Is the increased cost of the undergraduate degree worth it?

In light of diminishing returns, David Frum says it’s time to raise that question


David Frum, a former speech-writer for US president Bush and frequent contributor to the National Post, says the crisis in undergraduate education is similar to the current housing crisis in the US.

He believes that a “crash” may be coming in undergraduate education if problems in the sector are not solved.

“Surging prices, collapsing returns, ending in a crash — housing? Yes, but the pattern may equally apply to another area of middle-class aspiration — college education,” Frum said on American Public Media’s radio show Marketplace.

Frum argues that the value of an undergraduate degree, in purely economic terms, is decreasing while the price increases.

He points to the explosive growth in degree holders as one of the main causes. “The proportion of Americans with a college degree continues to rise. As more and more job applicants hold degrees, have employers become more discerning about what exactly those degrees represent?,” he says.

Frum says the solution to the problem is not to hide the cost of higher education behind more loans and government subsidies.

I disagree with Frum’s assertion that the government should not be funding more supports.

I agree that one of the problems in higher education is the continuing inflation in higher education costs and the fact this inflation is well above the rate in the real world.

He makes a good point, the average economic return from an general undergraduate degree is down; however, as one who enjoys the opportunity to pursue that return, the potential returns economically are well worth the risk involved in the investment.

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Is the increased cost of the undergraduate degree worth it?

  1. There might also be “positive externalities” from having a university education, i.e. society as a whole might benefit from it, both in the qualifications of the workforce, and also because university education does help one deal with the more and more complex issues that face all citizens as voters – participants in the governance of a democratic society.

  2. Really, is anyone listening to David Frum?

  3. Frum does not articulate from a stance of how we can better make the world a better place but from a stance of ‘How much more money can me and my cohorts take from other humans on the planet?” If everyone had a good education this might mean that the greedy folks in power might have to answer for improper governing, mega monies put in the pockets of a few for an invented war, and lets make the planet a safe place.
    The problem with the Frums of the world is they give not so bright folks like George a voice.
    And to be a wee flaky here,if there was life after death, Barbara would have thumped the lad on his head with a sledge hammer by now.

    When stupid rules the populace gets scared and education is first to go out the window.

    Thanks folks, its early in the morning and I always hope no one bothers with David Frum.

  4. I’m willing to listen to anyone when they talk good sense. If anything, the fact that this dialogue is getting taken up in quarters that have previously dismissed it is evidence that it’s serious. Like when the Conservatives start talking about the environment you know the ice caps are definitely melting, or when the NDP start talking about fiscal restraint. I’m willing to be even-handed about this, but Frum is talking about a serious issue here.

    The link Joey provided is far more detailed that this short blurb with commentary. There are private loan providers in the States that flatly refuse to extend credit, for education, to a growing list of colleges (universities) in the States. We can’t ignore what that means. In Canada our government provides those loans – and we all know how government provision of a service can obscure irrationalities in the system. Decisions become political rather than merely pragmatic. But here we have private loan agencies evaluating, on a pure cost-return basis, and determining that loans to invest in education are a bloody bad risk. Shouldn’t that tell us something?

    I’m sorry Joey, but I’ve got to disagree with you. It isn’t enough to just stand within the system and say “I’m here, seems like a decent risk to me.” That ignores two major factors. First, you may not be representatives. Second, you are best anecdotal. And third, no offense, but you’re ignoring a class dialogue here completely. Those from families that are already decently resourced can afford to take risks, and if you make a bad bet and it doesn’t turn out then it isn’t the end of the world. You have a safety net to fall back on. What about those who don’t? What does $30,000 of debt, and a minimum wage job, mean to someone with absolutely no other opportunities or resources? It’s a lifetime trap, that’s what it means. So my point is not only that the effect is disproportionate, but also that the risk you seem willing to take, for yourself, is disproportionately greater for those from disadvantaged backgrounds. Some will enter university and succeed. Some will enter university and fail. Many may well be discouraged (and perhaps with sound justifications!) from taking that risk at all.

    This is a real issue, and it can’t be dismissed with a wave of the hand a “look, I’m here taking my chances!” No matter who the messenger is, he’s got an important message.

  5. In case this wasn’t clear, I don’t share Frum’s conclusions about government funding. I just wanted to say that I think he’s got his finger on a very significant issue, even if I disagree with him about what to do about it.

  6. Responding to Jeff”s statement: “And third, no offense, but you’re ignoring a class dialogue here completely. Those from families that are already decently resourced can afford to take risks, and if you make a bad bet and it doesn’t turn out then it isn’t the end of the world. You have a safety net to fall back on. What about those who don’t? What does $30,000 of debt, and a minimum wage job, mean to someone with absolutely no other opportunities or resources?”

    Jeff, I understand your assumption about my background. I often get that, and frankly that is the background one would expect of someone with the opportunity I have to write for Maclean’s. I rarely talk about my background in great detail, hence why it is easy to assume I come from some level of privilege. (Which in a way is true, I was born white and male. I was fortunate enough to have people who directed me to the Hamilton East Kiwanis Boys’ and Girls’ Club and very fortunate to have a high school principal who refused to suspend me in grade 9 and worked to integrate me back into the mainstream of the education system. I always look at myself as being very fortunate to have the opportunities I have enjoyed.)

    I do not have any safety net to fall back on. I have no family supports. (I was a Crowd Ward) Actually, I would say the greatest challenge I have faced during my higher education career is the fact that we have an system based on the assumption that there are those kinds of supports. For example, trying finding a university which you can live in residence during the Christmas Break. (For the record, UManitoba recognizes this as a barrier and allows students to stay over Christmas. This was a factor in my choice to go there. The fact they have systems in place for “at-risk” demographics such as myself made it a good fit for me in first year.)

    OSAP does not factor simple living expenses such as clothing. The system is based on an acceptance of unmet need. You would not believe the fight I have each year trying to get OSAP.

    I’m fully aware of the danger I’m in. I know I will be paying off student loans for 10 – 15 years if I’m lucky. I knew this going in. It may even be a lifetime trap, but it is a better “lifetime trap” than remaining where I was born. I don’t like that I have to “pay more” than somebody from a much more privileged background, but I am not going to sit around feeling sorry for myself either.

    I’m a long term thinker, I accept that I will not enjoy the highest standard of living, but that I will enjoy a much better standard of living than I could have otherwise expected of life. (In reality, I doubt I will see the same wages that I would be making if I stayed in the military for a long time.)

    Jeff: “So my point is not only that the effect is disproportionate, but also that the risk you seem willing to take, for yourself, is disproportionately greater for those from disadvantaged backgrounds. Some will enter university and succeed. Some will enter university and fail. Many may well be discouraged (and perhaps with sound justifications!) from taking that risk at all.”

    Jeff, now that I have cleared up my background a bit, I am able to say the risk is worth it from a disadvantaged background. I agree that sound are discouraged from taking the risk, the problem is that the system is not designed to assist them. I believe strongly that student loans must meet the entire need of a student. More importantly, there should be a “debt cap” on public loans. Simply put, not matter what your need is, you will only have a repayable debt of X amount of dollars per year. Then people from disadvantaged backgrounds will know exactly what they are getting into.

    The other thing we generally miss in all our discussions (speaking in general, Jeff you get this) is the great boom in students going to college. Many people from my home community are now going to Mohawk, taking a trade and enjoying great success.

    As I said, I generally don’t talk about my past. Not so much because of what I’ve overcome, but because of my outlook in general which is a “look and move forward” attitude. (I found too many people who I grew up with got themselves trapped in the self-pity/blame someone else for your situation mindset.) My past as made me the person that I am today, but I feel that it is my ability to remain positive no matter what that enables me to enjoy the success that I’ve achieved.

    Jeff, if you are interested, here are two scans of an article about me written in 2000 when I was 17 which was published in the Hamilton Spectator. Gives a bit more background on me.


    And yes, I really should write my bio at some point in the near future.

    In closing, Jeff’s points are valid. There are many people from disadvantage backgrounds who do not see the risk/benefit margins the same way I do.

  7. You’re right Joey, I did make assumptions, and thank you for not slapping me down harder for them than you did. I was wondering about that even as I clicked “submit” but maybe I let my enthusiasm for the point run away with me. I too have paid every dollar of my way through education personally, and while my parents certainly care about me, they’re in no position to help with my education – not even to the extent of putting a roof over my head anymore. So I get where you’re coming from there. I was wrong to make assumptions about your background, but sometimes the background itself can become a kind of bulwark to a dangerous attitude – similar to Mr. Bounderby in Dickens’ Hard Times. It can turn into, “I worked my way up from the gutter and no one ever gave me anything … why in the world should you expect any help?” Sometimes I feel I have to guard against that attitude myself.

    Taking the personal dynamic out of it, I think we can both agree that investment in higher education has at least become a risky proposition. Maybe both of us have bet on it and thus far it seems like we’ve won. But I still believe that the risk has become so great as to form a significant disincentive. And this disincentive is strongest for those who have the least to start with. Any good gambler well tell you not to gamble more than you can afford to lose. It’s one thing to gamble with mom and dad’s money on education. It’s another to gamble on potentially impossible debt situations. I don’t need to prove that everyone loses. I know that many don’t. I just need to prove it’s a significant danger to establish that we’ve created a strong disincentive that isn’t merely illusion, in fact it’s very real and rational. If I were speaking to a self-supporting teenager today, desperate for an education and a future, I would have a very hard time recommending university as an “investment.” And that says something.

    Again, I apologize for uncalled-for assumptions about your own background.

  8. You both are looking at this from a point of view completely different from Frum. He’s not saying that an education is a poor investment for the student at all. He’s saying that student loans are poor investments for private banks. And of course he’s completely correct.

    The cost of tuition and living has gone up so much that dumping in excess of 30K (in the States) for a single year to a kid who likely has no experience with finances, and no collateral to back it up is total idiocy if you’re hoping to get your money back. Especially considering that not every kid who goes into post-secondary graduates. Any student who flunks out obviously isn’t going to be able to pay back the loan at a rate that’s comparable to more traditional credit lines. Okay, they can’t go bankrupt on the debt, but trying to get blood from a stone isn’t successful no matter how long you keep up the pressure.

  9. I grant you that I (and probably Joey, though I’ll let him speak for himself) am taking this in a far different direction than Frum. As I said, I disagree almost entirely with his conclusions. I’m just saying that his groundwork, and the trends he’s pointing to, are important. I don’t think it’s logically possible to say, at the same time, that university education at X cost is a good investment for students, but loans to pay for it are so risky that banks refuse to give them, even with protection against declarations of bankruptcy. I don’t know how you can suggest that students simultaneously get good returns on their investments, while at the same time they turn into the proverbial impoverished stones that banks can’t squeeze any blood out of. I mean, it either has to be a reasonably certain investment for students -and- a reasonable risk for banks at the same time, or neither, right?

    That’s all I’m focusing on here. Personally, I don’t think Frum is saying anything about the quality of the investment for students at all. He’s a market forces hack. He believes that whatever the risk or the return might be, if we only leave it alone then it’ll sort itself out. Of course I disagree. But I like his evidence because when he points out that lending agencies have no faith in the return on investment in education, today, it’s all but impossible to ask why students should have any faith in it. And that comes around to dialogue about who really benefits from education, invites discussion of social returns in addition to personal gains, and gets us back to where I want to be in this conversation – which is simply an admission that we can’t talk solely about education in terms of how much more graduates earn, and if we do that we miss a huge chunk of the topic.

  10. No, it doesn’t. That’s where the difference between a student loan and a bank loan comes in.

    If I were to go to a bank, take out a normal loan for my education, I’d have to start repaying immediately. When I couldn’t pay any more, they’d take the collateral. This is status quo for a bank.

    On the other hand, when I go and take out a student loan, I don’t start paying until I’m out of school. Right there that’s between 1-4 years of delay in them receiving any principal. Once I’m out of school, there are various government funded programs such as interest relief, etc. to help me along, but again, these only pays interest and not principal. In addition, they can’t recoup their principal by collecting the collateral that secures the loan because there isn’t any.

    Which means all they can do is wait and hope that I’ll eventually pay it off as my payment period gets stretched out a huge amount. This means that the bank nets a lower [i]rate[/i] of return — ie, it could get the money back faster and re-lend it out again (thus earning more profit on the same money) over the same period of time had they lent out money as a regular loan and not a student loan. This is significantly worse than the status quo, but it has absolutely nothing to do with the worth of a higher education whatsoever, it’s simply to do with the rates of return on a student loan vs. a regular loan.

    As tuition and living expenses become higher, this discrepancy between regular vs student becomes more noticable, especially when the principal payments get dragged out due to high tuition causing the loan payments to be so high that it becomes easier and easier to get on things like interest relief, and this is what Frum is pointing out.

    The attempt to spin this once again into the idea that “Too many people are getting too educated” smacks of little more than that Canadian Heritage advert where the old man doesn’t want his kid to learn how to read, because he figures his kid won’t ever use the skill. We know now, however, that literacy is a core skill for our populace. Similarly, I think we are finally reaching that point where some are realizing that a quality post-secondary education is going to be a necessary core skill in an information based economy.

    Okay, I suppose to those who’ve gotten used to their post-secondary education providing them an advantage over most people, the idea that they might end up being just part of the baseline again might be a bit frightening. And I suppose for folks like us who’ve had to pay for our education ourselves, the idea that some future generation might not have to can probably breed a little resentment. But, personally, I think we should be taking a wider view than that.

  11. Simply to state this once again, for the record, the attempt that you cite to spin this into “too many people are getting too educated” is Frum’s position, not mine. I only agree with him to the degree that individual economic returns on post-secondary investment are increasingly uncertain – which is acknowledged in many other quarters as well. And bear in mind, he’s talking about private U.S. lenders. They don’t subsidize interest the same way our government here does. There is no basis to treat those loans differently, aside from their status as lacking in collateral or certainty.

  12. You know what, I’m actually going to go further here, ThinkOrThwim, because I’m tired of defending myself to you here. You wrap up with the wonderfully optimistic view that we should “be taking a wider view.” How nice. Obviously then I’ve got a narrow view.

    You imagine I resent the idea that future generations might pay less for their education? You believe I’m attached to my advantages? Are you actually trying to be offensive here, because it seems like you just threw every accusation but the kitchen sink at me, merely because I had the audacity to defend a -premise- (not even a conclusion) offered by a right-wing economic commentator.

    So let me draw the line very explicitly from his premise to your conclusion. IF the individual economic returns on post-secondary education are becoming increasingly uncertain (which I and many others, on the left as well as the right, happen to believe) and IF you believe that there are many benefits attendant to post-secondary education (which you obviously believe, and I agree with) and IF you want students to get educated -anyway- and not be scared away by the prospect of economically non-viable costs (that’s some pure market theory there – people won’t choose things that are priced higher than their perceived worth) THEN you need to subsidize it properly. You want full subsidy. Maybe that’s unrealistic. But once you add non-individual and non-economic benefits to the picture, Frum’s arguments play right into your position – which is what I’ve been bloody trying to point out all along. Solid government funding is necessary or else students will not and can’t be expected to continue to get this education that we both believe is important.

    One of the great failures of progressive movements is that they don’t have a clue how to respond when their views aren’t marginalized anymore. Some environmentalists seem to get all resentful when major industry starts doing anything environmental, for example, because they’ve developed a simple “us vs. them” worldview that admits no scope for compromise. Please, don’t turn into that kind of student advocate. You want economists to agree with you. You want them pointing out that it isn’t rational for students to buy education today at the big ticket prices. The fact that you disagree on other things doesn’t make them wrong on every particular. And the fact that I agree with one of David Frum’s premises certainly doesn’t automatically prove that I’m either attached to my privilege as an educated person or that I think tomorrow’s children should be illiterate – or the modern economic equivalent. A little less of that rhetoric would be appreciated.

  13. Hey Joey,

    Thank you so much for posting those links to your story in the Hamilton Spectator. What an amazing journey you seem to have managed to make in such a relatively short period of time. I hope you will post your biography sometime in the future.

    Scott Dobson-Mitchell

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