Free Markets, Free People

The “higher education bubble”–ready to burst?

More and more it is becoming clear that a college education isn’t all it was cracked up to be in terms of guaranteeing a better lifestyle.  So is it worth the money and the debt?  Some are wondering:

The Project On Student Debt estimates that the average college senior in 2009 graduated with $24,000 in outstanding loans. Last August, student loans surpassed credit cards as the nation’s largest single largest source of debt, edging ever closer to $1 trillion. Yet for all the moralizing about American consumer debt by both parties, no one dares call higher education a bad investment. The nearly axiomatic good of a university degree in American society has allowed a higher education bubble to expand to the point of bursting.

Since 1978, the price of tuition at US colleges has increased over 900 percent, 600 points above inflation. To put that in number in perspective, housing prices, the bubble that nearly burst the US economy,  then the global one, increased only fifty points above the Consumer Price Index during those years. But while college applicants’ faith in the value of higher education has only increased, employers’ has declined. According to Richard Rothstein at The Economic Policy Institute, wages for college-educated workers outside of the inflated finance industry have stagnated or diminished. Unemployment has hit recent graduates especially hard, nearly doubling in the post-2007 recession. The result is that the most indebted generation in history is without the dependable jobs it needs to escape debt.

I was struck by the 900% increase since 1978.  I’ve certainly not seen anything in particular from our college grads – as opposed to those who graduated in 1978 – that would make what they received as a degree worth 900% more than it was in ‘78, have you?  And certainly nothing worth 600% above the inflation rate.

Frankly, the institutions of higher education have been scamming Americans for quite some time.  And this is just my opinion, but many of the colleges and universities in this country are a bit like some college sports teams – they don’t care if you graduate, they just want you to play well for them for 3 or 4 years.  Change “play” to “pay” and you describe many of the schools I’m talking about.  They really don’t give a rip about graduation rates.

And of course, when you have institutions get into marginal study areas like “gender studies”, etc., then it’s no longer about education so much as it is  indoctrination.  Or at least that’s been my experience and the experience of many I know.  And things like this only reinforce that belief.  As for the tolerance for different ideas?  Eh, not so much.  Occurrences like this aren’t as uncommon as one might think.

The question more and more are asking then is whether higher education worth the bucks?  There are plenty of studies that continue to show that college students earn more than their counterparts with a high school education – at least in gross pay.  But in net pay, is it enough to justify the expense?  Maybe not:

 

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Derek Thompson explains:

Here’s the problem. The college premium isn’t consistent across all industries. Some salaries have flat-lined, while other jobs have simply disappeared thanks to off-shoring and automated technology. Meanwhile, over the same time that the wage premium has doubled, the cost of a four-year college education has more than doubled. Student loan debt is near $900 billion, more than credit card debt in this county.

College education is an effective elevator to bring workers to higher-skilled, higher-paying levels in the labor force. The question is whether the ride is efficient. Today the elevator is so prohibitively expensive that students and workers are uncertain whether the floor they’ll be dropped off justifies the cost of the ride.

That wage premium makes it questionable as to whether or not the cost of the education is worth the investment and debt.  And it is likely to get worse, not better.   So are we in an education bubble?  And if so,  when the bubble finally bursts, will a college education again justify the expense relative to the net pay they can expect to earn over and above those without such education?

Maybe in China.  Because with the highest corporate tax in the world and politicians trying to find a way to raise taxes for everyone, the jobs they do find here aren’t going to be paying that well.

Yup, the more you look around, the bigger and bigger you realize the mess is.  And it isn’t going to get much better anytime soon.

~McQ

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17 Responses to The “higher education bubble”–ready to burst?

  • China has hordes of “credentialed” college grads who can’t find work either.
    In factories, the complaint is they can’t find enough workers. Office staff is over-abundant, though.

  • It’s an interesting dichotomy. The universities in America are everywhere considered to be the world’s best–on average–attracting large numbers of foreign students who want the prestige of having the name of one our universities on their degree. On the other hand, as Charles Murray noted, the republic is being poorly served by the emphasis on acquiring a college education when work place skills have so little to do with having a formal, higher level education.

    Two of my degrees are from the nation’s worst university in terms of graduation rates. Yet the university howls whenever tough econonic times require their budgets be trimmed. The students are subsidized for more than 90% of the cost of their tuition, yet they too howl and demonstrate whenever they are asked to pay a bit more for their tuition costs. Yes, the costs are skyrocketing, but it is still a bargain for the student to attend so long as the taxpayers subsidize the bulk of the costs. At my alma mater, hundreds of students graduating with superior grades from local high schools earn taxpayer scholarships to pay for their tuition for four full years, but then huge numbers of these ‘honor’ students require immediate instruction in remedial math and remedial English because, even though they are ‘honors’ college freshmen, they have no ability whatsoever to perform math or write English at the twelfth grade level.

    Is a bubble forming? No. Bubbles form by the flood of demand artificially created with an expectation of eternally improving prospects. The bubble bursts when the last man boarding the train suddenly says, ‘No thanks,’ and then suddenly everyone is fighting to get off. That’s not the case in American education. Huge marketing investments are made every year now by the major universities to attract prosperous foreign students who will gladly pay the exorbitant tuition rates for the special honor of being an American university graduate. This surging demand from growing prosperity in developing countries will insulate the American universities’ tuition costs from a bubble’s corrective. Instead of a bubble bursting, it is much more likely that our universities will become the “factories” of foreign nations with surging economies but with undeveloped, poor higher education infrastructure. Their factories make our desired consumer goods, our factories educate their brightest children.

    What is lost in this open market exchange is the American student wanting to go to college but who cannot afford it. The reality on campus of the students who cannot ‘afford’ their education? Few, perhaps up to half of them, actually “want” to be there. Several few of them have no business being there at all, especially at taxpayer’s expense. But so long as our culture insists that acquiring a formal education is a virtue despite its uselessness in marketplace skills, and so long as that higher education has tremendous appeal to suddenly properous foreign students, rising college tuition costs in America become insulated from any correction of a bubble.

  • Firstly its employers who want to see a college education.  Trust me, although its subsidized vs. a real loan, the principle alone is still a big chunk of debt that people don’t want to have to pay down.  If it didn’t help employment opportunities and not just pay, many wouldn’t do it.
     
    To a certain degree I don’t blame employers.  If high schools did their jobs, employers wouldn’t have to use university degrees as an indicator the person may be able read and write at a functional level.

    • “If high schools did their jobs,”

      The tentative fall schedule of classes at my local Community College has 16 sections of “Fundamentals of Academic Reading”, which do not count towards any degree or certificate. There are other classes in remedial writing (25 sections), basic ‘mathematics’ (more accurately, arithmetic- 14 sections), and ESL.

      • My son enrolled in a local community college several years ago and placed for math, they commented to him during enrollment that he needed to take the placer test asap because if he needed the remedial course the 3 that were being offered that semester were already nearly full.  You don’t have to be a rocket scientist to trace back the meaning of those full classes – and we’re talking College Algebra, Trig and pre-Calc here.
         
        What that says is pretty obvious.  When I entered college back there on the left side of Bruce’s graph, I remember there was 1 remedial course offered at the community college I attended, and I’d wager it was half full.

  • a DuoistBubbles form by the flood of demand artificially created with an expectation of eternally improving prospects. The bubble bursts when the last man boarding the train suddenly says, ‘No thanks,’ and then suddenly everyone is fighting to get off. That’s not the case in American education.


    I think that this is a good point.  It may be that private college education will bubble / burst because many of them tend to be so much more expensive than their public counterparts.  It may also be that more and more people will start looking toward the community colleges for at least their first year or two of courses.  However, the drumbeat in our country, from Captain Bullsh*t on down, is that you MUST have an education, defined as a sheepskin from a four-year college, if you want to “succeed”.  Few if anybody talk about careers in skilled trades, and of course manufacturing jobs are increasingly scarce and uncertain.

    McQI’ve certainly not seen anything in particular from our college grads – as opposed to those who graduated in 1978 – that would make what they received as a degree worth 900% more than it was in ‘78, have you?  And certainly nothing worth 600% above the inflation rate.

    Last week, Ace posted a Harvard exam from 1869.  It was unbelievably difficult; I doubt that many grads could handle even the parts that didn’t require a knowledge of Greek and Latin.  One can argue that the questions on the exam reflect knowledge that people today don’t really need, but they DO reflect what a college diploma used to symbolize: the successful completion of a rigorous, difficult and comprehensive course of study that provided the mental tools needed to succeed in many career fields.  Now, college is a cross between trade school, a continuation of high school, and a young adult daycare.

    http://graphics8.nytimes.com/packages/pdf/education/harvardexam.pdf

    I must say that I’m often amused at movies – especially older ones – that show kids waiting with bated breath for THE LETTER that tells them that they’ve gotten into college.  While this sort of thing still holds true for “better”* schools, getting into college these days is nothing to crow about: if you’ve got a pulse, somebody will let you in.

    —-

    (*) Are the “better” schools REALLY that good?  Is a grad from Duke University or the University of North Carolina REALLY that much better educated than a peer from NC State or UNC Charlotte?

    • “Are the “better” schools REALLY that good?”

      I would be willing to say that they are marginally better, but not enough to justify the price difference. Like the old saying “garbage in, garbage out”, the output depends on the input; take smart, motivated, knowledgeable applicants and you will get smart, motivated, knowledgeable graduates. Even at ‘lesser’ schools. 

  • Now, college is a cross between trade school, a continuation of high school, and a young adult daycare.

    I’d say that is the key, in the USA and many other Western countries. There basically is no entrance requirement any more, apart from a cheque or a government loan. The cynic in me knows this is mostly since previous governments wanted to push down unemployment figures by keeping naive young people in the education system and off the unemployment statistics.

    Problem is that not many people in the education system or around young people will honestly tell them that it might be far more profitable to learn a trade and start earning money a lot earlier, maybe start your own business after a while. Nope, it is all about the education. Personal disclosure: PhD in physics, but if I knew at 16 what I know now I might not make that choice at all!

    I’ve heard many an arts graduate, or other graduate with a “non marketable” degree, claim it isn’t about earning power or money (while demanding low fees of course) but about intangible benefits. But they never can explain why they can’t do it on their own time like people used to… go to the damn library and educate yourself in your spare time! It’s amazing how many “poor” people did that prior to the 20th century education systems.

    Loved that test by the way, “compare Athens to Sparta”… not even a hint, just a terse instruction, most kids would give up with a total incomprehension of what they were supposed to do!

    • I know all about Sparta!  They wore leather loincloths! They kicked people into big holes in the ground, and then went to fight war rhino’s and strange mutant people at some place called Thermosomethinorother.
       
      Never heard of Athens, unless you mean Georgia, and I don’t think they wear leather loincloths there.

  • College is the “perfect market” .. for colleges.
    What other purchase do you make where even if they give you no break on price (i.e. grants), they still demand that you surrender your entire financial history (and that of your parents) for the past two years ?  Even mortgages aren’t this draconian any more.

    • “Even mortgages aren’t this draconian any more.”

      You say that like it is a good thing.

  • My three graduated from High School within 4 years of one another – and all had the same comment – if you weren’t college bound, they really didn’t much care what you were doing.    All of the emphasis was College – without pointing out to these kids you can make a damn good living as a licensed mechanic, a plumber, an air conditioning repair man, etc.  Those jobs were for, well, the boys seemed pretty sure the teachers felt ‘those’ jobs were for morons who were never going to amount to much in life.
     
    I know quite a few parents who ponied up the money for Johnny and Suzie to go to expensive colleges, and Johhny and Suzie are back home now, trying to find companies that hire people that majored in feelin good about themselves and others.

    • Kind of a closed system recommending college though. Teachers, all college grads (and prone to push “education”), saying their choice was better than those who didn’t make it, although may of those who made the alternate choice own businesses, make more money and live better than the teacher.

      • That’s exactly what I wish had been pounded into us at school. I did high school in the late 80s and was one the crest of a wave of change where people did not leave even if they were (a) thick as pig s**t or (b) not academically inclined. There was never any hint that university might not be the best choice, or even a total waste of money and time. Then once at university and doing some teaching as a grad student I got to see all the awful product of the school system, people who could not even write between the lines of a ruled page despite just having spent 12 years at school. You can’t tell me that they learned anything in 12 years if they never even managed to do “joined up” writing on standard ruled paper. Course, many of these people are now also politicians…

  • Have you ever seen a skinny plumber? I suspect that any tradesman who has been working for over ten years is making a damn fine living. If he has built up enough of a business to be able to hire one or two apprentice helpers, he is making a really damn fine living. And since he got started 4-5 years before Mr. “I have a degree in art appreciation” Fancypants, he is way far ahead in preparing for retirement. I went to a good state school, picked up two engineering degrees in less than four years, and got on with the show. There wasn’t a rock climbing wall, a fancy student community center, an aerie library, or a multi-cultural diversity-sensitive cafeteria. The classrooms had walls, a floor and a ceiling, and were hot in the winter and even hotter in the summer. If I had not gone into engineering, I would most likely have become an electrician. There was never any hint of a suggestion of a possibility of a thought that my parents’ door was open – once launched, the landing pad was dismantled!