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Matthias Paul Kuhlmey Headshot

Happy Ending

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You may not count yourself in the same camp, but just a few days ago, my wife and I were happy to celebrate our wedding anniversary. Moons ago, when we made the decision to join our lives, everything was on the table, from discussions about favorite pieces of furniture and where to live, to merging our finances. And there I was, with a new line item on our (now) combined balance sheet: a student loan. My new obligation was not a disconcerting item from a numeric perspective, but was a rather misunderstood position given the fact that I grew up in Europe with free education all around; it simply felt "off." Seemingly, many (past) students in the U.S. feel the same way. Over the last six months, enrollment in the government-sponsored Student Loan Forgiveness Program has increased by 40%. To top things off, entire websites are now designated to identify ways to get rid of student loans without paying them!

"Foul Play," we cry. Wouldn't it be the right thing to pay for what was received, unless, perhaps, our "purchase" was seriously mispriced to begin with? The pressing question is how to measure the value of a college education. PayScale, an organization that calculates the return on investment (ROI) of tuition cost, has compiled data to rank hundreds of colleges and universities on the basis of alumni earnings versus total cost of having attended particular schools (room and board plus financial aid included). The findings for 2014 are quite astonishing. First, Ivy League schools are not offering the best "bang for the buck," and second, it actually pays to study "the difficult stuff." Whereas the top 20-year yield for a business degree comes in at 19.8%, certain alumni with a degree in computer science would have received a return of 22%, or more than $400,000 in additional pay over the years.

With PayScale's findings in mind, it still is lucrative to follow the path of higher education. However, the related issue of the university price tag is deeper-rooted. Based on a government report, the average cost of tuition for attending a public four-year college has increased by more than 250% over the past three decades, while incomes for regular families have only grown by a meager 16%. At the same time, graduates' salaries have been flat for more than 10 years. To further complicate the matter, nearly all 50 states have reduced their spending on higher education since the 2008/2009 financial crisis, leaving college and university operating costs to be absorbed via increased tuition payments. No matter how we twist and turn the topic, the reasons stated are behind the enormously swelling student loan balance of almost $1.1 trillion, and a near doubling of the 90-day delinquency rate in servicing those loans over the past 10 years.

Traditional forms of higher education, given current trends, can now be considered more of a luxury item for the "rich and famous" and less of a common good affordable to a regular American family. This mismatch may have been magnified by parents having to dig into their children's college funds, or an overall decrease in education savings, as a result of the financial crisis. Also, data available today may fail to capture the extent of the divergence yet to come.

The current debate focusing on the quickly growing level of outstanding student debt could be misdirected. As much as I am considered "Debbie Downer" on many socioeconomic topics, I have the utmost confidence that a shift in the way we consume education will occur through resetting the "playing field," reordering the opportunity set, or, at a bare minimum, creating the right competition for education dollars. Whatever the solution, technology is the catalyst that will provide a common (play)ground for all. The increase in "distance learning" options, including so-called massive open online courses (MOOCs) is astonishing, and will be important for fostering required change.

For your happy ending, consider one of the more popular online classes, with an expected +100,000 student enrollment: "The Science of Happiness."