Why Higher Education is the Next Bubble

When I got married, I owned two houses. I sold both, using the money to pay off my other debts and pay for my daughters’ college. Even though everyone told us we were crazy not to do it, we didn’t buy another house. As my husband said,

“Every house, every condo within miles of us sells for over a million dollars. There can’t be THAT many drug dealers in L.A. How can all of these people possibly afford these prices?”

There are a few things I see the higher education market has in common with the housing market (and health care, too, for that matter).

  1. The rising prices are fueled with other people’s money. People moved into houses costing $500,000 with 1% down payments – or less! Similarly, not a lot of families are shelling out the $50,000 a year for tuition, room and board. It is being paid for with subsidized money.  There just aren’t that many people who have an extra $50K after taxes laying around.
  2. They took out loans with the assumption that things would change so that they would be in a better position to pay the money later, because they sure as hell couldn’t afford it now. Homeowners thought they would never really have to repay that loan because they would sell the house for a lot more money within a year or two. Students (and their parents) figured that five or ten years from now the student would be making a lot more money and in a much better position to come up with the money to pay off student loans. In both cases, for many years this was true, and, in some cases it is still true. Just like we saw a growing number of homeowners in trouble once this assumption did not pan out, now we are seeing more and more students who cannot get jobs unable to pay their student loans.
  3. An entire industry arose that took advantage of this situation, extending loans to homebuyers who didn’t quality and for-profit institutions of higher education who admitted anyone with a pulse.
  4. Prices spiraled dramatically despite a complete absence of improvement in quality. During the previous housing bubble, I owned a home we bought for approximately $100,000. Looking through the title history, I could see that the people who sold it to us had paid about $54,000 a few years earlier. When I received a job offer in another state, and an offer to buy our house for $130,000 or so, I sold it and ignored everyone’s advice to hold out for more money, hold on for an investment. It didn’t make any sense to me that the same house was worth three times as much within five years. Shortly after we sold the home, housing prices plummeted. Similarly with higher education, people are paying much more money for the same thing. According to the Baltimore Examiner, over the past twenty years, college tuition has increased at three times the rate of inflation. So, while the Consumer Price Index has increased around 100%, median family income about 125%, medical care over 200%, college tuition has increased over 400%.
  5. At the same time that tuition is skyrocketing, people who are sustaining these stratospheric increases through their teaching of college students – the faculty – are seeing a dramatic DROP in their income and working conditions. When I was in college, the vast majority of faculty members were full-time, tenure track positions where they were on campus, held office hours, did research and were allowed a high degree of academic freedom. Now, the majority of courses are taught by part-time professors who are employed “at will”. Just trot on over to the Chronicle of Higher Education Non-tenure Track forum to see how wonderful life generally is NOT for most of the current crop of professors.

So, here’s the situation … we have people who don’t have a lot of money, taking out government subsidized loans that they may not be able to pay back and giving the money to large institutions whose investors and higher level executives are extremely well-compensated. At the same time, the lower tier of loan officers / adjunct faculty / admissions are strongly pressured to make it easier for almost anyone to qualify. There is a spiraling effect where people are afraid to be left out of the market (“Employers won’t hire anyone with a degree any more”) and people buy homes not because it is where they really want to live (or go to college not because it’s what they really want to do) but “because it’s an investment”.

I’m certainly not the only person who has pointed these facts out. Everyone from the Wall Street Journal to the Naked Law site (which is law for non-lawyers, not law by naked lawyers, sorry to disappoint) to the Washington Independent has made these same connections. Perhaps this proves that you don’t need to be a statistician to find patterns in data and you don’t need to be a mathematician to figure that $160,000 is a poor investment to MAYBE get a $30,000 a year job, or maybe be unemployed.

You learned that much math and statistics in college, didn’t you? You should have, because you certainly paid enough.

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  1. Sadly, it goes way beyond the price of higher education. As we encourage more and more people to go pursue ineffective baccalaureate degrees where they invest more money and get less of a degree, we have fewer people actually participating in the workforce (this includes the spike in sheer numbers of people teaching in our higher education system).

    The constant push for people to get degrees (where in some cases, less than 40% of courses actually deal with content pertaining to the major) hurts us not just by driving us deep into debt, but by removing able-bodied individuals from the workforce.

    Not everyone can be a manager; the world needs ditch diggers, too. I really applaud the likes of Mike Rowe for his push to highlight the diversity of jobs out there, to encourage trade schooling, and to bring respect for people maintaining our infrastructure. Surely one doesn’t need a 4yr higher education to lay pavement, troubleshoot a computer, or balance a company’s books.

    We’re in the bubble, and the larger we let it get, the harder it’s going to pop.

  2. What are your views on eLearning or Technology enhanced learning to lower down costs in Higher education, still allowing collaborative learning and knowledge sharing, amongst students from different geographies but same subject domain?

  3. I think eLearning can be a great option if done well and at a reasonable cost. If you are going thousands of dollars in debt, like with some online programs that is ridiculous.

    If you are really taking advantage of the capabilities of the technology, like working with students around the globe, use of multimedia, analysis of open gov data and other extensions, I think it is extremely effective. If someone has just typed their lecture notes on to a web page, it is just another textbook, but on your computer. Not that you can’t learn a lot from a textbook, but it’s not a course and it’s not worth thousands of dollars in tuition.

  4. I love America. One day she will again be the greatest country on Earth. On this day she will train her children to be Starters and refrain from reducing them to cash cows.

    That’s why I so vigilantly believe an education anchored in producing instead of one so unapologetically nurturing of consumerism is where we’ll find our greatness once more.

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