand, these schools need only to accept the best and brightest so the entire learning experience is elevated by the prevailing competition.    

All things being equal, a graduate with an accounting degree from Stanford will typically be offered a better position and/or a higher starting salary than a graduate with an accounting degree from San Jose State... therefore a strong case can be made that there is indeed a higher return on investment (ROI) when paying a high tuition rate to attend an elite university.

There can also be an argument that smaller private schools have a lower student-to-faculty ratio.

While is it true that upper-level and graduate classes are generally smaller and intimate, evidence shows that introductory and many lower level preparatory classes are taught by graduate assistants and/or in large auditorium style classrooms with as many as 400 students in attendance.

Additionally, many classes taken in the first two years are to fulfill general education requirements and/or preparing the student for classes within their major.

Such was the case for me when I studied electronic engineering in college.

The first two and a half years consisted of entirely of classes in calculus, physics, computer programming, chemistry, material science, statistics, and thermodynamics... as well as English, history, humanities, social and life sciences, and other general education requirements.

It wasn’t until my junior year that I finally actually learned anything about electronics or engineering principles.

The idea of getting what you pay for seems to be completly ignored when considering college.

Inflation among higher education institutions is out- pacing all other sectors of our economy including healthcare.
 
There will come a day when students and parents will simply say "no" to the economics of college and demand a better return on their investment.

I wish Travis only the best in pursuing his future endeavors. He is intelligent, mature, articulate, and motivated. 

I have no doubt that success will follow him wherever his heart takes him... he is a bright and shining star and I expect great things from him in the years to come...

I just hope he takes a moment to consider real-world economics before making a very costly decision...

Thank you for your support of OptiFuse, where we encourage others to follow their hearts to wherever it may take them...


 

Jim Kalb
President

Email - jimk@optifuse.com
Website - www.optifuse.com

Blog - www.optifuse.blogspot.com
Twitter - @OptiFuse


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