Crucially, I also assume college-educated Bill will earn what his peers did in bubbly 2005, when bloated real-estate and stock prices stoked consumer spending, producing unusually large corporate profits and loose lending, and sending banks grabbing after grads at premium pay. The bubbles have since popped, and banks have shrunk.

"The economic downturn has worsened the cost problem," Vedder says. "There will be many more people for whom costs will exceed benefits."

Some students will get a better-than-average deal. They'll get more aid or end up in higher-paying jobs. (SmartMoney recently attempted to predict which degrees win the highest salaries relative to their cost.) But far too many will lose money.

It's crass, you might think, to reduce education to a financial decision. An educated citizenry is healthier, more tolerant, more politically engaged and more fulfilled than an ignorant one. But I refer above to degrees, not education. The two are not the same, even if policymakers talk as though they are.

Degrees are poor proof of learning

Students want jobs and respect. Degrees bring both. Employers, meanwhile, want smart, capable workers. A degree is a decent enough proxy for intelligence, but we want it to be more than that. We want degrees to mean that students have learned the foundations of human knowledge: literature, chemistry, physics, composition, metaphysics, psychology, economics and so on. If we didn't, we'd replace degrees with inexpensive vocational exams.

Charles Murray, a fellow at American Enterprise Institute, calls for just that in a recent book, "Real Education." He argues that too many kids who lack the ability to complete a liberal-arts education are being pushed into four-year liberal-arts schools, because there's a steep societal penalty for not getting a degree. Schools, in turn, have made their degree programs easier. Murray provides a sample of courses that students used to fulfill core degree requirements at major universities in 2004, including History of Comic Book Art (Indiana University), History and Philosophy of Dress (Texas Tech University) and Campus Culture and Drinking (Duke University). He documents not only falling standards but also rampant grade inflation.

He's not alone. In 2005, the Department of Education created a commission to study the college system and recommend reforms. A year later, the Spellings Commission (named for then-Secretary of Education Margaret Spellings) reported a long list of shortcomings, including "a remarkable absence of accountability mechanisms to ensure that colleges succeed in educating students." It found "disturbing signs" that degree earners "have not actually mastered the reading, writing and thinking skills we expect of college graduates." Literacy levels among college graduates, the commission noted, fell sharply over the 12 years ending in 2003.

Image: Percentage of college grads proficient in prose, document and quantitative literacy

Harvard, a case study

To be sure, Harvard graduates are bright. They were bright when they got accepted. In 2008, Harvard's undergraduate school accepted a record-low 7.9% of the record-high number of students who applied. Of these, 97% will earn degrees, and most will rightly go on to win plum jobs and coveted spots in graduate schools.

But universities are meant to teach, just as hospitals are meant to heal. A hospital that turned away the sickest 92% of patients would have little cause to celebrate the recovery of the rest. Harvard, though, has been called America's finest college by U.S. News & World Report.

"There's almost a tyranny to it," says Ohio University's Vedder. "Somehow a good college has become one that turns people away."