The Great College Hoax

At the other end of the spectrum, dry rice is 33¢ a pound, beans and corn are 50¢ a pound, vegetable oil is $1.29 a liter; multivitamins, water and gas are basically free. The standard corn/beans/rice diet costs about 10¢ per pound of cooked food, which is a meal for four people, 1% of what you were spending.

First, some comparison figures. Warren Buffett expects businesses he buys to return about 4% on capital. The US stock market during the 20th century returned about 10% on capital. A bank loaned me money to buy a house in 2000 at a 6.5% interest rate, before the mortgage bubble; presumably it thought that was a good return on the capital it invested in the loan. But it had some risk that I would default on the loan, which lowers its expected return on capital to something a bit below 6.5%.

This Joel Kellum guy spent US$36 000 a year on a law program, presumably for three years, for a total of US$108 000. Then he got a job that paid him at least US$100 000 per year, instead of the US$57 500 per year of an average college graduate. If we assume for the sake of simplicity that he only went to law school to make money (instead of, say, because of a passion for justice or the Socratic training in logic that are part of a law-school education) and that the difference in earnings is solely due to this legal training — rather than, say, because he was working 80 hours a week, or got very lucky — then his investment was returning at least US$42 500 per year. That's roughly a 42.500/108 = 39% return on investment.

That's not a full NPV analysis, of course, because it neglects the forgone income during his law-school years, the earnings difference he can expect over the years as his lawyer earnings increase at a more rapid pace than an average worker, and the three-year delay between investing his first tuition dollar and landing his junior associate position. Still, it's tough to manipulate those figures to get less than a 20% ROI.

I don't see Joel Kellum gets off complaining about a 39% or even a 20% return on his investment. Better yet, it wasn't even his investment — he borrowed most of it at rates that "have ticked as high as 9%"! Any investor would kill for yearly returns like that, even before you multiply by the leverage. Better still, in student loans, typically the lender shares in much of the downside risk — you don't have to make payments until you get a job, for example.

This is the kind of investment around which Forbes is tossing about phrases such as "consumer fraud" and "trading in half-truths that exaggerate the value of its product"? What is their agenda?

It's also kind of pathetic to see education as merely a means of making more money; but even if you see it in such narrowly self-centered terms, it's an extremely good investment.

In Germany in 2006, 43,4% of people born in a certain year managed to make the necessary degree to be able go to a higher education system (universities, etc.). This is quite a difference to the 5-15% you assume to be "usual".

Additionally, the majority of universities here are public schools, with (recently introduced) fees of about 1000 Euros per year. This is also quite a difference to your assumption that 85% of students go to a private college.

Additionally, some traditional German qualifications ("Meisterprüfung", for example) are taught in other school forms, that are considered to be a university degree elsewhere.

Looking at the other European countries, the numbers are different, of course. That's party due to the fact that some countries require collage degrees for certain jobs not necessary elsewehere. In Sweden and Finland, for example, nurses seem to need one. In Finland, up to 71% of people born in a certain year seem to start a college education.

For other numbers, please see the fourth table here: http://tinyurl.com/dn22rh. The third column indicates how many percent of people born in a certain year start a higher degree. For example, it was 32% in Belgium according to the 2001 OECD study.