A Short DOTE Quiz On Tuition Inflation

A chart and story from Sober Look called Gap between college tuition and consumer income is at record levels has been making the rounds in the last 24 hours.

Analysts point out that higher education costs in the US have significantly outpaced inflation. Another way to look at the issue however is to compare college costs with disposable income. The gap between the two has widened to historical highs.

The data has been normalized to 100, so pay no attention to the labels on the Y-axis.

This is another market distortion created by the US government (similar to the housing market) by providing an almost unlimited amount of credit and pricing it below market. It allowed schools to raise tuition without the demand constraint that would normally exist in a market. As a result the US consumer student loan burden is now higher than either auto or credit card debt (see discussion). And now we are also seeing a rise in delinquencies (see post)...

There follows another chart showing student, auto and credit card debt. Visit the Sober Look story to see it.

And now, here's the quiz: What is the flaw in the graph above? The graph is not wrong per se, but it is misleading. Why is it misleading? How does it manage to leave out so much of the rising tuition/student debt story?

These are not trick questions. I have discussed the flaw in such graphs several times on DOTE.

Post your answers in the comments. Even if somebody posts an answer you agree with, say that's your answer too, along with your own commentary.

I will post my answer at about 2:00 pm today.

Bonus Video — An NBC report on student debt slavery (broadcast in late 2011)

 

Comments

[bill]

"Disposable income" rising = consumer debt product, not actual earnings rise?

[Gail]

Disposable income per capita doesn't distinguish between the 99 and the 1%, so it's deceptively high (?). It's early, for us unemployed parasitic welfare queens!

[danp]

Mr. Cohen,

I suggest there are at least 2 misleading things about the graph. First, by normalizing 2 different metrics, income and tuition, on the same graph, you see the relative change but not the absolute change. A $10k income in 1985 (normalized at 100) rose to about $15k recently. If tuition were $1,000 in 1985, it rose to about $1900 recently. The $900 absolute rise of the tuition isn't so bad, compared to the income increase. But, if tuition was $5,000 in 1985, it rose to $9,500 recently. This increase as a percent of income is a huge difference. My point is that the graph doesn't tell you how large the tuition and income values are, relative to each other.

Second, the graph doesn't indicate the amount of debt incurred to pay the tuition, which would increase the total amount paid for education.

I attended college 1975-1979. My father's social security benefits (he died in 1968) paid for my education. I have two high-school aged children, who may attend college in the not too distant future. The rise in college tuition, and as importantly, both the questionable quality of the education to be paid for and the questionable prospect of a job thereafter, absolutely terrifies me.

One of the reasons I continue to read your blog, daily, is for the unvarnished honesty and clarity in your messages. Thank-you for that. However, even though I agree with many of your basic points, as a parent of those two children, I must continue to try to think of ways for their lives to be worthwhile. Given the points you raise, and the other real issues in the world, it is dis-spiriting, to say the least...

[NoHype]

1. It's normalized to 1985, as if that's the standard for affordability. Government intervention/intrusion into higher education dates back to the post-war period with the original GI Bill.

2. Disposable income per capita is an average, rather than a median. These days very rich people have almost unfathomable amounts of disposable income, while the rest of us no longer know what "disposable" income is. So the climbing burgundy line is just the oceans of money that rich people control, spread out across the population as if the rest of us get to choose how to spend it.

[Professor Foghorn]

I basically agree with gail. Disposable income per capita is a population average where dispoable income per unemployed college graduate is very much less than that. So the situation is worse for those directly affected.

[Guessing]

I agree that there are a several misleading aspects:

(1) "Normalizing" to 1985 instead of going back to say 1945
(2) "Disposable income" vs. actual income
(3) The .1% vs. 99.9% disposable income skews the income line