« More on Your Net Worth | Main | What Kind of Sports Car are You? »
Why College is so Expensive
By JLP | January 25, 2006
Did you know that total fees (tuition, room & board, and fees) for one year of Harvard is $41,675? In case you think I’m lying, you can see for yourself here. Just using straightline math (not accounting for inflation), four years of college at Harvard will cost at least $166,700! If you hang around to get a master’s degree, you’re looking at at least $250,000.
Now, think about this: Last year, according to the Wall Street Journal ($), the SIX investment managers for Harvard’s endowment fund made a total of $56.8 MILLION! To be fair, $56.8 million is only .22% of the $25.9 billion endowment (56,800,000 ÷ 25,900,000,000 = .00219 or .22%). Still, $56.8 million seems excessive to me, especially, when you consider that $56.8 million would pay the total fees for 1,363 students.
I have questions about this:
1. Why does the cost of college go up so much each and every year? Sure, there should be some inflation involved but why should it go up at an average of twice the regular inflation rate? I have a theory that it goes up because it is “expected” to go up. In other words, a self-fulfilling prophecy. The media, and everyone else talk incessantly about the high cost of college, which gives colleges a free ticket to raise tuition.
2. Why do college’s have these massive endowment funds? Harvard’s is $25.9 billion. Yale’s is nearly $12 billion (based on 2004 numbers, according to this WSJ article ($)). According to the first WSJ article, Harvard’s investment managers have an annualized return of 16.1% over the last decade and yet they only distributed 4.3% of the endowment in its most recent fiscal year. This brings us to the question: how much is enough? $30 billion, $50 billion, $100 billion? I understand that they have to build for the future, but there should be some sort of balance.
The really sad part about all this is that we just keep forking over these massive tuition increases year-in and year-out. Many people borrow from their retirement plans to pay for their kid’s and grandkid’s college educations, putting their future retirements at risk. Maybe that’s why the median 401(k) account balance for employees in the 50 - 59 age range is only $43,000.
I think it is time we start discussing this issue. Why should the government spend more and more of our tax dollars to support financial aid when some of the colleges are sitting on billion dollar endowments?
What do you guys think? I want everyone’s opinion.
Topics: College Funding, Miscellaneous |