Jan 292016

Untenable Higher Ed -The ever-increasing cost of higher education is making the system unsustainable. The time has come to examine a different model of delivery, and indeed a different business model.

According to the National Center for Public Policy and Education, over the past 25 years, the cost of higher education has grown 440%, nearly four times the rate of inflation and double the rate of health care cost increases. These cost increases have occurred at both public and private colleges. Just take a look at articles with headlines like: “The End of Higher Education Enrollment as we Know It” (link is external); “Is College Worth the Investment?” (link is external); “Will Higher Education be the Next Bubble to Burst?” (link is external); and “Drowning in Debt: The Emerging Student Loan Crisis.” (link is external) And higher education tuition is out of control, creating a debt crisis. The number of graduates in debt increased by 27% over just the past five years. And, not surprisingly, the default rate has grown each year. In June of last year, student loan debt surpassed credit card debt in America.

A Los Angeles Times article (link is external) pointed out some of the grim facts, such as college debt for students is now above $1 trillion; and unlike other forms of debt, student loans are virtually impossible to discharge through bankruptcy. The U.S. federal government frequently garnishes paychecks, tax refunds, even Social Security payments from people who haven’t paid their government-backed loans.

The higher education bubble idea is based on the proposition of speculative boom and bust phenomenon in higher education creates the risk of an economic bubble that could have repercussions in the broader economy. According to the theory, while college tuition payments are rising, the rate of return of a college degree is decreasing, and the soundness of the student loan industry may be threatened by increasing default rates. College students who fail to find employment at the level needed to pay back their loans in a reasonable amount of time have been compared to the debtors under sub-prime mortgages whose homes are worth less than what is owed to the bank.

Glenn Reynolds, the author of The Higher Education Bubble (link is external), predicts that the bubble will burst “messily”. People have long believed that “whatever the cost, a college education is a necessary ticket to future prosperity.” Easy credit has allowed them to pay ever more, and colleges have raised fees to absorb the extra cash. However, this cannot go on forever, says Reynolds, especially when people start asking whether a degree in esoteric studies is worth the $100,000 debt incurred to pay for it.

More recently, a report based on the book Academically Adrift: Limited Learning on College Campuses found that after two years of college, 45% of students learned little to nothing. After four years, 36% of students learned almost nothing. (See: Brain Drain: Most College Students Learn Next to Nothing, New Study Says (link is external).)

A 2009 article in The Chronicle of Higher Education (link is external) related concern from parents wondering whether it is worth the price to send their children to college. The Economist (link is external) in turn hypothesized that the bubble bursting may make it harder for colleges to fill their classes, and that some building projects will come to a halt. The Boston Herald (link is external) further suggested the possibility of mergers (link is external), closures, and even bankruptcies of smaller colleges that have spent too much and taken on too much debt. National Review (link is external) writer Dan Lips has proposed that the bubble’s bursting may bring down higher education prices.

Ohio University economist Richard Vedder (link is external) has remarked on the PBS Newshour (link is external) ,”The reality is: there is a growing disconnect between what the labor market is telling us on the one hand and what college enrollments are on the other. By one way of measuring things, using U.S. Government Bureau of Labor statistics data, as much as one out of three college graduates today are in jobs that previously or historically have been filled by people with lesser educations, jobs that do not require higher-level learning skills, critical thinking skills, or writing skills or anything of that nature.”

Economist Joseph Schumpeter, writing in the Economist (link is external), argues the past is not a reliable guide to the future: “the current recession-driven downturn in the demand for Western graduates will morph into something structural. The gale of creative destruction that has shaken so many blue-collar workers over the past few decades is beginning to shake the cognitive elite as well.” Schumpeter goes on to say emerging economies—especially China—are pouring resources into building universities that can compete with the elite of America and Europe. They are also producing professional-services firms such as Tata Consulting Services and Infosys that take fresh graduates and turn them into world-class computer programmers and consultants. The best and the brightest of the rich world must increasingly compete with the best and the brightest from poorer countries who are willing to work harder for less money.

At the same time, the demand for educated labor, Schumpeter argues, is being reconfigured by technology, in much the same way that the demand for agricultural labor was reconfigured in the 19th century and that for factory labor in the 20th century. Computers cannot only perform repetitive mental tasks much faster than human beings. They can also empower amateurs to do what professionals once did: Why hire a flesh-and-blood accountant to complete your tax return when Turbotax (a software package) will do the job at a fraction of the cost? And the variety of jobs that computers can do is multiplying as programmers teach them to deal with tone and linguistic ambiguity.

Other economists are adding to this “doom and gloom” scenario for higher education. Paul Krugman, argues that post-industrial societies will be characterized not by a relentless rise in demand for the educated but by a great “hollowing out”, as mid-level jobs are destroyed by smart machines and high-level job growth slows.

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untenable higher ed