The Coming Meltdown In College Education & Why The Economy Won’t Get Better Soon

So, I suppose I could be wrong, but I would be willing to bet a great deal of money that Mark Cuban does not employ anyone in any sort of white-collar job who doesn't have a college degree from an accredited college.

It's nice for Mark Cuban to say that, but the reality is if you submit your resume to Mark Cuban Enterprises, Inc. where you list your education as being from the First Internet School of Book Learnin', Mark Cuban's HR people are going to delete it offhand. They're not going to call you. They're not going to try to find out if you're the best and brightest. They're going to delete it and call the guy who has Yale on his resume. Sorry.

(1) Many students are woefully underprepared. In my calculus classes I have found that a great many of the students have not mastered high school algebra. And these are the students who pass our placement exam, and aren't obliged to take one of our many algebra and precalculus courses.

(2) Many of the students aren't all that motivated, and resented me for asking a lot of them.

(3) Many of the students really are highly motivated, and have impressed me with their talent, and more importantly with their eagerness to learn.

But where will they work? There seems to be a relative lack of employers in South Carolina for talented, ambitious people. "Relative lack" doesn't mean none, but if I were advising, say, a talented and ambitious math and CS major who was graduating, my first advice to him/her would be to leave the state.

And yet, we continue to enroll 5,000 new students each year. I wish I felt there was a better light at the end of the tunnel for my students, at least one that didn't oblige them to move far from home. But I am kind of feeling a bit of a bubble.

For now, students continue to enroll in my calculus classes. Despite all their complaints to me, they busted their asses and I am proud of them. I hope that ten years from now they have reason to decide that their efforts were worth it.

"The most recent Planet Money on NPR was about the cost of college. [1] They point out that the price that has been rising is the “sticker price.” However, the average price a student pays for college hasn’t risen (except to adjust for inflation) over the past 20 years or so. The schools are raising the sticker price as a marketing tool, so they can give big need and merit based scholarships to woo desirable students.

The reason student loan debt has ballooned isn’t because students are paying more, it’s because more students are paying. Federally subsidized loans aren’t increasing the cost of education, they are serving their purpose to give more people the opportunity to go to college.

I suppose your point that it is a ton of debt and we don’t have a job to give to each college grad is valid. But, I am not sure the classification of it as a bubble is valid because we aren’t really seeing a rise in the cost of education."

[1] http://www.npr.org/blogs/money/2012/05/11/152511771/the-real...

Education would be a big investment even if it were free. You still have to go to classes. You still have to expend effort. And if you want to get your money's worth out of your education you still have build a career. So you cannot buy 20 diplomas on credit and flip them in a month for profit (as some people used to do with houses). Which means that education is a completely different beast. Every housing analogy is utterly idiotic.

Now that is not to say that there are no problems with education. Of course there are. But they are different type of problems.

Personally I think too many loans are being given out because of the recent proliferation of for profit schools with dubious teaching abilities and academic standards. I think we need some kind of merit based system that will limit the number of loans being given out. The merit based system may test either the students or the schools or both, and only give out loans to those that pass the test. Thus, we can limit the loans to only those that can beneficially use them.

Yet for-profit colleges are actually the biggest culprits driving up the student debt. Students at for-profit colleges run up more debt, are more likely to drop out, and are more likely to end up under-employed than those at traditional universities.

This paragraph also bothers the crap out of me:

> The competition from new forms of education is starting to appear. Particularly in the tech world. Online and physical classrooms are popping up everywhere. They respond to needs in the market. THey work with local businesses to tailor the education to corporate needs. In essence assuring those who excel that they will get a job. All for far far less money than traditional schools.

Yes, students need relevant, modern, education, but education that is "tailored" to corporate needs is a little worrisome. Extremely targeted education might be sweet for the corporations hiring the graduates, but it sucks for the students themselves.

Economists draw a distinction between general human capital and specific human capital. General capital includes things like math and critical thinking, skills that can be applied in a variety of situations. Specific capital includes things like how to use a particular piece of software or knowing which forms need to be filled out for a requisition.

General capital benefits employees because the employee is free to take his capital and go elsewhere; the skills are transferable. This is what we see in silicon valley where companies acquire startups just for their employees.

Specific capital, on the other hand, benefits the employer since the capital is only valuable to a specific industry or company so the employee is limited in where he can take his skills.

Everyone needs a mix of general and specific capital. But the balance has implications for the economy as a whole.

One of the things that traditional universities have been pretty good at is general capital. This provides flexibility and resiliency to the economy. People can move between jobs and even careers, from dying industries to growing ones. They can fill jobs that hadn't even been invented when they were in school. And they can actually acquire specific capital more readily (the "ability" to learn).

Shifting focus to specific capital by allowing companies to control our educational system threatens to turn the entire country into one big company town, and that's a little frightening.

EDIT: Typo

You're kid is the worst investor on the planet. Because instead of majoring in Bioengineering they are majoring in psychology. And If they are majoring in psychology they aren't out to get the best damn research positions over the summer and publish papers, they are out working for the local supermarket.

I don't think most students have been asked "What return do you expect on the $100,000 you are going to spend on this degree".

According to NCES[1], the average total cost per year of attendance at a 4-year private institution in 2009-2010 was $32,475. The cost for BYU was $4,290[2]. There's tons of construction going on all the time, but BYU doesn't add floor space without a donor who can guarantee long-term financial support for the facility. And we still manage to have nationally and internationally recognized programs in among other things, computer animation and ancient languages, so clearly you don't need a whole lot more money to do good instruction and good research.

It makes me wonder what exactly there is to cut that manages to use up all of the 9-times higher costs of other institutions.

[1]http://nces.ed.gov/fastfacts/display.asp?id=76

[2]http://yfacts.byu.edu/viewarticle.aspx?id=85

He's wrong, at least somewhat, on what the future holds. There are multiple roles to a university, and multiple motives to developing a higher education. I think some of these roles are ripe for disruption, others not so much.

It's hard to imagine graduate-level research happening in any other environment than an academic university. It's easy to imagine an undergraduate education in engineering or mathematics being delivered and certified completely through the internet.

Harder to imagine, but possible, are "micro-universities" which pop up organically that criss-cross with meatspace, which re-use existing course materials for information transfer but also incorporate the less tangible things such as "learning to learn" and in-person collaboration. I can imagine seeing job candidates walk in the door that have a completely custom education, self-driven by their own particular desires and nurtured and accredited as focused, disciplined study by these micro-universities.

It's truly an exciting time in education. I imagine the initiatives we're seeing now from Khan Academy, Coursera, and Udacity will be looked back upon as groundbreaking but charmingly rudimentary 10 years from now. I expect big things as more and more smart people begin to tip-toe away from traditional educational models and take bigger risks, both as students and as teachers, by inventing new models for education.

Sure. The big difference (enormous, really) is that unlike homes, there is no secondary market for diplomas. We talk about an education as an investment, but in truth the 'asset' is us. One reason the housing bubble was so devastating was that if one person defaulted, it marginally depressed the value of everyone else's home. If someone defaults on their student loan, it doesn't make everyone else's education less valuable. The student loan debt problem is much more like the credit card debt problem, which exacerbated the housing bubble but on its own had nowhere near the cascading impact. Student loans are a problem, but they are not a crisis. We should be much more concerned that there has been no meaningful banking reform since the 2008 crisis, and that banks are still gambling on dangerous derivatives whose real risks are unknown and quite possibly incomputable.

Maybe there is a bubble in higher ed but this analogy is pretty shaky. The most obvious difference between a house and a degree is that you can't "flip" a degree.

Furthermore, it might make more sense to both employers and employees to hire bright 16-18 year olds and give them an in-house apprenticeship. Even if they are paid initially less than graduates (do the accounting on that, versus servicing huge loans after four years of no earnings).

What I am trying to say is that a typical recruitment target, a bright graduate, was just as smart at 18 and you could have got him first, cheaper and happier, then. After those four years with you, if you are any good at inspiring and advising, he should also be a lot more use to you than straight out of college.

Most medical care is overpriced, but that doesn't mean that you shouldn't get a heart transplant.

I am deeply skeptical that online courses or for-profit education will result in anything but a horrible mess.

(this is not to say that it's impossible to succeed and do quite well without a college degree, but it's much harder - it's harder to get hired and it's harder to acquire the knowledge and experience necessary to be qualified for a position)

http://projectonstudentdebt.org/state_by_state-data.php

The problem really lies in the fact that the US cannot find the right answer for the basic question: Is Higher Education a public or private good? There is no wrong answer, just that answer is really required to form good student expectations regarding the economic system, and what they should invest in a degree. Right now the US government subsidizes higher ed in various forms and manners, in order to bring the cost burden down. Pre-2008 crisis, the US govt used to mostly guarantee debt taken out by college students in order to bring down the rates. Banks would then securitize these loans, cut them up in tranches and sell them on to investors, pretty much like MBS's (mortgage backed securities). However, in the financial fallout a lot of students could not get loans so the US government decided to give out more grants etc.

However, the example of UK is quite interesting as well. The average student debt in the UK is lower due to a large part of costs being carried by the govt. Though, this does not effectually increase unemployment rate either. Lower debt != great unemployment and greater happiness. Also, historically civilizations with higher quantity of credit flowing around in the economy seem to do better as well.

I was 19 and just getting going with the college thing. The guy that got the job had a degree in landscaping and had taught himself some programming with an 8085 board that was popular at the time. I know because the owner of the joint was kind enough to tell me.

I was probably too young to put-up a fight and state my case with authority. By the time this interview came about I had probably built and programmed no less than eight computers of my own design. I had programmed in assembler and written my own Forth compiler. I probably knew the architectures of nearly every popular microprocessor available at the time (80xx, 65xx, 68xxx). I had been an electronics hobbyist since probably the age of 13. I knew more and had certainly done more than the aforementioned job-robbing landscaper.

Again, I'll mark that off to, at 19, not having the chops to state my case and fight to demonstrate that I was the better candidate. As it turns out a few months later, as luck would have it, I would land an entry level engineering job where skills and work ethic were valued far more than anything else. I rose to a level of being solely responsible for multi-million dollar engineering projects while still attending school.

In my case it turned out OK in the end. The issue is that a degree is a check-mark item that a lot of companies use for filtering. Just one look through job on Monster and you can see that lots of them have degrees as minimum requirements. If you are dealing through an agency you might not get past the first filter, no matter what you know and what you've done.

In the case of Mr. Cuban, it'd be interesting to hear about examples where his organization has hired people in spite of not having a degree from a traditional institution.

It's "I couldn't care less", as in, it wouldn't be possible for me to care any less if I tried, because I care so little.

If you say "I could care less" you're logically implying that you do care

The idea being you go to school for free and the University only makes money from a percentage of your future pay, thereby ensuring that it's students are actually prepared for the work force.

More here: http://www.forbes.com/sites/jamesmarshallcrotty/2012/04/23/f...

When I signed the loan I was 18 and did not fully understand how much a loan would affect my life. It was very easy to receive an unsubsidized loan. I did not really think about too much to be honest. Growing up in a nice suburb. It was just the norm. My friends older brothers took out loans. My older friends did the same.

I grew up middle class. My parents had good jobs. I started working when I was sixteen. I did not do great in high school. In college I did very well. My last two years were the hardest. I worked fulltime. Having no free time was difficult. Still, I loved learning and it was a valuable learning experience. I was able to manage fun life, work life, and school life.

I worked hard at getting a good internship and a high GPA. At the end, in 2009, it was very hard to get job interviews. As a recent graduate, I could not get my foot in the door anywhere. I ended up a high end luxury store. It paid the bills. I recently quit because of family stuff I had to take care off. Now, I am jobless. I realized I have to start from square one. I am applying for internships at startups in Chicago.

Working for thirteen dollars an hour was just enough to make a living. I saw how many people without loans or college degrees had a better lifestyle. They did not have to worry about a large percentage of their income going back to the government. I am still unsure if it was the wrong choice. I learned more than I ever planned.

College changed my life in many positive ways. I am still an avid learner. I started reading news.ycombinator because I wanted to learn more about programming. I am enrolled in Udacaity right now. I also taught myself graphic design in the last year.

1. Education is an game-theoretic arms race. It's very valuable iff you are the only few who have it. If you do not have it your are at a serious disadvantage. This creates an incentive to perpetuate the current overspending. This, obviously, is a recipe for entirely too much wasteful spending on education, and that needs to change, but i don't see how it creates a higher education 'crash'.

2. A diploma is not a commodity. You cannot sell it; you cannot flip one. You cannot speculate on it beyond the initial investment. No one is going to give you a education equity loan. It is not treated as collateral. Your diploma will not be repossessed, therefore the lenders need to be more conservative when issuing student loans (leave that to the actuaries).

While i will admit there is the potential for losses in the ABS market, these are typically guaranteed loans. Will this create problem for the Fed? If the economy continues in the doldrums it's certainly a possibility, but comparing these securities to the chaos the CDS market sent us through, i doubt it.

I'd venture to say the education model experienced this same sort of ID (Innovator's Dilemma) when writing/print became available to the masses.

What was traditionally taught via in-person sessions (e.g. Socrates => Plato => Aristotle) could now be written down and distributed. Sure, if you optimize for depth of learning, you won't get anywhere near the quality of having Aristotle teach you in person. Then again, unless your last name is "The Great" (Alexander), you're probably not going to get Aristotle as your teacher.

What we're seeing now is remarkably similar. You have elite legacy institutions available to a few, while technology has progressed enough to make it available to the masses. I understand the point about how great a "signal" it sends to potential employers and why that's necessary, but now that more and more of your work can be online, it's easier than ever before to send the right signals.

I don't think spending too much on education is going to cause the next bust of America. I think it will be a case of everyone else spending so much more than the US. In a services-based economy your main capital is your people. Many traditional universities will fail, because there are too many mediocre schools (also cheaper alternatives and expanding high-end schools). This will, however, result in fewer people studying anything past high school.

There are significant problems in the US higher education market but hoping for its demise will not fix things. Good luck competing in a hypothetical free market against far more educated populations.

I've paid more than I borrowed, and I still owe more than I've paid. I have dozens of thousands of dollars in student loan debt, and I'm on the doorstep of defaulting on some of it.

Mark Cuban's right. The money is insanely easy for everyone to get. Sallie Mae, AES, and the rest are happy to give students money. Colleges are happy to take money from students, and pass or fail (I failed), bad situation or not, the guarantors will get their money from the student. Legally, you can't escape that loan via bankruptcy. The guarantor can even garnish your wages.

I don't WANT to support bankruptcy. I certainly didn't think I'd be in the situation to have looked into it when I took that first loan out in 2002. But a funny thing happened on October 17, 2005. On that date, all federal student loans, even private ones, became effectively immune to dismissal via bankruptcy.

Now, the law still says "excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents", but call a lawyer. They will tell you, flatly, "you can't dismiss any federal student loan debt through bankruptcy." Not "it's hard", but "you can't". (Seriously, call one up for free and ask if they handle bankruptcy cases with large amounts of student loan debt.)

As it is, currently the only loser in the system is the borrower. The school gets their money up front, the lender gets theirs from the guarantor, and the guarantor gets theirs from the borrower, even when it's blood from a stone.

1/5th of students default on their debt. That's not even counting those that make payments, but are barely getting by. Let people get out from their student loan debt, and, well, I'm not talking about dumping a trillion dollars into the economy. But many people who can barely make rent (or those like me who can't), are suddenly covered. I'm off couches and renting an apartment. People in apartments are buying homes. People scraping buy are making leisure purchases.

(As an aside, the same is true for the tax-deductible interest on mortgages nonsense. People think they actually save money, when in fact that advantage is immediately priced into the houses.)

Where I am from university education is free. Of course seats are limited, so you need to be reasonable smart (but by no means a genius) to get in. Not ideal either, but at least your education is not defined by your wealth or your willingness to go into debt.

The problem here is that once she was accepted, we did the math. We'd be taking on an additional $60k in debt for this two year program, in addition to the existing $40k in debt already accrued. That makes a total of $100k in debt, at an average interest rate of 3.5%. All, for the "opportunity" to get a $38k/year job.

Even though she recognizes that the financials simply don't work, she has a hard time with the concept, and still is looking for ways that we could afford it. I've been working hard with her to show her different paths into the market (using more standard entrepreneurial tactics: building a team, creating opportunity one step at a time, building a market for your "product" over several years, etc.) but the professors keep telling her she can't get the job without the additional degree.

Sometimes, I wonder if the professors are not simply selling themselves and "capturing" their market. Then again, I consider they're likely not being manipulative, they simply only know the paths they took...

It seems funny but in college you get the possibility to meet people that excel within any field of knowledge (mentors or other students that can become your partner in a startup for example). People in college have TIME to hang out together, that is crutial. I took already some online courses and is not the same. They are just a complement in any education. Sorry.

* In the housing market, there were a significant number of investors speculating and "flipping" properties. A major difference with college degrees is that they have a single owner.

* A brand new pool of college applicants becomes available each year. Based upon borrowing practices and selection of majors, they for the most part appear unaware of the consequences of the expense. The initial four-year degree is generally only acquired once per buyer.

* A house could be sold or re-possessed to immediately recapture some of its value. There is no way to resell a degree to effectively withdraw a portion of its cash value.

The common factor that will have a more immediate effect is the availability of government loans. If there would be a "credit crisis" for education that would result in student loans becoming more scarce, the resulting reduction in demand could lead to something of a "bubble burst" scenario.

With college, most of the loans are guaranteed by the federal government. Some are issued by the federal government. If there is a bubble, the fallout will be with the American taxpayers and not the colleges. Politicians can't (and shouldn't) allow universities to go belly-up. Recently there has been a backlash against traditional colleges, and much of that criticism is well-deserved. But the reality is that the U.S. has the greatest higher education system in the world. It is probably our single greatest competitive advantage. Mark Cuban talks a good game, but where does he think scientific research and development takes place? I can assure you it isn't the University of Phoenix.

If student loan debt continues to accumulate at the pace it has been, then the power will shift from the government to the students. What happens if tens of thousands of college grads simply cannot pay their debts or choose not to? After all you can't pay back money you don't have, and it's not as if there are tangible assets for the government to take. It's like the saying goes- if you owe the bank $1,000, you've got a problem. If you owe the bank $1,000,000, they've got a problem. The government has to start limiting these loans and the problem will correct itself. People should never be enabled to buy things they can't afford. Much of the housing crisis was caused because the government wanted everybody to own a home, and now the student loan crisis is happening because the government wanted everyone to attend college. But not everybody can own a nice home, and not everybody can afford to attend a college with $40,000 tuition.

Obtaining a job is a signalling game. Having a degree is one signal you can provide to employers, but there are also many other equilibria. In other words, there are many ways to signal a good match to an employer.

A person's "college years" need to not only be treated as a time to figure out what you want to do with your life, but perhaps more importantly, what you DON'T want to do with your life. The notion of leaving high school then going to college and finishing in 4 years as being the "right way to do it" lacks some key pieces of relevancy. Figuring out what you don't want to do doesn't just teach you what you don't want to do, but it also teaches you wisdom; wisdom that can only be gained by real world experience.

A test that would actually evaluate real critical reasoning and analysis of the sort that you're "supposed to" develop at university. (Of course, writing such a test well would be extremely difficult, and it would probably have to have a different version tailored for each kind of major.)

But it could serve two purposes: first, it could allow intelligent and driven students to bypass college completely, but still have something that will give them equivalent respect from employers.

But secondly, it could also reveal that many colleges aren't providing educations worth anywhere near what they're charging, and thus either drive prices down, or else force them to raise their standards.

Round here its just a matter of selecting a sufficiently vicious degree. Worked for me: I had (multiple) employment offers lined up ~6 months into the 4 year course. So did the majority of my classmates.

Perhaps I'm biased since it clearly worked out for me, but still I think this whole thing about tertiary education being overrated is BS - at least for the proper degrees.

You can't refi an education or sell your education to someone else. You can't pay someone to refurbish your education while you're working at your day job. You can't rent out two thirds of your education while living in the crappy part. And so on.

I'm not saying there's no bubble, but the two asset classes are clearly different.

Of course domain specific knowledge and further education is a good idea. The 3 questions that need to be asked are:

1: Is it relevant to the job? 2: Could the material be learned quicker and more in depth working on the job instead? 3: Is university overpriced?

Higher education disruption is unlikely. It is difficult for an uneducated person to accurately assess the value offered by a school.

To do this risk taking and courage is needed. Two things you do not learn in the university. We need more people who are ready to challenge their fear of failure than their intellectual score card.