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College Is Like Real Estate

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College, despite its rapidly escalating price, is still totally worth it, right? This is certainly true in the aggregate but when making individual financial decisions college value becomes a little more troublesome.

The hell with prices, it's always pays off, say some. According to an editorial by Barry Glassner, the incoming president of Lewis & Clark College, in USA Today:

I feel badly about young people struggling to find work and pay back loans in today's difficult economy, and all the more about someone from my new home. Yet I have yet to meet a graduate of ours or any college who professes regret about having achieved that education, or who feels he or she would be as competitive in the job market, and as equipped for life, without that degree and all that went into it.

This is a relevant, if sort of vague, point. Tuition at Lewis & Clark, however, is $36,394 a year. Education might be worth it, but was that education worth it?

George Leef, director of research at the John William Pope Center for Higher Education Policy, wonders about the idea of value in higher education too. A recent report by the College Board touted the idea that college always paid off. Not so fast, says Leef:

Knowing that there have been many stories in the past few years about college graduates who can at best find low-paying jobs that don't cover their student loan payments, [the writers of the College Board paper] say, 'We believe it is critical that more people examine for themselves the evidence of the benefits of a college degree, rather than relying on the opinions of others; opinions that are too frequently grounded in ideology and anecdotes rather than evidence.'

I cannot fathom what ideology has to do with the argument that college isn't a good idea for everyone, and anecdotes can be very useful to an individual in making the college decision, particularly if the circumstances of the person in the anecdote are similar to his own. In effect, the report says, 'just think about the big picture we present, not about instances where someone claims that college was a poor choice.'

Now realistically this debate is totally academic. In the real world there is no such thing as college for everyone vs. don't bother; someone goes to college, and goes to a specific college, based on his own academic background, finances, and life goals.

But the trouble with this discussion about a college education as an investment is that it's so often entirely divorced from how people make real investments.

It is, for instance, over the long run, a good idea to buy a house. And if someone buys a well-built house in a fashionable neighborhood (say, Washington, DC’s Cleveland Park) that’s probably a pretty safe investment. If, in contrast, someone buys a house in a dangerous, rundown neighborhood (say, Washington, DC’s Anacostia) that’s a much riskier investment. So should everyone buy somewhere like Cleveland Park? Well sure, it’s a safe investment. But the average three-bedroom house in Cleveland Park costs $819,000.

Is that “worth it”? Well sure, like Barry Glassner and his Lewis & Clark College alumni, I’m sure you’d be hard-pressed to find someone who bought in Cleveland Park and regretted it. But that doesn’t mean everyone should be buying that sort of property, nor does it mean that property is appropriately priced.