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College Myths

Here is my list of college myths:
Myth: Colleges are poor.
Myth: Colleges aren't businesses.
Myth: You must go to college to get otherwise secret info to succeed in life.
Myth: Name brand colleges justify higher prices.
Myth: Colleges care first and foremost about students.

Read on for my explanations.

Myth: Colleges are poor.

Student education as an industry does comparable or better than just about any other industry. They consistently take in much more money than they spend (read: profit). They are adept at generating revenue from many different sources: federal taxes, state taxes, tuition, research, donations, etc. In the donation category alone $28 billion went into college endowments in 2006. 76 colleges now have endowments of $1 billion or more. The richest Universities rival the richest corporations.

Richest Colleges (billions of dollars)
Richest Companies (billions of dollars)
Harvard $34.6
Exxon $22.6
Yale $22.5
Microsoft $19
Stanford $17.2
Cisco $15
Princeton $15.8
Google $14

Myth: Colleges aren't businesses.

Colleges are driven by the exact forces as corporation. Every college President I've spoken with talks about increasing enrollment (marketing and sales), expanding the campus (capital expenditures), and improving faculty (personnel). Some would claim that the difference is that colleges do not garner a profit. Colleges do garner profits, it's just that they don't call it "profit", but that's just an issue of semantics. They are generating more than they are spending. In addition, there are many other affiliated entities (loan providers, housing, book publishers, etc) which profit handsomely in and around the college industry. College is big business with big profits for many. This isn't to say that all colleges generate a profit, just as not all businesses generate a profit. Higher education is simply another industry segment in our free market economy and one that overall does well. The only true difference between colleges and businesses is their preferential tax treatment by the government.

Myth: You must go to college to get otherwise secret info to succeed in life.

Historically our planet has operated with a tiny number of people in religious garb or the halls of academia having access to information. 400 years ago less than 5% of the world was literate. 200 years ago it was around 20%. 50 years ago even if you could read you didn't have access to written information cause it was sequestered in libraries around the planet. These conditions led to the formation of large centralized knowledge repositories and distributors (universities).

Today thanks to the Internet and high literacy rates, there's virtually no secret information that isn't available with a few mouse clicks. Knowledge is now a commodity and cheaper than ever to acquire. Where once it may have been true college attendance was required to gain knowledge today there are many other options (trade schools, work experience, internships, online courses). Some schools are now making class coursework available for free online with others like Yale broadcasting the classroom instruction. (I think this is a great idea and think all Universities - especially those accepting tax dollars should be required to do this for the benefit of all citizens.)

For those who use money as a measure of success in life, take a look at the Forbes 400 list of the richest Americans. On any given year 10% or more of the people on the list never completed college and some even dropped out of high school. The average wealth of college graduates from the Forbes 400 is lower than the average wealth of non-college graduates. There may have been a time when attending college was the only access to information, but I believe that is no longer the case.

Myth: Name brand colleges justify higher prices.

The underlying sentiment for college is that they have secret information that you can only learn through attendance. Elite colleges carry this sentiment to the extreme by suggesting that Ivy League or big brand schools have even better information to provide that is worth many times higher entry fee. Colleges are now brand cognizant and work hard to influence reporting, rankings, etc so they can demand top dollar of attendees. It is little different than fashion brands trying to convince shoppers that their lives will be better with that expensive Prada handbag or the Rolex watch. But college is many times the cost of a watch or purse and a financial decision that can haunt you for years.

Often a better known college is recommended, and subsequently many young people amass tens of thousands of dollars in debt instead of going to a more economical school.  This isn't to say that there aren't differences between academic institutions, of course there are, just as there are differences between restaurants. But the notion that one school justifies 5, 10 or even 20 times the cost of another is unsubstantiated.

Name brand colleges may in fact be better in some areas, but my contention is that it does not justify substantially higher costs because they're all teaching the same principles and often using the same textbooks and coursework.

Myth: Colleges care first and foremost about students.

Colleges care first and foremost about their longevity. Their position, their job, and their family livelihood are what drives their decisions just as they do with all people. This is not meant as a criticism, I know some great caring faculty and  administrators. But except for the rare pious person, it's how we all operate whether employed at a church, prison, corporation or college. I think the biggest illustration of this is the great indifference that colleges have towards mounting student debt. They get paid in full in advance and leave the student to manage with with debt repayment often at crippling expensive interest rates well into double digits.

Take one example - University of Michigan who's average student graduates with $23,533 in debt plus another $4000 in credit card debt. (And remember that's the average so many are higher.) Meanwhile their endowment fund has $251,517 per student. To put this another way their spending habits demonstrate they care more about building an ever-growing cash fund than insuring that their students graduate with a realistic chance to buy a house or start their own company out of college. I don't mean to single out University of Michigan, I'm just using them as an example. Annually colleges spend a miserly 4.6% of their endowment. They historically have made more than 4.6% in interest and investment income so endowments are not even spending their annual gains.

For sure college officials will say the right thing when questioned about students financial well being. But ultimately it's actions which matter most. If they truly cared about young people's finances they would forgo the new buildings, athletic facility or research center and make sure their students graduate without little to no debt. They would spend those endowments to reduce college costs.

--MR

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