The Higher Education Bubble: It's About to Burst
mjperry.blogspot.com
mjperry.blogspot.com
So we can generally agree that the higher ed bubble will burst, but I don't see exactly how, or what repercussions that will have.
And as you note an education is not terribly fungible.
I agree with your last point: when, how and the shape of the fallout is quite unclear. We can perhaps see some clues at the edges, as some of the more marginal institutions go out of business, e.g. Antioch College (surprise; you might liken it and its sector to the sub-prime and Alt-A mortgage sectors).
But it's still the case that a 4 year Bachelor's degree has replaced the high school diploma as a proxy for [whatever] and until that changes we're more likely to see various sorts of shifting instead of across the board collapse.
Camille Paglia (who's always worth listening to, says this "ultra right wing conservative" :-) suggests we make a major shift to the trades: http://news.ycombinator.com/item?id=1649709, e.g.: "The pressuring of middle-class young people into officebound, paper-pushing jobs is cruelly shortsighted."
There is an interesting option. The degree should come with some option to force the university to buy it back at a discount. Say a person couldn't find that promised job after they got their degree, so they can force the university to buy back his diploma for 80% of the price he go it for.
All that student's course credits would be expunged. If they claim they have a degree from that university from then on, they would be charged with fraud.
I wonder how many people would sell back the diploma in return for the money back.
So what I'm getting at is that after 3 jobs I could sell my degree back and say "don't need this anymore, thanks!". Now you'll probably say that you can't ask for a refund after your first job. But that sounds like a lot of verification work. And can you prove that the degree GOT me the job?
Or, another possibility is that the degree only serves as a "necessary but not sufficient" marker. It increases the probability that you know your stuff, but only the first couple of jobs confirm that you learned anything. In which case yeah, selling your degree back to them would be bad.
Unfortunately it is hard to just come out with an 'apprenticeship or internship' only type program today. You do still have people that want to see that nice piece of paper at first.
I attended a state school. I just checked the website and found no promises of a job. In fact the only pages that include the word "career" are the career services which is a free service to help students and recent graduates find work. I checked a few other area schools and they make no such promises either. Hardly a comprehensive poll but,
Where did you get the idea that colleges ever promised jobs after earning a degree?
Every single guidance councilor and parent across the country.
I'm not sure how old you are, but it's borderline brainwashing. My mother literally used to tell me "Work hard in school, so you can go to college, and get a good job." It's not hard to see why people think that way.
Yes, some people go because they want to expand their horizons, learn more about the world, network, make friends. However most people go to be able to eventually get a job.
I attended a supposed liberal arts school and was NEVER informed of such goals or anything in the proximity. In addition, never did I feel that my schooling was geared towards or assisted in much of that.
Interesting you say that. Around here, the for-profit colleges and cook schools and whatnot all have fine print in their TV ads that say "XYZ School does not guarantee a job or job placement."
I want to go to school because I want to learn about things (and because I want access to their lab equipment and funding), not because I'm searching for a job.
That's not to say that all or most people don't want to "learn things". But they're smart enough to realize that they can't afford to do that. What they may want to do, though, is support themselves and possibly live something approaching a middle-class lifestyle.
Many students are smart enough to realize, as well, that if you can get a good job and financial security, you can afford to have free time to do things that interest you. If you're scraping by in a dead-end job, it's a lot tougher to have hobbies or do any other sort of self-improvement.
And so they go to college, because they've been told over and over again that college is 'the best investment you can make.'
In some cases, that advice is coming in good faith from older people who grew up when a 4-year college degree basically was a Golden Ticket into the comfortable middle class. In other cases, it's coming from 'admissions counselors' (aka 'recruiters') whose job it is to get signups in order to bring in Federal loan money. What you don't hear from either group is that a college degree appears to be a declining asset; as more people have them, the benefit of having one (in terms of standing out in the hiring pool) goes down, at the same time the cost on average has outpaced inflation.
It's a shitty situation all around, and I'm honestly not sure what the best advice is to give a young person today. But one thing I am sure of, and it's that the old canard about "study what you love, the job will follow" is a lie. If nobody will pay you to do what you love, don't pay a lot of money for a piece of paper that says you're an expert in it.
He explained in clear terms that we were basically in university as a government subsidy to industry. Not so long ago, businesses took fresh graduates and trained them. The concept of going to school for accounting or to learn film editing is a surprisingly young notion.
If universities have a core competency, it's in stimulating minds to grow and develop, far beyond mere technical instruction. But they spend almost all of their time on the latter, because that's what the market (and their government masters) demand.
For this reason I have a hard time seeing a bubble for higher education (Masters and PhDs) but I can imagine it for these expensive professional/technical schools. Then again, I am not in the US so my perspective is likely very different.
You can't even get (or keep) a job teaching grade school without a Master's degree these days.
I graduated from a highly regarded journalism & filmmaking program and I have to say that as far as getting a career, it was actually a net negative. People who had gone straight from high school to internships or volunteer work were light-years ahead of people who had been wasting their time in classes. (I was one of the few who did both, so I wasn't as badly off.)
And yet they graduate several hundred people a year from this program, most of whom will never get a paying job in their field.
The arts degree glut is pretty simple. They train too many people for too few jobs.
In the case of communications and journalism, there are other issues. What they teach is largely irrelevant to the coming era of journalism. Furthermore, although technology skills are sine qua non, most of the time you spend is in classes, learning from people who can't get jobs in the industry. You have to beg and plead for even a little time with outdated equipment. (My degree was in the late 90s to early 2000s, so things may have changed now -- but can you imagine a worse preparation for the last decade then learning to cut tape on reel-to-reels? In a single week, on a home computer, you could get more experience using audio editing equipment than I did in an entire year.)
If you were truly fascinated by media studies then I'm not going to say it's a waste of time. But in all honesty we just don't need that many academics that study media.
Also, on the journalism side, the news industry is contracting and unionized, so it is highly unlikely you can get a career by traditional routes. Again, the better education would have been to throw up a website or blog in your spare time, or get a camera and start shooting something -- anything. Or offer to work for free at a local TV station right out of college. People who did this got jobs later. I happened to do that kind of thing too, and I could have leveraged it into a real job in that industry, but didn't because programming was more interesting.
Most of those kids enter the program with dreams of working on TV or film or making music videos and such. A smaller number actually want to be journalists.
Mostly, the closest they get to working in communications is doing PR or possibly advertising. Few of them are doing anything related to their degree after five years.
If you spend 4 years studying something, that's four years you can't spend studying something else. If it turns out that you studied the "wrong thing", you are going to be four years behind the people who took the other path. So it's not hard to see how that education program could look like a net negative.
There were people who were so into making films they'd shot music videos and such before their very first film class. Mostly these people were there for pro forma reasons -- they just wanted the piece of paper.
Then, one just would claim one haD a degree from that university. I don't think it would be feasible to outlaw all ways one could leak thatbonformation.
There are economic rules about supply and demand that come into play here. The supply of available seats in an ivy league are limited, and when credit or money is virtually unlimited, the pricing gets ridiculous.
We can expect this to adjust itself in the next few years provided not enough people are willing or able to pay these outrageous tuitions.
Now, the "price" is higher (which is used to create the graphs in the linked article), but the effective cost for the student hasn't increased quite as proportionally because he has a government voucher to use.
Greatly oversimplified, I know. We understand what someone means when he talks about the average price of a gallon of gas at a gas station, but we don't have a common definition for the "price" of education. Out of pocket not counting grants/scholarships? Do we discount the cost if the loans are at a below-market rate because of government guarantees?
Heck, even the gallon of gas "price" is hard to define. Marathon gives me back 5% on gas purchased with my Marathon card. What's my average price per gallon?
Come to think of it, I've never personally seen a graph of tuition inflation with out-of-pocket payment, private loan payment, and federal aid payment all on top of each other, mapped over time. THAT would be a telling graph.
The bottom line is that cheap money injected into an industry always raises that industry's prices. Housing, healthcare, education.
There is also little reason to think that higher education should be bound to CPI in any linear way - there are lots of other quasi-economic influences that are perfectly valid, although greed does seem to play its part.
In a free market, the relevant metric is something more like at how low a price you can bring the service vs. your competitors. It beggars the imagination to believe that the current price charged is the actual minimum price for the services that people are actually looking for. The question of the intangibles of the college experience is incidental, first because even those intangibles can almost certainly be had for much cheaper, and secondly because it isn't necessarily the case that people want them, regardless of how much you want people to want the same intangibles you do. In addition to the fact the intangibles could probably be had for cheaper, we have this Internet thing slowly but very, very surely eroding away the physical constraints of the old system.
They've been really shielded from the free market by easy subsidies and loans and the fact that the unaccredited competition was neither socially accepted nor able to be quite cheap enough to break through, but all of these things are suddenly changing. The costs to a startup or something of providing a college-quality education continues to drop, and the business scales fairly well. We're getting over the idea that college = good with the increasing evidence that it's not true, which will continue to open the door to non-traditional-college alternatives, some of which will begin to exceed their college breathren. The subsidies are likely to become harder to get and increasingly scary, as word of things like the non-dischargability of student debt in bankruptcy are increasingly well known. Every pillar propping up the current system is collapsing over the next few years at once.
As the college education market gets forcibly introduced to the free market, I expect the blood of the incumbents to flow freely. Like all bubble pops I can't predict exactly when it'll happen ("the market can stay irrational longer than you can stay solvent"), but I'm pretty confident about the outcome, based on the fundamentals.
(How confident? I am not planning my finances for my kids on the assumption that college is going to cost them each $50,000/yr in 2010 dollars. I computed it once and at current rates of tuition growth that's a reasonable projection for a 2-year-old and a not-yet-born. It's just physically impossible for a college-equivalent education to cost that much. So you might say I'm betting quite a lot on this analysis.)
Here's an article about Florida universities - the costs are much more reasonable, at about $40k per graduate (all four years), but it's using 2005-ish figures, and that's an average, with degrees ranging from ~$21k to $250k+.
http://www.insidehighered.com/news/2009/05/19/degree
Of course, we're talking about a lot of 'intangibles' of the experience that are not directly related to the 'education', but for many/most applicants, the experience is a huge part of the decision about which school to go to, and so I feel it's reasonable to factor that in as a cost/expense that is not going away any time soon.
I fully agree that the free market and particularly alternatives to university will be a great influence over the next few decades - it will be a great advance once more people realize that a university education is not the best life decision.
But that's not the question. With all due respect, it's not even all that interesting. If they had a million dollars to spend per student, by golly, they'd spend a million dollars.
The question is, how much would it cost in a competitive market? And given that engineers are the minority, how much should an English degree cost in a competitive market?
How much can you save by not even being on campus? By not using professors, which rhetoric aside you simply do not need for most courses? (I'd much rather see more professors doing more research and teaching grad-level courses.) How many teachers do you even need? Why are we paying people to do the moral equivalent of going to the front of the class and reading their notes? (With varying degrees of literalness.) And then paying them again to do it next year? And then paying hordes of such people to deliver the same classes to hundreds of institutions? To put it in HN terms, just how disruptive could you get while delivering the same basic product, or possibly even a better one?
"and so I feel it's reasonable to factor that in as a cost/expense that is not going away any time soon."
People say this a lot. I think people are culturally conditioned to say it. God forbid we radically rethink anything about education. But I think that you gave someone a choice of spending 20K/semester and living on campus, or spending 2K/semester and living where they chose and getting a degree just as good in the vast majority of ways, that not only would quite a lot of people made that choice ten years ago, but in the coming years, when money is going to be a lot tighter for the middle class, the 20K option is likely to just collapse. Just about the only thing holding it up right now is a whole lot of people like you who aren't willing to concede the possibility that quite a lot of the accouterments of college as we now know it are incidental to the the actual product.
Don't think with your standard cultural conditioning; think like a disruptive startup founder. The fundamentals of this industry are all wrong and it's going to burn. For better and for worse; disruptions are rarely all for the better. I'm not saying I celebrate every aspect of the change, but the fact that I think it's a mixed bag isn't going to change the absolute economic inevitability of the changes ahead.
The housing bubble was entirely speculative. It was stoked by the fed keeping rates low, later fear took over as people didn't want to be either 'priced out forever' or miss out on easy money.
As others have mentioned it's apples and oranges, you can not sell nor live in a degree; defaulting on your student loan will not render you homeless. The bubble and collapse in house prices is far more signigicant to the larger economy. The housing market is measured in trillions, student loans in billions.
Don't get me wrong tuition is way overpriced for what you get. A drop in tuition and house prices would do everyone good.
This, of course, ignores another significant component of economic behavior regarding education. Specifically, in addition to it's vocational value, education is a service purchased to meet the human need for self-actualization. When you see a human-interest article in the local news about a 70 year old grandmother who has just completed her bachelor's degree, you are seeing evidence of economic demand for education that has no vocational basis.
I am not saying that the existing trend of the cost of tuition outpacing CPI can continue indefinitely. Clearly it can't. However, it is a mistake to label the present circumstance as a bubble.
Great non-linkable comment on the Examiner article discussed: "if you want a degree - go to the University. If you want an education - go to the library"
How about we properly fund the public library system to do its job of maximally disseminating knowledge, which it can most cost-effectively achieve by buying those scans from Google or Amazon?
One would also want to look at when the 4 year college bachelor's degree replaced a high school degree. Why Johnny Can't Read was published in 1955; not too many years/decades after that it was widely recognized that a high school degree no longer signaled much of anything.
If you're just getting the new replacement for a high school degree, say the generic business degree, you can go to lower tier state colleges for quite reasonable sums of money.
Also, what if you don't want just "the new replacement for a high school degree"? My point exactly: why should you have to shoot for a lower degree because you're poor?
(1) Ability to pay is ignored during admissions...
(2) ... but ability to pay totally determines what you'll be asked to pay.
For those who get admitted and are poor, it's an extraordinarily good deal. I'm still not seeing where (or if) we're disagreeing.
In many European countries, there is an aggressive policy of equalizing all education opportunity, from kindergarten to the Ph.D. level.
What other asset-backed-security is tied to someone's life until they die or become physically incapacitated?
The concern is that too many would immediately declare bankruptcy after finishing their education, wait out the 7? years it takes to for that to fall off their credit report and then get on with their lives. Since few new graduates need serious credit for anything beyond cars....
https://www.salliemae.com/about/investors/debtasset/slmsltru...
Therefore securities built on top of these loans, such as the pools you refer to in your link, are by definition not "asset-backed-securit[ies]". They are instead backed by e.g. the laws and regulations that make them non-dischargeable ... and I contend that's a major reason why they are non-dischargeable.
The student loans themselves are assets (the fit the above definition), my point is that they themselves are not asset based like a house or car loan.
Sallie Mae's use of the term "asset" here might be slightly misleading, but being essentially part of the government they can get away with it.
Until there is a viable alternative with the same reputation, how can students win the debate over prices?
1. It costs more to provide grants to poorer students. 2. More competition (demand) and fixed supply increases the price of the good.
I'm unqualified to talk on the first point, and it seems kind of a stretch.
On the second point, I don't see how having more poor students lets you earn more. I suppose one possibility is that the government subsidy plays a huge role and the university is trying to tap into those funds. If not, I don't see how the increased demand would drive the price up. If you're admitting richer kids, they'd have the money to fork over anyway.
But I could just be missing something.
I'm not particularly interested in their justifications, more their real reasons. The biggest one for raising tuition per se is that it's entirely unrestricted money, they can spend it any way they want. The Federal government is pretty strict about where research overhead goes, and pesky alumni don't trust schools to do the right thing and restrict a lot of their donations (see this for why their concerns are entirely reasonable: http://en.wikipedia.org/wiki/Woodrow_Wilson_School_of_Public...)
Antitrust and Higher Education: Was There a Conspiracy to Restrict Financial Aid?
Dennis W. Carlton, Gustavo E. Bamberger, Roy J. Epstein
In 1991, the Antitrust Division sued MIT and the eight schools in the Ivy League under Section 1 of the Sherman Act for engaging in a conspiracy to fix the prices that students pay. [...]
Or http://www.highereducation.org/crosstalk/ct0106/voices0106-k...
"But what about the antitrust laws?" I was asked at the TIAA-CREF conference when I suggested this level of cooperation. Administrators cringe at the memory of the Justice Department's lawsuit challenging the agreement among the Ivy League colleges and MIT not to compete in calculating financial aid—or at least they use that litigation as a convenient excuse not to do anything. What they forget is that, alone among these schools, MIT stood up to the government, and in 1991 it won the case. The aftermath is telling: The Ivies didn't restore what was known as the "overlap" agreement, and the financial aid wars were revived.
Be careful in trusting the above, since the suit started in 1991, alhtough the Feds had been negotiating with the schools in question for some time before then (and I have a vague memory that some other schools may have been involved but punted before the lawsuit was brought).
Overlap is also be a very good search term, e.g. it found this press release: http://tech.mit.edu/Bulletins/ovrlp-pr.html
ANTITRUST CASE SETTLED
MIT, Justice Dept. Set Up New Way for Non-Profit Colleges To Cooperate on Need-Based Financial Aid
The U.S. Justice Department today agreed to dismiss the financial aid antitrust case against the Massachusetts Institute of Technology and establish a new way for non-profit colleges to cooperate on need-based financial aid to undergraduates, MIT announced.
MIT President Charles M. Vest told a news conference at MIT, "I am very pleased to annmounce that the U.S. Department of Justice has informed MIT it will drop the antitrust case it brought against the Institute nearly thre years ago."
He said the resolution of the case is in two parts:
- "First, the Justice Department will dismiss all of its claims against MIT.
- "Second, the settlement establishes guidelines under which colleges and universities can coordinate their financial aid practices in order to insure that their limited financial aid funds are awarded to qualified students solely on the basis of need."
It goes into a lot of details on the history of the case, e.g. the 8 other schools folded and signed a consent degree in 1991 while MIT fought and after a big win WRT to interpretation of antitrust law in the appeals court they and the Justice department quickly settled.
The internet totally took care of the information problem. It's no longer the role of a university to provide access, but to create new knowledge through research.
The internet helps take care of the feedback problem, and I think web-apps will keep coming that match people with each other to give feedback on their efforts. So colleges are in danger there.
The internet can also take care of the certification problem, because the value of the certificate (diploma) is pretty much completely tied to the brand value of the certificate-giver. I can see an online university establishing a name for themselves in the future.
Colleges should focus on things that the internet can't do, like providing spaces for people to meet up and learn together.
I sometimes must ask a friend still in academia to download a PDF of some slightly older CS paper for me.
I also miss the wonderful university libraries. The public libraries are not nearly as good especially for more specialized matters.
I wonder if universities will have to go even deeper than they currently are to compete with the internet, or if the proprietary databases and large libraries will inevitably be made irrelevant by the internet.
Higher Ed bubble is caused by student loans, not degrees.
So this whole argument about "you can't sell your degree" is BS.
These educational loans are pooled together and sold as asset backed securities.
So, yes, if you have student loans, your degree can be sold, but probably not by you.
Depending on the prevailing political situation, there might be government intervention to shore up the availability of higher ed., or not. Depends whether the Dems or Repubs are in charge when it blows.