Monday, February 19, 2007

Further denials of Banaian's Second Constant 

US students don't riot like their counterparts overseas, but they share the penchant for ignoring budget constraints.
Kara Brockett, a junior at Southwest State University, has piled up $25,000 in college debt. She works four jobs during the year and her parents help out a little when they can, but the fact remains: When she graduates and starts looking for work, she will have to find a job that feeds her debt rather than her ambition.

"It's difficult to get into nonprofit work when your loan payments are as big as your rent," said Brockett, of Omaha.

She's not alone. D.J. Danielson, of Savage, has piled up $21,000 in debt as a Winona State University student. Rick Howden, a Winona State senior, will graduate this year with $48,000 in loans to pay back.

And they all are worried.

"I now have to find a job that will help me pay that off rather than do something I really want to do," said Howden, of Cannon Falls.

Howden, Brockett and Danielson were among several hundred Minnesota State College and University (MnSCU) students who gathered Wednesday, despite the cold, in front of the State Capitol to protest college costs that seem to rise ever higher and are forcing them deeper and deeper into debt. They were encouraged by several legislators from both parties, who pledged to do what they could to rein in college costs this year.

Of course, one reason why you see "several hundred MnSCU students" is because we get notes telling us to let our student go on buses (paid for by student taxes activity fees) to these events. This announcement was sent from our university's media relations office to the campus announcement list:

SCSU Student Government will provide transportation to Rally Day at the state capitol on Wednesday, Feb. 14. Departure time is 9:30 in front of Atwood Memorial Center for the march at 11:30. The student group is supporting the rally in partnership with the Minnesota State College Student Association in an effort to deliver the message that higher education funding is important. Student Government notes that more than half of all SCSU 2005 graduates had debt, an average of $20,431.

The education of a university student consumes scarce resources. It is a question of who pays: the student? her or his parents? a third private party? taxpayers? In very few cases do taxpayers pay zero (Hillsdale comes to mind as an exception that proves the rule.) The question is over the right balance; the students are lobbying for a shifting of costs. The MSCSA is using money appropriated to it through a state university checkoff on a student's tuition bill to lobby taxpayers to pay a larger share. Changing the funding formula doesn't change the cost. But it changes the demand for education if third parties pay more (just as health insurance does.) So MSCSA is lobbying to get more students as well, and more tuition checkoff revenue. And pushing up that demand benefits the university through larger transfers in the future, since our funding is driven by student body size (roughly; you really don't want to know all the details.)

Students could save money better by taking more credits. Think about this: Suppose students take 12 hours per term and work 20 hours a week, earning $150 per week after taxes. Because of their credit-taking pattern, they must stay in school at least five years. The extra year in school costs them the lost increased income they earn post-graduation for one year. (The costs of living while in school the fifth year are not an opportunity cost, since you have to live that year anyway.) Suppose the student was working to get a $40,000/year job. You've lost $26,000 in income four years from now by working 20 hours and taking 12 credits rather than working zero hours and taking 15 credits, and borrowing the extra $21,600 you would have earned working for 36 weeks at $150/wk. At what interest rate does that come out a good deal for you to borrow your living expenses?

Instead they pay money to student government and hold signs in front of the legislature, complaining that their "job ... feeds [their] debt rather than [their] ambition." So the government is supposed to subsidize you to take a career path that doesn't pay for itself? Which would that be? Let me guess.

ADDENDUM: Loyal reader jw sends me this note about "crazy hours" at work. If one devotes more time to work and less to leisure, it must be the case that the perceived return to work is greater. It may be that the perception arises from the increased differential in pay as one rises in the company. That is, a higher differential for CEO/CFO/CIO pay over line managers may induce the latter to work more, to win the tournament for those jobs.

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