College Education Arbitrage

The two most overpriced goods in the US economy are health care and private education.  In the latter case we have been told that the cost of teachers has risen because these highly educated people could easily go and work on Wall St. or Silicon Valley.

Now all those fabulous job opportunities have dried up, yet tuition rates are unchanged as are professor salaries.  So after all tuition paying parents have suffered a loss of 40% in their net worth, they are now looking at their options and public education institutions are back on the table.  Many excellent students will now go to their local state university rather than pay $40m for a private college unless they can argue that it’s worth it. 

This will cause the spread to narrow between the quality of student that goes to each institution.  Rankings will narrow between them as many of the most overpriced mediocre private colleges suddenly find that applications dry up.  Here are some of my favorites:

  • Short USC vs. Buy UCLA – they’re right next door to each other, UCLA is ranked higher and costs less than half as much (for a California resident).
  • Short Boston University vs. Buy U. Mass.  U Mass is ranked 102 and costs $10m while BU is #50 and costs $37m!  (honorable mention on the short side to Northeastern – $34m).  U Mass is going up at BU’s expense.
  • Short USD vs Buy UCSD.  UCSD is ranked 35 and costs $9m for in state applicants while USD is ranked #102 and costs $34m! (honorable mention on the short side to Pepperdine- $37m and ranked below almost every UC college).
  • Short U. of Miami vs. Buy U of Florida.  The former costs $35m and is ranked #51 while the latter costs only $4m and is ranked higher at #49.
  • Short Wake Forest vs. Buy UNC Chapel Hill.  Wake forest is ranked only 2 spots ahead of UNC and costs $30m more for a state resident!

Any private college that depends on location to attract students is in trouble.  Will people continue to pay huge extra $ for good nearby skiing or to just be in (say) Boston?  How important is a tan at $40m/yr when you can get the exact same tan down the street for 1/4 or 1/8th the cost.  Luxury good prices for mediocre education are coming to an end.

7 thoughts on “College Education Arbitrage”

  1. Why limit yourself to BU? Boston College and many other Boston area private universities also fail the cost test. Additionally, one can look to private universities in New York (Colgate comes to mind first) versus the ever improving SUNY system. Also, why choose Lehigh when Penn State is available.

  2. Talk to me after you’ve gone through the (miserable)college application process with your child. Once you drive 6 hours, check into an expensive but crappy hotel room in a crappy town in the middle of nowhere, take a campus tour with a bunch of 17-year-olds who have cured cancer and/or written best-sellers, and sit in the admissions office with 50 other anxious parents while your kid goes through an assembly-line interview, only to emerge saying, “I’m not feeling it, Dad,” — and then repeat that exercise a dozen or more times — the question “Is it a good value?” becomes the last and least relevant question you will ask. “Is she feeling it?” and “Can/will she actually get into it?” are pretty much the only questions that matter at the end of the day. And after a rejection or two come in the mail and you try to console her with the rationalization that her first and second choices were likely bad fits after all, and the promise that she will in fact eventually get into a great school that will be a perfect fit, you will greet the first acceptance letter with a huge sigh of relief (inaudible, so as not to reveal to her that you too had feared the worst), and say something like: “See, honey, I told you so. Sucking Sound College is a great school and you are going to love it there. When is the deposit due?”

  3. I was wondering why you left out investment banking among the most overpriced items in America. Seems to me that it’s a kind of cartel or oligopoly since in a free market the profit margin in that business would normally be competed down to a more reasonable amount.

  4. agreed – I just didn’t include it in the list because most of those fees are not charged to regular consumers. M&A fees, IPO commissions, hedge fund fees – are all priced like the industry was an oligopoly

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