Higher Education Bubble

If you agree with the many prognosticators predicting that the “higher education bubble” will burst, the most recent report (What Will They Learn, 2011-2012) by the American Council of Trustees and Alumni (ACTA) is another ill omen.  The first key finding of that report is that “colleges are not delivering on their promise.”

The bubble theory holds that the economic value of higher education, like other recent bubbles created by borrowing, is far lower than its cost.  Since economic reality can only be ignored for so long, a burst is inevitable.  As a result the education market will be thrown into turmoil, not unlike the housing market collapse.

Evidence of a bubble is growing.  For years already, the cost of higher education has outpaced inflation.  The lagging economy and stagnant wages will complel increasing numbers of middle and low income families to reconsider the value of an academic degree.  Education finance guru Mark Kantrowitz reports that Americans now owe nearly $830 billion in student loans, more than they owe to credit cards.  Already, there is a growing trend of four-year degrees being founded on a two-year degree transferred from a less expensive institution.

A vivid omen from early 2010 is the laughable suit filed against NYU by Cortney Munna.  Ms. Munna is arguing that her dual baccalaureate degree in Women’s and Religious Studies left her with a six-figure student loan debt and an inability to earn enough to pay off that sum.  Of course no one forced Ms. Munna to attend an expensive school like NYU, or any college for that matter.  Certainly no one forced her to spend four years pursing a degree that may not be as marketable as others.  As ridiculous as Ms. Munna’s sense of entitlement, is the clarity of the looming problem her story illustrates.

The National Association of Colleges and Employers reported that average starting salaries for new graduates are falling everywhere, liberal arts majors are down 3.9 percent over the past year, and engineering salaries are down nearly one percent, led by computer engineering that is down by almost three percent.

That ACTA report depicts the problem that will burst the bubble.  Measuring the value of an undergraduate degree by the core education conferred on the student, the ACTA report argues persuasively that a student at Brooklyn College receives a better education than a student at Harvard University.  Since a semester at Harvard can cost six times a semester in Brooklyn, it is easy to imagine parents thinking twice before signing on for mountains of student debt.

Authoritarian China announced a solution.  The People’s Republic will simply end academic programs that are economically unviable.  If enough young Chinese can not find a job with their communications degrees, there will be no more communications degrees granted.  Obviously this is an affront to our sense of academic freedom, but the market may end up reaching the same solution.

If you are a middle-class family, now upside down with your mortgage, and your retirement savings decimated by the economic collapse, there is no way you will spend in excess of $40,000 a year for four years so that your child can drink Natty light, get a bad tattoo, and a degree in Art History.   Art history may be fascinating, and have genuine cultural relevance (I happen to think it does), does it grace the otherwise blank resume with enough cache to merit $160,000 in debt?

People will stop paying.   Professors will resist cuts and scoff at requests to teach more.  In New York state, where there are over 200 colleges and universities, it is easy to imagine competition pushing down prices, possibly even driving some schools to closure.  The economic effects on basic and applied research will be felt and innovation and economic growth are retarded.

This is not to argue that colleges are justified in enormous tuition bills, only that change is coming to higher education, and thus our economy.  The academy needs to anticipate this change and alter course accordingly if it is to remain a vital center of our society.  If the ivory tower bunch is as smart as they think they are, they will act sooner than later, and with greater courage than I anticipate.

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