Strange business model, if you stare at it too long: college education

Can you think of a business that charges its customers so dearly for its product as they use it that many go deep into debt to pay for it, has increased prices 2-3x ahead of inflation for decades while quality has decreased and once you are done using it and have paid in full they will continue to ask you to give it more money until death as if it’s no big deal? And, many happily do.

That’s college education.

Throw in that good chunks of the budget for many colleges and universities is already covered by taxes and many colleges could survive indefinitely off their endowments without charging customers a dime and it seems even stranger.

Many of the folks who enjoy the spoils of this business model get away with pointing fingers at for-profit companies for making profits, or attempting to do so, as most companies fail over time. Never mind their prices are constrained by competition and inflation, which also encourages them to improve their quality and efficiency over time to keep attracting customers.

If you stare at it too long, it just looks strange. And few notice.


Education Starts at Home & The Best Measure of School Success

If you are into teaching stuff to kids, like education or coaching soccer, you might find this EconTalk episode with guest Robert Pondiscio interesting.

A good deal of the discussion is on the success of Success Academy Charter School.

Most of Success’s success (LOL) is from high parent involvement, setting expectations for hard work and holding parents and students accountable to those expectations.

They’ve discovered the same secret to success that Tom Byer uncovered in the soccer world: Soccer Starts at Home.

I also thought it was comical that the criticism against their school model is that it’s too hard, as if there are ways to teach without the kids having to put out much effort of their own.

Maybe that way will exist when we can do data uploads to our brains, like in The Matrix.

But, until I do, there are good lessons to be learned here.

The best measure of school success

I also wanted to point out, as I’ve done before, that the way we measure educational outcomes is dumb.

It’s like measuring the difference between Burger King and McDonald’s on how long it takes to fill an order, order accuracy and how clean their garbage cans are.

But, the most meaningful measure of burger joint success is if enough people choose to eat there. We don’t need burger bureaucrats inserting themselves between us and our burger joints to decide for us.

Same with schools. I don’t care what the average standardized test score is for students at one school vs. another. I find such comparisons dumb because they doesn’t recognize there are many other factors involved than the school, there are wide distributions within each student population and the average or median numbers are not only meaningless, they don’t exist.

It’s like when you have a 5’6″ person and a 6’2″ person and say their average height is 5’10”. The 5’10” average means nothing.

Any time compiling such stats for schools is a waste.

The only meaningful measure of school success is whether parents are happy with their choice. Period.

The best way to measure this is to observe student retention when the parent has other options. High retention is good.

The second best way to measure is by asking parents two questions that many businesses ask them, “Would you recommend us? Why or why not?”

Incentives matter, even in education

A Facebook friend shared a link to this “letter” to the President from Patrick J. Kearney regarding Patrick’s disapproval for school choice.

In this post from 2011, I explained why I think those against school choice usually don’t realize that they are against giving poor families the same educational freedom that middle and upper income families already have.

I agree with Patrick that there are good quality public schools in our country. I believe they are good because they tend to serve middle and upper income families that are better able to afford education choices. So, they have to stay good so enough families choose them over their other options.

When I was young, my parents made this choice by moving my family from a school district they felt was not putting education first to one that was. They could have tried to change things by voting for different school board members and speaking up at school board meetings, but they inherently knew their power of exit was much stronger for their (and my) immediate needs than their power of voice.

Looking back, I agree and am thankful for the choice they made and I’m thankful they had the power to make that choice.

So while there are good public schools, there are bad public schools, too. And, they aren’t bad because of under funding (most poor performing districts spend the same or more per student than the best schools) or for lack of people who want to do the right thing (there are plenty, but they’re power of voice is muted by vested interests).

They’re bad because of the incentive structure. As Terry Moe explained in a recent EconTalk podcast on the rebuilding of the New Orleans School District after Hurricane Katrina: “Vested interests are universal.” And these vested interests “will invest in political power to resist reform when the institutions they benefit from are performing very badly.”

School choice gives more families the freedom to exercise their power of exit to circumvent these vested interests.

Paying college athletes is a sign that college education is worthless

As we inch closer to paying college athletes, maybe we can acknowledge that the college education the athletes receive is worthless.

Maybe that’s because they receive a different version of the education other enrolled students receive, or maybe because college education, in general, is worthless.

Or a little of both.

College Admissions “Scandal”

The biggest news to me is that this is a scandal.

I think just about everyone figures that a wealthy person can buy admission for their kid with a generous donation to the school.

I’m perplexed as to why these folks didn’t just make a donation to the school.

Maybe they tried but the school’s asking price was too high, so they tried a scalper?

Or, maybe I just have it wrong and rich folks really can’t buy their child’s way in to a school with a generous donation.

If I recall correctly, my alma mater got a brand new basketball arena paid for by a generous donor right about the time said generous donor’s son was on the school’s D1 basketball team. I don’t recall there be a big hullabaloo about that.

Update: Given the revelation on how much Dr. Dre donated to USC to pave the way for his daughter to attend, I’d say the above hypothesis is correct. The asking price for direct donations to the university was too high, creating a black market for lower level folks to peddle their influence.



What You Should Do (via Marginal Revolution).

The first link on his list is to Y Combinator’s Request for Startups.

#9 on its list is Education. It reads:

Human brain power is vastly underutilized on this planet because most people lack access to a good education. Strong education systems lead to greater social mobility, better workers, better citizens, and more and better startups. A small increase in the learning output of education systems across the globe would have an enormous impact on human productivity and economic growth.

We are interested in new school models that can develop critical thinking, creativity, citizenship, and job skills at massive scale. We’re looking for ideas that combine technology and person-to-person interactions to deliver highly individualized educational experiences.

We also know that 90% of the human brain develops before age 5 and achievement gaps open up well before kindergarten. We’re interested in ventures that dramatically improve outcomes for children from birth to age five, that reduce inequality, and that have the potential to enhance the future quality of life for those children and their families. Scalable solutions in these areas should now be doable thanks to advances in brain science and technologies such as smart home devices, wearables, and mobile.

Maybe. I like simple things. But, that seems too simple.

Those gaps that open before age five, may just be the first signals of  families that value education differently, rather than some deprivation of resources.

Consider soccer. Some parents/families are into it. Some aren’t.

By age 5, there will be noticeable soccer-playing gaps between the kids from families who are into it and those who are not.

The scalable solution there is soccer culture. Nothing else will live up to that on a sustainable basis.

Likewise, to improve educational outcomes, the scalable solution is a culture that values education.

Oh yeah, and competition. The education system needs more of it.

Schools that teach marketable skills

I saw a commercial for a career college make the claim that the school teaches real skills that are in demand in the marketplace and allow you to earn money.

I thought that was a good shot at traditional colleges, where that isn’t always the case anymore. I think they do still have quite a few degree programs that teach marketable skills, but they also have quite a few that should be adult community education courses.


Participation Trophy College

The previous post brings to mind discussions I’ve had on the topic in the past. In one such discussion, a person asked:

So, do you want to be the one who tells someone they can’t go to college?

It shows how much of a pedestal we’ve put college education upon. Like home ownership, it’s now a dream, that everyone is entitled to.

In home ownership, we forgot that renting was a good option for many. With college education, we forget that people without college education do fine, too.

Do I want to be the one who tells someone they can’t go to college? No. If I did, I’d apply to be a college admissions officer.

But telling people they can’t go to college or people deciding for themselves that it isn’t for them isn’t bad. How’s it any different from telling people they didn’t get a part in a movie or people deciding that pursuing their dream of acting isn’t panning out so they should try something else?

How’s it any different from kids in sports not making the team or deciding that a certain sport isn’t for them?

The question also shows how unimaginative we’ve become. It’s college or else. We can’t imagine alternatives. Yet, there are many.


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Signals vs Causes: Education

In this excellent EconTalk podcast, EconLogger Bryan Caplan discusses his upcoming book on education. He closes with this:

…the private return [of education] is high is really a very bad argument for pouring more money on.

Now, the other point, as we were saying, the return that you should be looking at in terms of this argument of not being able to borrow against your future earnings–what you are looking at is return for the marginal people who are just on the edge of going or not going. And as we’ve seen, the return for those people is actually… quite mediocre. And then finally if you adjust for ability and everything else, really I would say that once you appreciate signaling you realize that, so we have subsidized education way past the point of [?] returns. So by my calculations, actually, the social return to education is now quite negative.

And it would be a much better policy to drastically scale it back, so rather than encouraging more people to go, I think it’s better to discourage them from going or at least to encourage them less. So in fact–so, the biggest policy implication that’s going to come out of my book is we just have way too much education. I call this the white elephant in the room. There are way too many people going to school, maybe not from their own selfish point of view, but certainly from a social point of view to go and pour more money on this really is just throwing gasoline on the fire. And we need to do less of it.

I agree. Caplan’s argument is that we college education isn’t the cause of higher income, rather it’s just become the customary path that people with above average ambition and ability take and along the way we’ve mistaken it for the cause of that higher income.

It’s similar to the mistake ‘we’ made with housing. We thought owning a house made people responsible, so we made it easier to irresponsible people to own homes. We learned the hard way that owning a home was a marker of a responsible person, not a cause.

Now, we’re learning the same about college education as many kids graduate and find themselves deep in student loan debt and no higher income job to pay it off.

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