The HigherEd Bubble Part 1: The State of Higher Education
by azmanam on Nov 28 2011 (4399 Views)Bubble. The dot-com bubble. The housing bubble. The gold bubble. We’ve probably heard various markets called ‘bubbles’ by TV newscasters over the past few years. If you watch 24-hour cable news, you’ve probably heard someone talking about one bubble or another every half hour. Do we really know what that means? And is higher education the next bubble about to burst?
via Flickr user Mysserli
I’ll be tackling that question this week in a series of posts. I by no means consider myself an economics expert. I’m just an un-tenured college professor in my sophomore season looking at the wall to see if there’s any writing… This may seem like an odd series for a chemistry blog, and you're probably right. But not only am I a chemist, I'm also a college educator. And many of you are, too. Or you went to grad school with someone who's in higher education now. Or you're still in school. Or your kids will be going to college soon, or are already there. So even though it's not a chemistry topic, it's relevant to all of us by one or two degrees of separation.
The views expressed this week are those of this author only. They are not necessarily the views of the author's employer nor any other author at Chemistry-Blog.com.
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In one article I read while researching this topic, one commenter made a germane point. “I think most people view a university education as a kind of Pascal’s wager. It is better to have at any cost than not have…” I think this pretty well describes the current state of higher education: universal higher education. It’s almost reached a point where it’s just assumed you’ll go to college. The statistics tell us that in the US 68.1% of 2010 high school graduates were enrolled in college in October 2010 (3% of high school graduates enlist in the military).
On its face, encouraging more participation in higher education is a fine goal. Obama has challenged the county to lead the world in college graduates by 2020. How can there be a problem being more educated? But that’s not the whole picture of the current state of higher education. Tuition costs are rising, debt loads are rising, and some argue the return on investment isn’t what’s advertised. And some politicians are actively encouraging more and more students to buy into this system.
Let’s talk about tuition. The National Center for Public Policy and Higher Education, since 1985, college tuition and fees have risen 440 percent. This is more than 4 times the rate of inflation and nearly twice the rate in health care. This year, total costs of attending a 4-year private university are about $30,000 and a public university is $10,000. Same information presented differently: median household income has grown by a factor of 6.5 in the past 40 years, but the cost college for in-state and out-of-state students has risen by a factor of 15 and 24 respectively. Private college has risen by a factor of 13.
There are all sorts of reasons why tuition, room, and board have risen so far so fast. No single factor is to blame. Among the contributors is reduction of state funding, actual cost of paying more faculty and staff as student base grows, modernization of infrastructure (especially electronic infrastructure), reduction of endowment as the economy suffers, higher demand in general as more students apply, and higher demand at ‘prestigious’ schools where prices can rise perhaps faster than they can elsewhere.
The Goldwater Institute notes that at some 200 of America’s top institutions spending on bureaucrats rose faster than spending on teaching faculty between 1993 and 2007 (Harvard increased admin spending 300%, Arizona State counts nearly half of full-time employees as administrators, and some university presidents have contracts that perhaps look like some that OWS protestors have been decrying). Students are willing to pay more for a prestigious school than a peer school. If schools were to cut fees, some might perceive that the reputation or ‘prestige’ of the school has suffered.
You might be wondering why this problem isn’t self-correcting? One author asks, “Why don’t some universities compete by hiring teaching superstars? And why don’t others slash prices?” Part of this may be traceable to the ‘prestige’ factor mentioned above, and some may be explained by looking at how universities compete with each other. They don’t compete in price wars like competing retail outlets (e.g. cell phone companies) do, they compete in selling “the college experience:” lavish dorms, state-of-the-art sports facilities. They compete with amenities and luxuries, not educational value for the dollar.
Consumers might have revolted a long time ago if not for two main factors. Colleges routinely discount tuitions for certain segments of the population for a number of reasons, including an institution’s ‘on-paper’ profile in certain demographic sectors. This attempt to attract diverse students or exceptionally bright students leads to an actual cost that looks nothing like the sticker price.
Furthermore, cheap access to readily available credit makes it super easy to finance your education. The FAFSA’s long, but relatively painless to fill out. A few months later, you know how much federally guaranteed student loan money Uncle Sam is willing to write a check and give you. In this respect, it’s a case of not recognizing or not believing long-term consequences. It’s like smoking. Long-term negative consequences are denied and minimized: ‘oh, it won’t happen to me,’ and people don’t grasp the financial impact of their student loans after graduation. I sure didn’t. Further complicating this is the belief that a degree is an obligatory stop on the path to future prosperity.
Law schools are an interesting case study. Apparently, law schools are cash cows for universities: They’re cheap to establish, and tuition is enormous. Law schools tend to graduate ~40,000-45,000 graduates per year. This is a 13% increase from 10 years ago. This influx in the supply of lawyers has not paced the demand for lawyers, and lawyers routinely find themselves facing steep competition for a small number of jobs. Because of the excess supply of labor, salaries are pushed lower, and lawyers often cannot keep up with their monumental student loan debt. The income distribution of lawyers is dramatically bimodal, with a median salary around $62,000 in 2006.
via Reuters Blogs
Other fun facts about the state of higher education: hours of studying per week has dropped from 24 in 1961 to 14 today. Only 40% of students graduate in 4 years (6 year rates seem to be closer to 60%). One source estimated that the number of international students studying in the US could increase from 600,000 to 1,000,000 per year if visa reviews are expedited. The number of students enrolling in an online course rose 17% in 2008. In 2008, more than 25% of all students reported taking at least one class online.
“Of course,” one author opines, “the value of education cannot be reduced to dollars and cents, as much as the elite universities try to do so. Education is its own reward.” Tomorrow I’ll be looking specifically at the market for higher education, and we’ll see if the higher education market is a bubble similar to the dot-com bubble or the housing bubble.
Part 1: The State of Higher Education
Part 2: Is Higher Education a Bubble
Part 3: Student Loans
Part 4: What If the Bubble Pops?
Part 5: What Can We Do about It?
Great start to an interesting subject - one I have given some thought to as well. There's a definite degree inflation in which you can't get a job doing X without a degree whereas before it needed an associate degree or a high school diploma. And the rates go up and up and up.
Bad return on investment is right.
I should say I don't think ALL degrees are a bad return on investment. I hope my article doesn't sound too too negative. We just need to be smart about what we're doing
1. Great article, as always.
2. How do you have time to write a 5 part series on this? You definitely need to do a "how I find time for writing" post. I was happy with getting all my grading and one post done over Thanksgiving (on a vaguely related topic) until I saw this.
Thanks for the kind words.
Oh... I've been working on this series for at least a month, maybe a month and a half. I wish I could have just churned this out over the long weekend
THAT'S 'SENIOR DEPUTY ASSISTANT BUREAUCRAT' TO YOU, MR. UNTENURED PROFESSOR!
But seriously, this is cool. Interested to read more.
The education where I come from in Ireland is free to the citizens of the country but there is always problems with how people want to study further a Masters or PHD course will cost you thousands of euros this has lead to people just getting Degrees and not being able to afford to go further and once they have their Degree they cannot afford to go further and they immigrate from Ireland to a country that has jobs and careers, but I like the blog it gives alot of explanations.
Thanks for the overseas perspective
There is ultimately going to be a limit to how much debt load students (and parents) will be willing to undertake for the sake of a credential, which is further compounded by the fact that student loans are some of the most difficult loans to shake off. If there's another major recession leading to further contraction in employment, there are going to be interesting consequences for higher education, in particular for smaller schools. Dire predictions of apocalypse are easy to imagine but almost always wrong: in practice, a politically more palatable stopgap measure is almost always found to avoid a Great Reckoning. In the best case scenario for students (and universities?), perhaps it could take the form of government-subsidized student loan forgiveness. In the worst case, less-than-prestigious universities with high tuition could face serious domestic enrolment shortages. However even given this scenario some smaller schools are finding that there remains a large market for education in the form of international students from China and elsewhere who view a US education as a valuable commodity, and they may be able to keep their enrolments stable through this source. Can't find the NYT article at the moment that described the influx of Chinese students in a small Vermont college town but many smaller schools are already turning East for this, much the same way that graduate schools in chemistry have. A US credential may fail a cost/benefit analysis for a US student but it is a different story for internationals.
Is this it? (A Maine high school)
http://www.nytimes.com/2010/10/27/education/27students.html?pagewanted=all
Yessir!
Make sure you check out Wednesday's entry all about student loans...
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