• April 29, 2021
  • Chuck Osborne

Don’t Mask the Symptom, Fix the Problem

A few years ago, I went to the doctor to see what could be done about a pain I was having in my upper back near my shoulder blade. He sent me to physical therapy; the therapist did message and even dry needling for the overly tight muscles. It helped, but within a year I was back in the same boat. This time I got another therapist, who began by working on my neck. I corrected him saying, “No, the pain is down here.” He said, “I know, but the cause is up here. I’m going to fix the cause.”

Sure enough, he was right. I have not had the pain since, and every time I start to feel something in my upper back, I do the neck stretches he showed me, and all is well. Aspirin can make a headache go away, but it won’t cure a sinus infection, let alone a brain tumor. 

Politicians are good at identifying symptoms that bother us – these are the building blocks of campaigns. Schools need improving and taxes are too high…symptoms are easy to identify. It is also easy to identify ways of masking those symptoms, and it is a lot easier to mask them than it is to truly fix a problem. 

The student loan crisis is a great example. Too many young people are starting out their adult lives buried in debt due to the high cost of education. The political solution is to forgive the debt. This is also known as masking a symptom – the problem is not the debt; the problem is the cost of education. I hate to say it, but the truth is the higher education and private secondary education industries have become criminal enterprises. 

The cost of education over the past 30 years has increased at a rate 2.5 times the rate of inflation. I have mentioned this before, but I was privileged to receive a wonderful education, which my father paid for in total. I went to one of the top boarding schools in the country, Culver Military Academy, and to the best (in my opinion) academic institution in the Southeastern U.S., Wake Forest University. It was not just difficult to get into Wake, lots of schools can say that; it was difficult to graduate. Years later I was told that high school students were warned that it is really “Work Forest.” 

Today the cost of attending those institutions is approximately seven times what it was when my father wrote those checks. They did for me exactly what my father had hoped: they provided me an education which, first and foremost, made me think bigger when it came to life goals. They gave me the tools to survive and thrive in a business where one must be smart to begin with and had better be willing to work hard and think his way through problems. Trust me, there were no courses in financial crisis investing, and there certainly was not a class in pandemic financial advice. Education isn’t job training, it is about learning to think, and if one can do that, then she can do anything. 

So, I was asked just the other day if Wake Forest is worth its current cost, and my answer was unfortunately, but honestly, “No.” The same could be said of almost every college and private school in the country. If any other industry had continually raised its cost over this long of a period, their CEOs would be paraded through Congress to answer to their price-gouging ways. 

I want to be clear: I am not suggesting that this was done purposely by criminally minded people. The issue is that it has happened without thought. Schools set their tuition based on cost and competition. So, if one school charges more, the next says we can charge more. Once they charge more, they must justify it. They build new buildings and start new programs, which raises costs, so tuition goes up. Tuition going up one place makes tuition go up at another as schools constantly compare themselves to one another. Then they need more new buildings and more new programs. It is a constant feedback loop that causes costs to spiral out of control. 

On the consumer side, people now borrow money to go to school which allows them to pay more. Schools figure out how to price their spots like airlines price seats, only better. The first thing one fills out for most colleges today is a financial disclosure. They call this financial aid, when really it is a way to maximize the tuition of every student based on what they could possibly pay. I have heard, from well-meaning people, that this is a justification for the outrageous cost. Really? 

What if your doctor charged that way? Would you consider it ethical for her to say, “You make more money, so you have to pay more for your office visit?” Would it be okay is Starbucks demanded a personal financial statement to price their coffee? “She pays $1 and you pay $4…oh no, wait, our records indicate you just got a raise, that will be $10 for your coffee.” Of course not. They would be accused of price gouging. 

In my opinion something does need to be done for the victims of today’s modern education system. However, simply forgiving loans is not the answer. There are too many unintentional problems – what happens to one’s credit? – but more importantly, it does not solve the problem. The proposal for two years of “free” community college gets closer, but it also has the problem of “free” simply meaning the government (aka taxpayers) pay the bill. A better solution would be to go back to tuition costs in 1990, then index those costs by inflation as measured by the Consumer Price Index (CPI). Then, for every college that has taken government money (which is just about all of them), refund every dime paid above inflation and cap future increases to CPI. 

That proposal would require enormous structural changes in most schools – too much to discuss today, but these changes are far overdue in my opinion. My cousin paid for his college by working a summer job. That needs to be where the cost of education is today. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA
Managing Director