June 23, 2011

Is College a Waste of Money? ‘Short’ College Through Online Education Stocks

But London School of Economics online program may be a screaming bargain

PIMCO provocateur and bond fund legend Bill Gross garnered much attention in his latest missive questioning the value of a college education in today’s tough economy. Gross praised efforts to promote entrepreneurship or vocational training, while assailing the conventional liberal arts degree, which he described as “a four-year vacation interrupted by periodic bouts of cramming or Google plagiarizing.”

The PIMCO portolio manager is clearly onto something. It is clarifying for investors to know what not to invest in, and there may be ways investors might “short” a conventional college path whose value is in decline.

A website that offers college advice recently described what it called the “law school bubble,” lamenting the plethora of graduates with six-figure indebtedness and little prospect of employment. The site notes that law school student applications have trended up — Cornell saw a greater than 50% increase in 2010 applications, for example — at a time when legal pay and job offerings are in decline.

The medical profession may be no better than law from a financial perspective, according to Boston University economist Laurence Kotlikoff. Crunching the data for Forbes, Kotlikoff found that a doctor comes out only slightly ahead of a plumber in terms of lifetime earnings once you factor in the physician’s many years learning instead of earning; tuition; loan interest; and taxes paid. For all his effort, the doctor comes out with just a $500 a year advantage over the plumber. And growing dissatisfaction with the regulation, paperwork and bureaucracy of the health care system is leading an increasing number of those doctors to opt out of the system altogether even if that means lower incomes.

Those graduating four-year colleges in the past years of recession have been dubbed a “waste of a generation,” struggling to find employment, pay student loan debt and facing the likelihood of employers passing them over for more recent graduates as opportunities arise.

Finance-conscious consumers have turned in growing numbers to cheaper online alternatives. Bridgepoint Education (BPI) offers online degrees through its regionally accredited institutions Ashford University and University of the Rockies. Its stock is up 22% year to date, with competitors DeVry (DV) and ITT Educational Services (ESI) close behind.

But expect that downscale market to face stiff competition in coming years. Leave it to the wise economists at the prestigious London School of Economics. Getting your high school graduate into their three-year bachelor’s degree program will set you back a mere $5,000 -- for the full three years! Now that’s something even Bill Gross might want to look into (for his kids of course).

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