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Such a Deal for You!

Yesterday all the education news in The Washington Post was in the business section. I read about enrollment management which explains how colleges rate students and determine financial aid packages. It seems the noble idea of merit alone must be balanced with the ability to pay. One admissions director at a small private university acknowledged

The college was enrolling a lower percentage of low-need students and a high percentage of high-need students. It was laudable, but not sustainable over the long haul. We were making the college commitment really lopsided.

"Well," you may be thinking, "that sort of thing happens with privates. They have to control their college commitment based on their endowments. That's why we have state schools." Don't bet your cap and gown on it. At the University of Virginia, out-of-state students pay double what in-state students pay. Admissions management logic results in one third of UVA acceptance letters going to out of state students. A Nebraskan may have better odds of getting into UVA than a Virginian. To Virginia taxpayers, the Dean of Admissions explains it this way

We love the in-state students, don't get me wrong, they are the heart of this school. Economically the in-state students are really subsidized by the out-of-state students. If you look at our out of state numbers, about 69-70% overall are Virginians.

"Well," you're probably thinking, "Those Virginians should have been willing to pay more taxes so that higher ed didn't have to keep getting more 'creative' with their funding." And that's true, but whether private, public, out of state, in state, or downright for-profit, post secondary education is not cheap. And that's why there was also a business/economic article on "no-loan pledges " cost containment. Student loans are a huge industry, and a huge problem. It's an issue that is being looked at closely by the federal government (the primary lender). As public opinion and supply and demand are beginning to fray enrollment figures, more schools are using no-loan pledges (promises of aid from other sources) as a marketing tool. But a financial aid observer told the Post the practice isn't keeping students out of future hock:

The wave of no-loan pledges hasn't halted the steady rise in student loan debt nationally. Mark Kantrowitz [financial aid expert] estimated that the share of four-year students graduating with debt rose to 66 percent in 2008 from 46 percent in 1993, and that average debt rose in that span to $23,186 from $9,297, based on an analysis of federal data. He recommends a one-third rule, where one-third of projected costs will be paid from past income [savings], one-third from current income and financial aid and one-third from future income [loans]

Unfortunately, the estimated family contribution is often equal to a fourth of that family's total income; so they borrow the money. It's easy---some would say too easy. And that leads to the third business section article on student loan debt management, which includes a review of a new CliffsNotes book -- Graduation Debt: How to Manage Student Loans and Live Your Life,. Author Reyna Gobel reports

More than 1 million people have at least $40,000 in student loan debt, according to data from the National Center for Education Statistics. "In order to work toward paying off your student loan debt, you need to be aware of the existence and the amounts of each loan," writes Gobel, a freelance financial journalist who amassed $63,000 in student loans obtaining her bachelor's and then two master's degrees.

"Well," you may be thinking, "Maybe the answer is to find a job that will help pay for higher education." Sometimes that does happen in the workplace, in the form of subsidized tuition or loan forgiveness. Sometimes employers see partnering with employees to work toward high education as a win-win.This strategy sounds good when referred to as associate opportunity :

Wal-Mart announced a program Thursday. Workers can receive college credit from the online American Public University [a for profit university] and receive a tuition discount from the school. The company also said it will commit $50 million over three years to help workers pay for books and tuition above the reduced tuition rate...Wal-Mart workers receive job training in areas ranging from ethics to retail inventory management, for which they can receive credit......Students won't have to pay for credits awarded based on their training.....The credit for training can be applied mainly to business- and retail-related courses...Wal-Mart executives said the link with the school will help workers attain better jobs both inside and outside the company.....if 10 percent of Wal-Mart's U.S. workers get degrees, "that would be like adding three Ohio State's worth of graduates."

Would an APU degree really improve those employees' chances for upward mobility? We are living through an economic cycle where two incomes will barely keep a family afloat, where recent college graduates are living in their parents' basements and waiting tables, where wages are stagnant, and where too often people are told, "Be grateful you have a job."

With the backing of Wal-Mart and at $255 per credit hour, a masters degree of 30 hours would cost close to $10,000 through APU. But the first rule of economics is that of supply and demand. If thousands of employees earn an MBA on-line, then the job market will be flooded with highly educated workers. When the supply of highly educated employees meets and exceeds the demand for management positions, the value of that advanced education goes down.

And that's why it's important to read the Post's front page article about some other opportunities that didn't work out quite like a storybook.

Chris Cummings knew a "reduction in force" was coming at Walgreens. But with a marketing degree from a prestigious university, he thought he was insulated. But instead of a promotion, the company for which Cummings had been an assistant manager three and a half years cut his hours so drastically that he had to take a second job. In March, he was laid off, and his part-time second job became full-time. And so that is how a 40-year-old father of four with a master's in business administration from the University of Notre Dame finds himself bagging groceries at Sprouts, a local health-food store. "I never thought I'd be here with the education that I have and that I'd worked hard on," Cummings said before a recent shift in the checkout lane at the Sprouts in nearby Frisco.

We say, as a society, that we value education. But too often its value is misunderstood. Education is not a magic ticket to a higher income or an insurance policy in a tough job market. Quality post-secondary education can be obtained at a prestigious private school, a state university, at community college, a trade school or through an on-line program or at the workplace. We need to be open to innovation. But a recent PBS Frontline report warns that when education becomes a commodity, the buyer must beware. Last month Steven Eisman, the Wall Street trader who predicted the subprime mortgage meltdown, had this to say about the commercialization of higher education

Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The For-Profit Education Industry has proven equal to the task.

"College for All" sometimes sounds more like marketing than guidance. Before committing time, energy, and money, here's a free lesson in economics. Ask what any money manager would ask, "What is the return on my investment?"

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