Striking Out the Value Equation

Society benefits from a more educated population. There are tons of studies out there that demonstrate how a more educated society has more innovation, higher standards of living, and is more peaceful. My personal belief is that education is wonderful because it facilitates social and economic mobility. Philosophically, then, I support the subsidization of higher education to make education accessible to people of all socio-economic groups. I love the rags to riches stories.

Striking down value
That brings us to today. Tens of thousands of Quebec students marched and protested a $325 per year tuition increase. Their march blocked roads and made traffic jams. Their protest got commercial shipments late. Some sick people missed their doctor's appointments. Hard working employees were late for work. Munchkins in day-cares had to wait longer for mom or dad to pick them up. These are real costs to individuals and to society. The protests down the streets destroy economic value. To the "striking students", this is not the way to win friends and influence people.

Tuition rate value
Let's put this student "tuition hike" in perspective. Since most of the student strikers are undergrads, I'll use undergraduate tuition numbers. I'll pit McGill University's tuition (for Quebec residents) against the tuition prices that they would pay at other comparable-tier schools.

McGill's tuition is comparatively so low, you can barely see it on the chart. But wait a minute. Let's exclude the private universities from the comparative sets. Don't some of these state universities (like University of Michigan or University of Southern California) have privileged rates for state residents? How would Quebec tuition rates stack up against these subsidized rates? Let's take a look.


Here too, the Quebec rate is a huge bargain. In fact, it is the least expensive tuition rates in Canada (Bloomberg) and it doesn't come close to American resident state school equivalents.

Why do universities charge so much? It is expensive to educate a student. Without accounting for overhead (you need classrooms, computers, projectors, pensions for staff, cleaners, security, cleaning staff etc), the marginal cost for educating each additional student is about $16500 per year. This is why even private schools with huge endowments charge around $35k per tuition per year.

The expert value
One of the coolest things about working in academics (especially at a place like McGill) is meeting world-class subject experts. I've engaged with profs who have won the Order of Canada, advised American presidents, and who have been nominated for Nobel Prizes. Many others have been inventors while others have been on the cover of magazines. These are individuals, who are paid thousands of dollars per day for their expertise in the business world. Yet, they choose to be in lower paying university environment because they love their field and enjoy sharing their passion with students. It's not a bad deal to pay $400 per a course to learn from a world expert who commands $7000 per hour long speech. Obviously, most profs are not at this level, but the professorial talent bench is often stocked with best-in-subject matter experts.

The degree value
Ever wonder how much a university degree is worth? According to "The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings" (.pdf), high school graduates can expect, on average, to earn $1.2 million over the course of their lifetime; those with a bachelor's degree , $2.1 million; and people with a master's degree, $2.5 million. So an undergraduate degree is worth about $900,000. So the $1625 tuition hike over the course of an undergrad degree ($325 x 5 years) represents about .1% per year hike of future earning benefits that the undergrad degree provides. The hike is not a lot.

The Value Equation
We are left with this reality. The annual tuition increase amounts to less than the price of an iPhone or pair of designer jeans. The $1625 and is a pittance of future income earning benefits the degree provides. Education has a very simple value equation. Tuition is way under priced. The benefits of a degree even with full market tuition is still worth it. ($200,000 in tuition for $900,000 in benefits) This blog is a reminder to striking students to learn this most basic value equation. If striking students can not understand this, perhaps university is not for them.