Higher Education Bubble
The steadily escalating costs of a college education coupled with spiraling mountains of student debts cannot be sustained. Universities are unwilling and unable to control costs, in large part due to the bloating of administrative and support functions (Rouse, 2016).
A great example is the University of California System where, excluding the number of faculty members, there is roughly one administrator per student. The daughter of a friend enrolled at UCLA last year. I suggested that she ask to meet her administrator.
These bloated costs result in constantly increasing tuition, fees, and room and board. Another friend has a 12 year old who hopes to go to Stanford in six years. This friend is planning on Stanford costing $100,000 per year by then, and saving accordingly. This is all but impossible for the vast majority of families.
In a recent meeting of academic health centers, the impact of healthcare reform on physician salaries was discussed. Physicians’ pieces of the pie are likely to get smaller when payment for outcomes replaces fees for services. With lower incomes, physicians are unlikely to be willing to finish their education with $300,000 of student debt.
More typical student debts are much smaller, in the range of $30-50,000, with repayment amounting to roughly $500 per month over ten years. Ben Casselman (2016) reports, “New graduates’ wages are rising faster than those of most other groups; the typical recent college graduate earned $13 an hour.” $26,000 per year translates into a bit over $20,000 after taxes, social security, Medicare, etc. So these new graduates will need roughly 30% of their after-tax income to repay their loans.
This leaves about $1,200 per month for everything else. The possibility of buying a home disappears. Marriage may be avoided or long delayed. Children are unaffordable. Without owning homes or having children, young people are not buying appliances, carpeting, strollers, etc. There are frequent reports of data that portray these trends.
How will the higher education bubble burst? I think it will be a combination of technological disruption and changing values and norms. Online education, in its many forms, will continually get better. Studies will eventually show that online education yields superior results to traditional education in many, but not all, areas. In a recent analysis, I show how this could result in the total cost of a college degree being $16,000 (Rouse, 2016).
Values and norms will change in the sense that employers will come to accept credentials earned online as equivalent to those earned in traditional education. In parallel, accreditation bodies will adapt to these trends rather then thwart them. These changes will not happen all at once. Hybrid offerings might, for example, involve years 1-2 online and years 3-4 on campus. Those who drop out in the first two years will have $4-8,000 of debt, at most.
What happens to all the bricks and mortar of higher education when on campus enrollments steadily decrease? One idea is to turn facilities into retirement homes. It has often been noted that retiring in a college community has several attractions, one of which is the possibility of taking classes and perhaps earning credits in literature, history, political science or art. The growing demand for education by much older students is another scenario that I have recently explored (Rouse, 2016).
References
Casselman, B. (2016). This Year’s College Grads Are The Luckiest In A Decade, http://fivethirtyeight.com/features/this-years-college-grads-are-the-luckiest-in-a-decade/
Rouse, W.B. (2016). Universities as Complex Enterprises: How Academia Works, Why It Works These Ways, and Where the University Enterprise is Headed. Hoboken, NJ: John Wiley.
