Wednesday, July 20, 2016

How much does it cost to provide a college education?

The price of college-level study varies widely. At the top end, Harvard charges some $47,000 in tuition and fees per year. At the low end, CCNY charges in-state residents $3165 per semester. Subsidies and prestige pricing abound in higher education, obscuring actual costs dramatically. But how much does it actually cost to provide a college education? Let's try for a ballpark figure.


A college education usually consists of four years of study, two semesters per year, with maybe five courses per semester. That's a total of 40 courses.

The main expense of running a college is the professors who teach the courses. Suppose each professor teaches four course sections a year, two per semester. That will leave him or her time for a bit of scholarship during the school year, as befits a scholar who is not purely an instructor. The loaded cost of a professor might be $150,000 per year, including benefits. And each course section has 100 students on average. That comes out to $150,000/(4*100) = $375 per course for each student.

40 courses per student at $375 each comes to $15,000. But that's just the cost for the instructor. Colleges also have libraries, lecture halls, labs, office space, recruiting expenses, and a hierarchy of supervisors and deans, all of which come under the heading of "overhead". How high might those costs be?

Colleges typically take 50% off the top of every research grant awarded to their faculty members for overhead expenses, which suggests a useful and simple ratio of 1:1 in primary costs to overhead. So the original $15,000 becomes $30,000. Of course, that $30,000 excludes quite a bit: room and board, text-books, and general living expenses for those who aren't still living at home. But that's our estimate: a bare-bones college education costs $30,000.

Tuesday, July 19, 2016

Why the 2008 market crash had no satisfying conclusion

After the 2008 financial crash, the electorate was left in a distinctly unpalatable position. The government had been forced to step in to rescue several major institutions, leaving the taxpayers with a hefty bill, but nearly all of the key players in the market were left standing. Things had gone wrong but no one, it seemed, could be blamed and punished.


In my view, the resolution was so unsatisfying because the blame for the crisis stretched far. There was no single institution or even sector that single-handedly caused the problem; many, many people and institutions played a part.
  • Ordinary homeowners sought mortgages they couldn't really afford.
  • Mortgage brokers sold mortgages to people with very poor finances, who probably should not have been in the mortgage market at all.
  • Originate-and-sell lenders didn't particularly scrutinize the mortgages they were issuing, because they could always sell them on.
  • Investment banks sliced and diced pools of increasingly crappy mortgages into ever more baroque bonds, without a proper analysis of systemic risk.
  • Bond rating agencies went along with what the banks were building, happy to rate them AAA as long as they collected their fees. 
  • Institutional investors bought the baroque bonds based on ratings alone, without scrutinizing the internals.
  • The US Fed kept interest rates low for a long, long time, exacerbating the housing bubble that drove the system.
Who was to blame? All of them? None of them? Probably all of them, to some extent. But with no clear villain, there was no one to punish, and no sector which could be targeted for clear reforms. Hence the dissatisfaction.