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College Is Worth the Price. Just Not This Price. A college president says economic models don't apply to college tuition. That theory wouldn't pass Econ 101.

By Ray Hennessey

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Colleges want you to know they are worth the price. Why? Just trust them.

Yes, higher education is expensive, but trying to figure out whether the cost is worth the result is a fool's game. At least that's the view of Christopher Nelson, president of St. John's College in Annapolis, Md. In a piece for the Washington Post, Nelson argues that it the metrics we apply to the issue that is the problem.

"The obsession with quantification is rooted in a habit of applying economic categories to everything," he writes. "Yet education and economics are essentially incompatible. The lens of economics distorts our judgment about the true worth of higher education."

To paraphrase, don't use economics to judge the value of that degree in economics.

Now, I'm a fan of education, though I've had a complicated relationship with it over the years. I've been a trustee of two private schools and neither were bankrupted, and that's where my personal laurels end. Don't ask me to teach. My brief time lecturing in journalism is still cited for the collapse of American newspapers. Bayonne, N.J., has 30 more atheists than it should because I taught CCD for a year.

Still, I believe in the power of education, at least in the way others perpetrate it, and I have always believed that college is the way to go if you want to get ahead in this country. Yes, we have success stories of dropouts like Bill Gates and Mark Zuckerberg, but we often forgot they got into Harvard, not West Stumblebum Community. Their creative genius probably outpaced what most universities could have offered.

For us mortals, the best move is college. Why do I think that? Metrics and economics. The unemployment rate for workers with a four-year degree is just 2.9 percent, compared with a 5.1 percent rate for those who just finished high school, according to the Bureau of Labor Statistics. In short, from an economics standpoint, there is essentially full employment for the college educated.

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Now, all that means is that your college education gives you a leg up in the workforce, and there is quantifiable value in that. But that doesn't mean that the cost of your education is "worth it." There, we have so many variables -- tuition, field of study, average salary per degree, etc. -- that it makes it difficult assess.

But, to counter Nelson's point, you can assess it.

Only the bravest of university economists actually calculate whether tuition is "worth it," mostly because they fear the answer will lower their pay. It's akin to finishing out the online-dating profile, only to realize all the reasons you'd never date yourself. But others have done a pretty good job of applying economics, to differing results. The Federal Reserve, for one, says college is worth the cost if you view the transaction through the lens of wages and investment. The Fed actually says you get a rate of investment of about 15 percent. Not bad.

Still, you can't really use that as a metric because you have to take debt into the equation. The average college graduate leaves school with $33,000 in loan debt. There is an estimated $1.2 trillion in student loan debt nationwide. That is way too much, by any formulae economists create.

Here is where Nelson, of St. John's, has a point (though he didn't actually make it): Economics is tough to apply to education because it uses an economic model not found anywhere else in the wild. There is no product or service in the world that outpaces inflation the way college tuition does. As LearnVest notes, the price of a college degree has soared a whopping 538 percent since 1985. The Consumer Price Index, our typical measure for inflation, over that period only rose by 121 percent. Even medical costs, which have outpaced inflation, too, only rose by 286 percent during that period.

In any world but ours, nothing could sustain that rate of cost growth and still get customers. But customers -- or students -- keep lining up. College enrollment is projected to grow at a 14 percent rate through 2022, according to the National Center for Education Statistics.

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Usually, we look at economics from the standpoint of supply and demand. Indeed, core to Nelson's argument is that the scarcity model can't be applied because information is the commodity education provides. Information is everywhere in the Internet now, so you have to look at cost based on the intangibles, he says. Unlike other products, free-market supply and demand can't apply because the cost of the product isn't actually borne by the consumer but by people not part of the equation, in this case taxpayers. There is, after all, the famous Bennett Hypothesis, put forward by former Education Secretary Bill Bennett. That holds that colleges have no incentive to lower costs because the federal government subsidizes college debt, therefore making loans more available to people who otherwise couldn't have paid the price.

On a smaller, yet more devastating scale, a similar approach led to the housing bubble. By subsidizing mortgages, the government allowed otherwise unqualified buyers to get into houses they ultimately couldn't afford. Bank hucksterism fueled the fire, and, voila, we had the Great Recession.

Perhaps it is because I remember the refrain that the "old rules" -- specifically, real-world economics -- don't apply that I instantly cringe when someone applies the term to a new product. From Internet stocks fueled by margin, to McMansions wrapped in a Fannie Mae bow, to now the justification for obscene tuition, backed by taxpayers, I get wistful for the time when we bought things we can afford, and profited from it.

College has a value and therefore should have a cost. But the debate over whether college is "worth it" shouldn't focus on what economic model we apply, but rather whether the cost side has applied any rational economics at all. That is a tougher national conversation, because it means addressing professor tenure, the wisdom of some research projects (Did we really need to know that horses prefer bananas to oregano?), and whether education is a societal right, to be funded by the governments.

One hopes that this debate happens because increasing debt, borne by those outside of campuses to fuel profits within, can't be a sustainable model. With apologies to Nelson, the economics just don't add up.

Related: When Will Washington Start Unleashing the Power of Entrepreneurs?

Ray Hennessey

Former Editorial Director at Entrepreneur Media

Ray Hennessey is the former editorial director of Entrepreneur.

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