Admission Control

Said a girl at the school where she prepped:
"As of late, it is hard to have slept,
When my counselors relate
The diminishing rate
At which colleges lately accept."

"I must temper my high expectation
For my 20th school application,
As it may be perhaps
My profusion of apps
Will worsen a bad situation."

The Investment Pitch Before Christmas

'Twas the month before Christmas, and all through the land,
Marketers hoped for consumer demand.
Investment promoters accordingly yearned
For a Holiday boost to the fees that they earned.

"At this time of year, there exists such a clutter,
We'll never break through!" the marketers mutter.
But the folks at Fidelity had a bright flash:
"Use verses to gather new customers' cash!"

"It's a Yuletide maneuver whose fire is sure:
A poem in the style of old Clement C. Moore."
So what in my e-mail inbox should appear
But Fidelity's version of Holiday cheer.

Inside was a message, official and sleek,
From a 529 plan entitled "UNIQUE"
(It's the school savings plan of the State of New Hampshire).
They started their pitch like an eager, young Prancer:

"Dear Dr. Goose," I was greeted by name,
But I didn't much care for what thereafter came.
The language - how trite! How the rhyming would wobble,
With emphasis placed on the awkward syl-LA-ble.

The sentiment - fulsome!  The meter - how sloppy!
Did interns get wasted and scribble some copy?
Even eight tiny reindeer could easily see
That "Fidelity" isn't a rhyme for "tax-free."

As I drew back my gaze, and was turning around,
I wondered: what more on UNIQUE could be found?
Investment expenses constrain NAVs;
How would this plan compare in expenses and fees?

I went to the internet, flush with designs
To evaluate all of the 529s.
I googled a website and rapidly came
To a listing of plans, by expenses and name.

On Michigan, Iowa, Carolina(*), New York!
Your plans are not laden with very much pork.
Now DC, Nebraska! Now Kansas, New Hampshire!
Your costs are consuming returns like a cancer.

In Fidelity's plans, up to 16%
Is charged in a decade - a ruinous rent.
More moderate plans may only charge you
Just 5% (maybe as little as 2).

This confirms the suspicion right under my nose:
Fidelity's poets are plumly paid pros.
In college investments, keep fees in your sight;
Happy Christmas you'll have, and sleep soundly at night!

The foregoing liberties taken with The Night Before Christmas (with apologies to the descendants of Clement Moore) were inspired by the following, actual e-mail sent by Fidelity Investments to current and potential clients:

   'Tis the holiday season, a great time for cheer,
   When special traditions bring loved ones near.

   A time to give gifts that can give on and on,
   Gifts that can give after the season is gone.

   For your daughter, your grandson, your niece or your neighbor,
   A special child in your life that deserves such a favor.

   Give the gift of an education while there's time on their side,
   They can later use the savings toward accredited schools nationwide.

   Qualified withdrawals are federal income tax free,
   Open a UNIQUE account today with Fidelity.

Fidelity manages the 529 college savings plans of several states, including New Hampshire, whose UNIQUE College Investing Plan is among the costliest of all fifty states.  That's according to SavingforCollege.com, which ranks the Fidelity-managed 529 plans of Arizona, Delaware, Massachusetts and New Hampshire as tied for the distinction of 4th most expensive in the nation.  For more information, see the Journal's guide to How to Find a 529 Plan.
(*) Note: SavingforCollege.com ranks the North and South Carolina 529 plans as 7th and 2nd least expensive, respectively; top (or bottom) honors go to New York.

The poem in this post was originally published in the Wall Street Journal's Total Return Blog.

College Choice

The candidates tried to explain
How to lessen America's pain
From tuition and fees
That pay for degrees
Of commercially dubious gain.

Said Obama: "I'd like to enhance
Federal aid, be it loans or Pell grants;
Though I'm hopelessly lost
On containing the cost,
At least I will get you financed."

Said Romney: "The government's never
Very good, but the market is clever;
So you're out on your own
To get your own loan,
Where-, how-, from whom- for what-ever."

Said neither: "On loans, I will let it
Be decided by factors of credit,
So that those who can show
That they're getting to know
Something useful are those who will get it."

The US Presidential election is two weeks away and the final debate is this evening, but so far both candidates have gotten away without putting forth an effective plan to address the looming higher education crisis. We have a vicious cycle of ballooning student debt to pay for rapidly rising costs of education which, in all to many cases, does not prepare the graduates for a gainful career, and hence offers no hope of repaying those mountainous loans. Both President Obama and Governor Romney would do well to take a page from the book of my friend Jay Hallen, who proposed in the National Review that the provision and pricing of student loans should be based on the likelihood of repayment, as is the case with any other type of loan. This would have the effect of directing student loans to where the economy most needs them, i.e., toward programs that prepare students with the skills that employers most need.

Back to School

An earnest young lady named Esther
Was beginning her freshman semester,
And her greatest concern,
In preparing to learn,
Was that school would financially test 'er.

Everybody complains about the high cost of a college education, but nobody does anything about it. Now, at least, one man has put forward a microeconomic explanation. Kenneth Gould lays out an intriguing price discrimination argument in the American Enterprise Institute's online magazine.*

Gould's point is that the financial aid system allows the providers (colleges) to learn how much the consumers (students) are willing and able to pay, and thus practice first-degree price discrimination using financial aid to set different prices for the same service (education).

First degree price discrimination occurs when normal markets are interfered with and producers are allowed to learn exactly what each consumer is willing and able to pay for the good or service. Using this data, all the producers set individual prices for each consumer, eliminating competition and forcing the consumers that are willing and able to pay a higher price to pay it. In this pricing scheme, those who are willing and able to pay only a lower price get a break. ... As it turns out, this seemingly humane aim has a fundamental flaw — the same flaw that afflicts all non-market based systems: When producers no longer need to compete, production costs always rise faster than they otherwise would.

*Note to reader: the word "intriguing", when used in this space, refers to an argument with which the writer potentially agrees but must regard skeptically on political grounds.

School of Hard Truths

Said a grad whose finances were played out,
And whose face could not help but betray doubt:
"The lessons I learn
May improve what I earn,
But not at the prices I paid out."

College: can't afford it, can't live without it. That appears to be the message of mounting data on debt and employment. On the one hand, the New York Fed's latest Quarterly Report on Household Debt and Credit shows that, while the overall delinquency rate of US consumer debt improved from 9.3% to 9.0% in the second quarter, the student debt delinquency rate has worsened from 8.7% to 8.9%. These numbers are part of a trend; says the New York Fed: "Since the peak in household debt in 2008Q3, student loan debt has increased by $303 billion, while other forms of debt fell a combined $1.6 trillion." Clearly, student debt is on an unsustainable path.

On the other hand, there is clearly value (at some level) in higher education. The Wall Street Journal reports that the Brookings Institution recently surveyed US metropolitan areas, looking for the gap between the average level of education sought by employers vs. the average level of education attained by the population. The survey found that a lower "education gap" was associated with areas whose housing markets had best weathered the downturn. Moreover, Brookings found that, in 2011, for every unemployed worker with a college degree, there 5.6 openings requiring such a degree; for every unemployed worker with only a high school degree, there were only 1.6 openings.

It is evident then that a college education confers a great advantage in the job market, but is it worth any price?
Hat tip to Kelly Evans of CNBC for alerting us to the New York Fed consumer debt report.

A Matter of Degree

Asked a socially relevant chronicle:
"Is a college degree economical?
Well, the lifetime return
On the extra you earn
Is substantial, but not astronomical."

Dr. Goose had occasion to visit Loyola University of Maryland as part of an adult entourage in an orientation program for incoming freshmen. Loyola impressed with many outstanding qualities, beginning with its president, the Rev. Brian Linnane, SJ, a clear-thinking, no-nonsense advocate of cura personalis – "Care of the whole person."

I also had occasion to note that the cost of one year at this fine institution has reached $57,000, as has that of many private universities. While listening to a presentation on financial aid, I did a back-of-the-napkin calculation and found that, in order to yield a 4% return on the four-year investment in education over a 40-year time horizon, a graduate would have to earn $11,000 a year more than they would have with only a high school diploma. Those who strive for an 8% return would have to earn an additional $19,000 a year. Studies show that such incremental earning power is within the reach of the typical college graduate, but probably not those who indulge in "coasting", against which Father Linnane inveighed ominously.

Leveraging One's Education

A student had trouble believing
That the newspaper wasn't deceiving
In ascribing a sign
Of reversing decline
To his borr'wing to learn basket weaving.

Citing the latest Federal Reserve statistics that show consumer debt up in December, the Wall Street Journal sees "a sign that the credit freeze is thawing." Indeed, household debt rose at a seasonally adjusted 9.3% annual rate, following a 9.9% rise in November. But - is this a good thing? Two considerations rate mention. First: we're trying to exit a huge financial crisis brought about by excessive borrowing, so any conclusions based on consumer debt trends should at least consider what an optimal level of borrowing would be, and whether we are still above it. Second, the largest component of December's increased consumer debt comprised student loans, which is certainly a bad thing. Student loans have been growing faster than they can be repaid, in part because federal and state programs will fund unlimited amounts with no credit underwriting; there is no assessment of the likelihood of the student and program of study generating sufficient loan repayment in the future. This must change.

Choose Your Course Wisely

Said the head of a fine university:
"My friends, it's a time of adversity.
You must learn a career
That the money spent here
Will be more of a blessing than curse," said he.

Whether occupying Wall Street or just their old room at home, today's college graduates are beset by record un- and underemployment, as well as overindebtedness. For those anxious undergraduates trying to set the best course in difficult waters, the Census Department has provided a compass of sorts. Its 2010 employment survey (via the Wall Street Journal) breaks down the jobless rates and salary ranges by 173 different majors. Among the hardest hit? Psychology majors; while those who studied pharmacology do quite well providing their anxiety medication.

Learn a Global Trade

Said a critic of higher education:
"It's (for many) a four-year vacation,
Which begets student debt
With no useful skill set,
As they'd have if they'd learned a vocation."

Bill Gross, co-founder and -CIO of Pimco, and manager of the world’s biggest bond fund, published a scathing outlook on the US education system. Noting that the average college undergraduate now leaves school with $24,000 of debt and diminishing job prospects, Mr. Gross concludes that, for millions of young people, college is “a waste.” Taking a suggestion from Fareed Zakaria, he proposes to get students out of the ivory tower and into German-style technical training for globally competitive skills.

Hat tip to the Zero Hedge blog.