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Author Topic: Higher Education: Is it the next bubble to burst?  (Read 5041 times)
octoprof
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« on: April 26, 2011, 3:14:20 pm »

Some interesting thoughts in The Economist:
http://www.economist.com/blogs/lexington/2011/04/higher_education

Here's the first paragraph:

Quote
A LOT of people, not least my colleague Schumpeter, have been saying lately that the next bubble to burst is going to be in higher education. The idea is that people are spending too much on higher education, taking on too much debt, and failing to get the reward they expect. This bubble is bound to burst, and will leave American colleges and universities with huge over-capacity. One strong advocate of this view is Peter Thiel, a legendary investor in Facebook, who featured in the film, “The Social Network”.

Anyhow, I found it an interesting read and wonder what others think. I don't buy the bubble issue, but I do see how higher ed is getting rather expensive relative to the average student's ability to pay.

What do you think?
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kaysixteen
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« Reply #1 on: April 26, 2011, 3:59:49 pm »

Random thoughts, in no particular order of importance:

1) 'bubble' is a loaded term, but already some 3d- and lower-tier SLACs have had to freeze or even decrease tuitions, because they cannot get people to pay them as they were, as tuitions have been rising 2-3x inflation since at least the mid-70s.   This article suggested community college is the way for lower-income folks to still get to college, but it also said in the same article that many jobs that used to require a BA now need an MA-- an AA from Local Post-highschool CC just ain't gonna do much for the kid.  I have colleagues at Wallyworld who work there just to be able to afford the local public CC part-time.  One wonders whether any of them will ever get a job that really requires a college degree, or whether their tuition dollars are being well-spent.

2) It is time we academic-types stop ignoring self-serving establishment critics like 'The Economist' who continue to perpetuate the myth that college degree, and moreso grad and professional degree-holding *necessarily, or all-but necessarily* will translate into much more $$ earned than simply a HS diploma.  These stats are never broken down to show specifics like major, profession chosen, etc., and if they were, they would clearly show that not all BAs, indeed, not all master's and doctoral-level degrees are the same, and that there are many professions one can enter with a HS diploma only, plus apprenticeship/ trade school, and make big dollars as well.  Just sending ream after ream of eager but largely clueless 18yos, funded by increasing debt, etc., to college, only adds to the problem of making the average BA, and increasingly even the average advanced degree, less and less valuable.

3) Bursting bubble or not, the time will soon arrive when sufficient Americans will begin to clamor for Congress to extend at least some sort of limited bankruptcy protection to student loan debt.
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zharkov
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« Reply #2 on: April 26, 2011, 4:08:05 pm »

Skipping toward the end of the article:

Quote
It is the cushy private four-years, with average tuition and fees of $27,293, that make college seem so expensive.

In contrasts to public U's, I think that the Kissyface Colleges are the ones most at risk of bursting, that is, nothing special SLACs that put average students in a holding pattern for four or five years until the parents can release them into the "real world," and boasting how they sacrificed for the kids' education.  (As if the kids were that interested in an education.)
 
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questor1
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« Reply #3 on: April 26, 2011, 7:57:04 pm »

I don't think it will burst but there is certainly a rethought of the value of 2nd and 3rd rate SLACs -- as a parent I wouldn't pay for it or have children go into high debt when they could go to an excellent state university or a prestige SLAC, next to a good state university or community college. Course, more to it than that, depends on the major, location, goals, grades, family traditions, ambitions.

On a related note, odd that the female star of Harry Potter is leaving Brown U. after a year, something about heckling, in any case, not happy. The education system in Britain is quite different than U.S., I wonder if that was part of it. Does anyone know?
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jackofallchem
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« Reply #4 on: April 27, 2011, 12:51:09 pm »

I think that it is a bubble, but not one ready to bust yet.  California real-estate has been a bubble since the '80's and look how ridiculous that had to get before it finally busted. 

I do think we really need to evaluate what we are spending money on.  After a meeting with our athletic department, I was able to determine that roughly 22% of our tuition dollars goes to pay for our athletic programs.  For a school with $25,000/year tuition, this is over $5500/year per student.  For comparison, faculty salaries and benefits only amount to 18% or $4500/year for each student.  What do we spend the money on?  What would parents, legislators, and students think if they really knew?
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« Reply #5 on: April 27, 2011, 1:57:27 pm »

3) Bursting bubble or not, the time will soon arrive when sufficient Americans will begin to clamor for Congress to extend at least some sort of limited bankruptcy protection to student loan debt.

Kaysixteen, I understand the intent of your post, but wanted to make a slight clarification: there already is a very limited ability to discharge student loan debt in bankruptcy.  It falls in the "undue hardship" area and is the legal equivalent hitting the moon with a firework rocket after you've been blindfolded and spun around until dizzy.  (Basically, you have to be unable to ever repay them, ever.  Total disability is not a guarantee, but a good start.)

Long-winded summary of all things bankruptcy and student loan related: http://www.finaid.org/questions/bankruptcy.phtml

This is a complicated issue: allow student debt to be discharged and the government is on the hook to the lender since they guaranteed the loans.  If the government doesn't guarantee their guarantee, the lending suddenly becomes risky, which makes lenders assess students to determine the chances of repayment.  Pretty soon actuaries get involved and if those with a low chance of graduating (based on what? parent's education? zip code?) want to go to school, they'll see credit card type interest rates.

Getting back to the topic, I do think we have a bubble on our hands, being fueled by the unlimited fuel of guaranteed student loans with (almost) no chance of discharge.  The obvious way to deflate that bubble is to reduce it's fuel - cut off the money. Unfortunately, every idea I can think of to reduce that flow of money (not guarantee student loans, not loan on the first two years of education, etc) immediately look like an effective way to sharply reduce participation by the lower and middle income level populations.  It will also have the added effect of shuttering a lot of 2 year schools, reducing enrollment at state universities and significantly reducing employment opportunities for those of us who want to work in academia.

Like I said, a complicated issue.
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jackofallchem
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« Reply #6 on: April 27, 2011, 2:36:58 pm »

What happened to the college fund?  When I went to school, all of my friends and I had a college fund.  My parents and grandparents started it when I was born and contributed to it regularly through our lives.  When it came time for college, it was there to help.  It wasn't a lot, but it paid for 3 semesters of State U. tuition.  I worked part time and summers, graduating in 3 years with no debt.  I haven't seen a student like that in over a decade of teaching.  In the last 3 years, I asked my freshmen (~30/year) how many had a college fund.  The answer was...none.  They all expected someone else to pay for college.  They all expected some magic scholarship to cover everyone's tuition and they were mad that it hadn't materialized.  Their families drive $40,000 cars, own $300,000 houses, but they have no money to pay for college.  Remember the 5 P's.  Prior Preparation Prevents Poor Performance. 

I really feel sorry for the truly poor students.  Financial aid is spending so much time trying to find money for the middle class students who saved nothing for college to really help them the way they need it.
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kaysixteen
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« Reply #7 on: April 27, 2011, 3:36:55 pm »

I am happy for you, that you had a college fund.  But this is unrealistic for all but the upper classes today.  College costs, like it or not, have increased 2-3x the rate of inflation for forty years.  This is reality.  Housing costs many Americans face have similarly increased more than the inflation rate.  OTOH, salaries have stagnated, and many Americans earn much less than their grandparents did, in real dollars.  Explain how a middle class family of 4 earning say $60k can save enough to send the kids to a college that will probably cost five times their annual income over four years...

Since, like it or not, we are essentially in the k-16 era, it is time to decide to stop impoverishing the next generation of Americans just to provide them with skills adequate to get a job grandpa could easily have gotten in 1967 with his hs diploma, earned for free.
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lotsoquestions
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« Reply #8 on: April 27, 2011, 7:46:41 pm »

That's what the kids in our middle-class neighborhood are finding.  The money that their parents managed to save now covers less than half of the costs of a degree.  And a lot of people thought that their house was their college fund, in the sense that they'd be able to borrow against it -- or sell it and move to something cheaper once they became empty nesters.  Not happening where we live, or probably anywhere else.
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« Reply #9 on: April 28, 2011, 12:21:06 pm »



On a related note, odd that the female star of Harry Potter is leaving Brown U. after a year, something about heckling, in any case, not happy. The education system in Britain is quite different than U.S., I wonder if that was part of it. Does anyone know?

I don't think anyone cares.
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questor1
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« Reply #10 on: April 28, 2011, 5:07:27 pm »

Probably true, point well taken. We were talking universities and I thought someone from Brown might weigh in, a long shot. I don't know a single school where things are steady or improving, everyone has cutbacks, the only difference is how severe and in what areas.
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questor1
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« Reply #11 on: May 02, 2011, 9:42:07 am »

If you read the article to the end, the conclusion of the writer is that higher education is not a bubble yet, something to consider as perhaps over-priced and over-hyped for what you get especially if parents or students go into deep debt for it. This is not looking at the social or intellectual value of a higher education strictly the job market which as we all know is shaky. There are other articles on encouraging students into high demand fields, a current bubble is environmental science which is planet-worthy but not as many jobs as hoped, business is no longer a guarantee and the U.S. is overloaded with law graduates some of who are suing their law schools for lack of placement. The bubble and education is a great subject anyone in academics especially administrators should be thinking about. If you know of a B.A. or B.S. area with lots of jobs (maybe nursing?) I'd like to hear about it.
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gsawpenny
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« Reply #12 on: May 02, 2011, 10:53:38 am »

The term "bubble" implies that there is an artificial nature to any price increase.  Take, for example, a house.  In reality it is only a pile of sticks, concrete, metal, and wires.  It sits on a plot of land too small to have any agricultural value and has a limited life span.  Yet, for years people placed too much value on them and prices kept going up and up.  The same is true of education.  Tuition is high not because the education at the other end is so valuable, but because its value is artifically elevated.

So, what causes that artificial elevation?  Simple, easy money.  There was a time not long ago when a family with an income of $45000 per year could buy a house in, say, Massachusetts for $300 to $400 thousand dollars and no one batted an eye.  No broaker, no bank, no loan specialist bothered to mention that an income at that level should net a house worth about $120000 (on standard loan terms).  But, easy money meant house values inflated beyond control and when the easy money dried up, the bubble popped.  Housing prices plummeted, or worse, people cling to the notion that "their" house is valuable and lots of properties sit vacant or over-priced, bleed value year-by-year. 

The same will, sadly, happen in education.  Here the dynamic is a little different since this easy money is being used to keep people in school if only to keep them off unemployment.  Higher education has, in fact, become a holding tank for the next wave of massed unemployment.  But, the money (although imaginary) is there so the tuition keeps going up.  Every year as the US government says it will increase the amount of guarenteed lending, colleges increase their tuition - magic!  What will happen in education is like the real estate market.  No college wants to be the first to say, "My tuition is too high based on the educational outcome, I'll lower it!"  Thus colleges will cling to pre-bubble concepts that relate eliteness to high tution.  Lenders will no longer support such outlandish pricing structures and fewer students will enter the academy.  That is when your bubble pops.  Schools like UMASS Boston or University of New Hampshire will have to go back to what they were built for - teacher training and research support on local issues like agticulture or port operations.  No college will need that specialist in Pre-Yougoslavic Post-Feminist Combat Economics.  The faculty will get smaller and the focus will, at most ordinary schools like mine, be forced to return to teaching.
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questor1
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« Reply #13 on: May 02, 2011, 6:09:44 pm »

Gsawpenny, Very well said. I know the schools you mention.
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spork
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« Reply #14 on: May 03, 2011, 6:18:54 am »



On a related note, odd that the female star of Harry Potter is leaving Brown U. after a year, something about heckling, in any case, not happy. The education system in Britain is quite different than U.S., I wonder if that was part of it. Does anyone know?

I don't think anyone cares.

There's no economic reason for her to have attended in the first place. Even if her tuition and fees were comped by Brown for advertising purposes, the opportunity cost is tremendous. It's like saying LeBron James should not have gone pro out of high school.

As others have said, cheap money fuels demand for economically worthless "human resources" and "business studies" degrees.
« Last Edit: May 03, 2011, 6:19:22 am by spork » Logged

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