One Solution to the Higher Education Bubble
- Posted by Jeff Carter
- on September 26th, 2012
If you have sent your kid off to college to try and gain an little knowledge you are acutely aware of the costs of educating that child. Costs have skyrocketed for many reasons.
1. Government subsidies-when subsidies are instituted, you get more of what you are subsidizing. More people are going to college than ever before.
2. International Demand-prior the the Berlin Wall falling, and the Chinese reawakening, fewer international students came to the US to study. Now, India, China, Eastern Europe, Africa Arabia, and South America send thousands of students here each year. Increased demand drives up price.
3. No increase in supply. Society rarely builds a new physical college. When it does, there is little demand for it because it doesn’t have a brand name, has no history. The first classes through are taking a reputation risk going there. Lack of new supply drives prices higher given increases in demand.
4. Education spend by government. Whenever government starts spending a lot of money in a sector, prices are sure to go up. The overhead of staff at public educational institutions is mind boggling. I think it was Mark Perry that said at his university in the last ten years they didn’t increase professors, but they sure increased headcount. That increases the fixed costs of education.
Obviously, something has to give. I pay an all in cost of around $54k per year to send one kid to school and that is not sustainable. Especially when there are choices. I know independent private schools in major cities that are charging upwards of $27,000/yr for high school!
Volkswagen opened its first American plant in Chattanooga, Tenn., in 2010, and executives knew from the start they wanted to launch a German-style apprenticeship program alongside it. The plant employs 3,000 people building the Passat, Motor Trend’s 2012 “car of the year.” Volkswagen saw a shortage of mid-skill machinists, workers who perform maintenance on robotic welders and other state-of-the-art manufacturing tools. The three-year apprenticeship program, Volkswagen Academy, is a partnership between VW and Chattanooga State Community College. Built to address that need for regular plant maintenance, it enrolls about 20 students per year. The college screens for students’ math and reading skills, and VW administers a test in which applicants read diagrams, assemble car parts, and install a dashboard. They are also given a personality test, a background check, and a drug screening. There are three applicants for every available slot.
Manufacturer’s are beginning to use community colleges are training grounds for workers. It’s a great idea. I predict that corporate America will get more involved with education. When you think about it in economic terms it makes a lot of sense.
Corporations constantly complain about the talent gap in America. We need immigration to fill that gap. Our public schools are atrocious, and fail us year after year. Corporate America has needs to fill in engineering and research jobs.
Why shouldn’t a corporation establish it’s own K-College school trak? Then they could educate and train their own workforce. They would make darn sure that there was enough talent to fill the jobs that they created. A company like Microsoft ($MSFT) could train thousands of engineers each year for the benefit of the company.
Eventually, those engineers would innovate at Microsoft, or leave and spin out their own companies. From an investor perspective, it might be pretty compelling and a reason to buy a companies stock. They would be insuring their most expensive and valuable input of production, human capital.
Critics of this idea would say that corporate America might brainwash the children. But is that any different than the left wing pablum that they are being force fed in many schools across the country today? Besides, no one would mandate that your child enter a corporate educational system. All the other systems of education, public, parochial, and independent would still co-exist. If corporate America got busy, it could offer an interesting option to American families today.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
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