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Innovations-Small Icon

Innovations

Insights and commentary on higher education.

Helium, Part 2

By Peter Wood July 23, 2012

The bubble-psychology of the consumer who holds fast to the belief that every bet is an investment; the mesmerizing allure of the prestige college that can dazzle parents to overlook the meretricious quality of the education it provides; the exigency-driven tuition hikes at public universities; the gamesmanship of college tuition—these are parts of the bubble as it currently exists (see

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The bubble-psychology of the consumer who holds fast to the belief that every bet is an investment; the mesmerizing allure of the prestige college that can dazzle parents to overlook the meretricious quality of the education it provides; the exigency-driven tuition hikes at public universities; the gamesmanship of college tuition—these are parts of the bubble as it currently exists (see Part 1), but they aren’t what drives its expansion. What is inflating the bubble still further is federal policy on grants, loans, and loan-forgiveness.

But even as the bubble inflates, there is a growing collection of sharp objects—the jackknife of online education, the hatpin of tax increases, the razor of state budget cuts, and the dart of public disenchantment—that threaten the whole thing.

President Obama made clear within a month of his taking the oath of office that he wanted to see a massive expansion in the number of Americans who attend college and who earn college degrees. His stated goal, from which he has never wavered, is to make the United States by 2020 the nation with the largest percentage of college graduates in the world. To do so would require more than doubling the current number of students enrolled in college from 19 million to something close to 40 million.
Pumping

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I have written extensively (Supersizing, College for All) about his implementation of this policy, and will summarize only briefly. One major tactical step toward advancing this program was consolidating federal control over federally guaranteed student loans. This was slipped into the Patient Protection and Affordable Care Act the week before it passed without any debate. Obama has used this new level of control to expand federal aid, offer short-cuts to loan forgiveness to graduates employed in certain sectors (see More Better Citizens), and threaten reductions (Price Controls) in access to student-loan dollars for colleges that raise tuition faster than he would like. At the same time, his Department of Education has waged regulatory war on the for-profit colleges that have attempted to provide alternative means for students to attain college degrees.

These steps taken together have given colleges and universities (except the for-profit ones) the confidence to continue their heedless expansion. More Pell grants, more student loans, and a president urging virtually everyone to go to college adds up to the prospect that, no matter what a college degree does for the graduate, vastly more people will line up to pay for one.

An even more powerful inducement for massive expansion is the lure that easy money for student loans will turn into still easier money as the loans evaporate into loan forgiveness. To a student hesitating about loading up on federal loans, this must sound irresistible.

The confidence of those who manage colleges and universities, however, is shaky. On one hand, they are enthusiastic about the government’s easy-money policy for higher education, but on the other hand they can see that the costs are far greater than can be covered though Pell Grants and federal loans, and they see mounting price resistance on the part of students and parents.

One possible answer is to persuade the federal government to fly to the rescue with billions of dollars of new support for campus infrastructure. In June 2012 the National Association of College and University Business Officers (NACUBO) teamed with the American College and University Presidents’ Climate Commitment to issue a white paper, Higher Education: Leading the Nation to a Safe and Secure Energy Future. The report calls for various ways in which the government can help to finance “investment in sustainable technology for the country’s colleges and universities.” Given the fiascos of Obama’s “investment” of public funds in ventures such as Solyndra, Beacon Power, and Ener 1, one might think this isn’t the best time to float the idea that intensive development of alternative energy is the best way to deploy public resources, but it isn’t hard to see why higher-education dreams of advancing “sustainability” in a manner that multiplies financial resources. I will have more to say about this in a post titled Green Acres (coming soon).
Who Cares What the Rich Think?

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Efforts such as the “safe and secure energy future” gambit notwithstanding, the higher-education bubble like all bubbles will eventually deflate—perhaps slowly, but more likely in a swift collapse. It is impossible to say exactly when this will happen but easy to see how.

Since the bubble depends on sustained spending by the affluent and the upper-middle class who pursue prestige college admissions and are relatively indifferent to sky-high tuitions, the sharp object in closest proximity to the shimmering surface of the bubble is the financial insecurity of this cohort. When wealthy parents begin to look at the price of higher education in the spirit of wondering whether a framed degree from Prestige College is worth the expense, the prestige will vanish and with it the ability of the Admissions Office to treat applicants as beggars at the table.

The long-simmering recession and minimal growth period of the U.S. economy hasn’t yet really unsettled this affluent group, but there is something on the horizon that could do just that: substantial tax increases. State taxes are going up because the states have to balance their budgets. Sales taxes are increasing, as in the various state decisions to force Amazon.com to collect sales taxes. But the key tax increases will come in the form of the increase on marginal rates that will follow the end of the Bush-era “tax cuts.” President Obama wants the rates to kick in for individuals earning $200,000 per year and families earning $250,000 per year.

There are roughly two million American families that are in that income bracket. They would face several new taxes: a three-percent increase to 36 percent on income up to $398,350, and a 39.6 percent rate on income beyond that; and new higher rates on capital gains and dividends. The capital gains tax will jump from 15 percent to 23.8 percent. These increases won’t much bother the superrich, but they will hit the prestige-minded affluent families who drive the bubble pretty hard. They will also pay, as of January 1, a .9 percent increase in the payroll tax to support Medicare—and as yet an unknown set of costs imposed by the new health-care system.

I know, I know. The academics reading this have few tears to shed for people earning upwards of a quarter of million dollars a year. But it is not sympathy that I would summon; it’s self-interest. In the ecology of higher education, these families are the sequoias. They provide the canopy and the shade in which much of higher education flourishes. That is, they pay those high tuitions for their children to attend the supposedly elite institutions, and in so doing they validate the principle for everyone else that those extraordinary high prices are legitimate. The family earning $100,000 a year and willing to scrape and borrow to pay tuition does so in confidence that it is buying something that is worth a lot. And much of that confidence arises from seeing that the (relatively) wealthy are willing to pay for it too.

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Taxing away the financial optimism and security of the affluent will very likely change the behavior of the not-so-affluent too. And those relatively wealthy folks are going to feel a lot less so by this time next year.

The affluent families—the HENRYs (see Part 1) as well as the over-250K earners—are already mindful that the kinds of jobs they thought their sons and daughters would step into after graduation have thinned out. Wall Street isn’t hiring liberal-arts grads anymore. The Dodd-Frank Bill has mopped up the jobs in the financial industry and the country has reached its carrying capacity of law-school graduates, large numbers of whom are now going jobless. (The law-school version of the higher-education bubble looks particularly dire.)

Between the prospective curtailment of income and the already here loss of high-paying post-graduate jobs, I suspect that we will see within a year or so a new challenge for American higher education. It will become a lot harder to fill those classes at the upper-end expensive colleges—though, of course, not the pinnacle colleges and universities. Harvard, Princeton, CalTech, MIT, and a handful of others will fill their classes with very talented students. Elsewhere, colleges will be giving hard thought as to how maintain market share.
Foreshocks

The recent brouhaha at the University of Virginia was essentially a foreshock of the bubble. Members of the board, however ineptly, were trying to figure out the situation. President Sullivan and the UVa faculty, not so much. Their reluctance is perfectly understandable. No one really wants to give up residential liberal-arts curricula taught by scholars/teachers as the primary model of college instruction. But a half century of trying to scale up that model and to make it the basis for mass higher education hasn’t worked very well. It created colleges and universities addicted to grandiose building programs, out-of-control spending, administrative bloat, grade inflation, falling academic standards, incoherent programs of study, and a larger percent of students who gain next to nothing intellectually from their time in college. That’s not a UVa problem in particular. It is the general condition of things in American higher education, and no one really has an answer to it.

Cheap federal money can bribe a lot of less-affluent students to attend college, but state finances will remain hard-pressed for years to come, and that means real tuitions at public universities will continue to rise, narrowing the tuition price-gap with the private colleges.

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The bubble, when it collapses, will cost a lot of academics their jobs. We have too many colleges enrolling too many students; as that situation shifts, we will have fewer faculty positions to go around.

Could the bubble resolve in some more benign way? Of course. There must be alternative scenarios. But it is hard to imagine any of them that don’t eventuate in Americans engaging a broader devaluation of the college degree. It was hyped. When the people who took the hype most to heart wake up, they won’t be kind to the salesmen.
The Shocks to Come

I am writing about what I think will happen, not what I would like to happen. What I would like is for American higher education to come to its senses about the quality of teaching it offers, the need for college curricula rooted in the civilization that has sustained the university for more than a millennium, respect for rigorous intellectual inquiry and genuine scholarship, and the recognition that while the university can serve many purposes, to flourish it must set standards. It cannot be an all-purpose institution. And to the extent it tries to be an all-purpose institution, it is destined to fail both as an intellectual undertaking and as a viable social enterprise.

There is, however, a form of post-secondary education that is perfectly well suited to being an all-purpose institution. It is one that allows for infinite customization to the interests and ambitions of the student. It is unmoored from the archaic conditions of traditional study, the limits of how much one instructor can do, and the complications of trying to blend teaching, scholarship, and character formation. I am speaking, of course, of online education. And I am only one of many who see it as the ultimate destroyer of the higher-ed bubble. Online education lets the students who want to opt out of college but who still need a credential to leak out of the system of colleges and universities.

Of course, colleges and universities are doing everything they can think of to capture these students by enrolling them in their own online programs. It seems unlikely to work as a long-term approach, mostly because classroom and online instruction are not just different ways to deliver the same thing. They represent fundamentally different concepts about what education should be. The online world is an avenue to instruction—some of it of extraordinary high quality—but nearly all of it divorced from the context of intellectual and personal community. Of course, residential colleges and universities these days typically do so poor a job in fostering intellectual and personal community that many students might not notice the difference. That’s one of the results of the bubble: a university that has fragmented intellectually and embraced an ethic of personal alienation.

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Which is just one more reason why, in time, the online option will steal away so large a segment of the market that higher education will have to abandon the model. We may well reach the “almost everybody goes to college” threshold that President Obama extols, but it will be “college” in this new sense.
In Sum?

Too many students are going to college—too many for their own good, but also too many for the good of college itself. The institution has overextended itself and can no longer achieve its deeper purposes. But having grown accustomed to the wealth, influence, prestige, and political support that have come its way by trying to be an omni-purpose institution, higher education has no will to re-size itself. It likes the experience of being an ever-expanding bubble. And it is doing all that it can to summon political support to continue the expansion.

The hard facts, however, are that the expansion cannot continue indefinitely. It will hit not walls, but pins. The affluent finding themselves less so will reassess whether the prestige of well-regarded college and university degrees is worth the price. The somewhat less affluent will notice the defection and wonder whether they too have viable alternatives. The students primarily interested in workplace credentials will find that online education is good enough. And the result will be a humiliating decline in what once seemed an impervious institution.

We welcome your thoughts and questions about this article. Please email the editors or submit a letter for publication.
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