Archive for ‘higher education bubble’

July 15, 2014

Charging $240,000 for a college degree is becoming more common

by Grace

The number of American colleges that charge more than $60,000 per year increased from nine last year to at least 50 this year.

The most expensive school in the country for the upcoming school year is Harvey Mudd College, charging $64,527 — $48,694 in tuition and fees, and $15,833 for room and board.

But very few people pay the full price.

That’s a total of over $258,000 for a four-year degree.  But keep in mind that about “88.9 percent of first-time, full-year freshmen received some kind of discount in 2013-2014″, so very few families are paying those exorbitant amounts.

Here are 50 colleges that charge more than $60,000/year.

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Peter Jacobs, “There Are Now 50 Colleges That Charge More Than $60,000 Per Year”, Business Insider, July10, 2014.

July 14, 2014

College tuition discounts continue to climb

by Grace

The college tuition discount rate – the amount of financial aid as a percentage of tuition and fees – is “again at an all-time high”.

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College continue their “high tuition, high discount” policy.

Private colleges are continuing unabated their strategy of setting high sticker prices while giving most of their students steep discounts, according to the latest survey of private colleges by the National Association of College and University Business Officers.

The colleges, many of which are struggling to meet enrollment goals, are taking in only 54 cents for every $1 they claim to charge in tuition.

The “high tuition, high discount” business model is often confusing to students and parents, but it’s how things are done at most private colleges: the colleges charge high prices and then offer students they want huge discounts. The discount comes in the form of need-based aid for low-income students and “merit” aid for students with characteristics that make them desirable to a college. At wealthy colleges, endowments may have actual funds to replace lost tuition revenue, but most colleges are just waiving the chance of getting more.

Is steep discounting a desperate, short-term strategy?

“If you do too high a discount, then perceptions of desperation creep in,” says Rao. People start to ask: “Are they going out of business? Is this product a dud?”

Mitchell Hamilton is an assistant professor of marketing at Loyola Marymount University. He says deep discounts are a short-term strategy at best. “When you’re looking at discounts of half off or more, or buy one get one free, those are for businesses that need immediate results,” he says. “Private universities are hoping that this is just a strategy to stay afloat until the economic situation gets better.”

Most observers seem to agree that if this trend becomes a race to the bottom, the losers will be ‘”smaller-sized, ‘no-name,’ tuition-driven schools.”‘  Top ranked colleges will continue to thrive.

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Ry Rivard, “Discount Escalation”, Inside Higher Ed, July 2, 2014.

Anya Kamenetz, “How Private Colleges Are Like Cheap Sushi”, NPR Ed, July 12, 2014.

July 1, 2014

Student debt: not a crisis but certainly a growing problem

by Grace

A recently published study by the Brookings Institution, supported by David Leonhardt’s commentary in the New York Times, downplays the growing student loan problem.  But other commentators have raised issues about the study’s data, and even questions about conflicts of interest have surfaced.

The Brookings report asked “Is a Student Loan Crisis on the Horizon?”, and the authors found that “the impact of student loans may not be as dire as many commentators fear”.  Fair enough, but criticisms about the study’s sloppy data analysis include:

  • The statistic that only 7% of borrowers have student debt balances greater than $50,000 is challenged by findings from the New York Fed.
  • Measures of student debt exclude borrowers living in households “led by anyone over 40″, effectively missing young borrowers living with their parents.
  • Borrowers who were not making payments on their student debt were also excluded from the findings.  Interesting, since this would include cases where loan payments were postponed as a way to avoid defaulting.

The role of the Luminara Foundation’s donations to Brookings and to the study’s authors looks a little suspicious to Malcolm Harris .

… When the Obama administration nationalized 85 percent of higher education lending in 2010, executives like the ones who now sit on the Lumina Foundation board were the big losers. Since then, college costs have continued skyrocketing, but the tens of billions in profits have gone to the Department of Education instead of private lenders. If you were them, and you were angling to get back in the game, the first step would be to edge the government out, either by getting the feds to withdraw or by keeping costs rising faster and higher than DoE loan limits. Graduate loans are a great place to start in a divide-and-conquer strategy, so it’s no surprise that Delisle concludes in favor of shrinking the government’s role. Nor is it surprising that Akers and Chingos can’t find a cost crisis, even though theirs is a fringe minority opinion among higher education analysts and investors.

Most people probably agree that the student loan issue is a not a crisis, but is a slowly growing problem.

… The student debt bubble isn’t going to explode like the housing bubble. Instead, it’s going to fill slowly as it grows over decades, burdening borrowers further and further into the future….

It’s certainly worth paying attention to it, and trying to find ways to diminish its negative effects on college costs and on the economy in general.

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Beth Akers and Matthew M. Chingos, “Is a Student Loan Crisis on the Horizon?”, Brookings Institution, June 24, 2014.

Choire Sicha, “That Big Study About How the Student Debt Nightmare Is in Your Head? It’s Garbage”, The Awl, June 24, 2014.

Malcolm Harris, “The college-cost denial industry”, Al Jazeera America, June 27, 2014.

June 24, 2014

Only about 55% of the college wage premium comes from actually attending college

by Grace

The Cato Institute recently hosted a forum on the question, “Is College Worth It”?

Featuring Bryan Caplan, Professor of Economics, George Mason University, and Adjunct Scholar, Cato Institute; Beth Akers, Fellow, Brown Center on Education Policy, Brookings Institution; and Neal McCluskey, Associate Director, Center For Educational Freedom, Cato Institute; moderated by Chip Bishop, Director of Student Programs, Cato Institute.

Soaring tuition and student debt, the rise of high-tech alternatives, and a persistently sluggish economy have provoked a startling question: “Is college worth it?” It’s a question that raises many others: Must I go to college to learn skills I’ll need for my career? Is just getting a degree — any degree — the key to my future prosperity? Should higher education be about marketable skills, or is it about personal fulfillment and expanding human knowledge? These questions disconcert students, parents, and taxpayers alike….

According to Caplan, who took the podium first, approximately 55% of the college wage premium is attributable to the college degree.  The individual student is actually responsible for a significant percentage of the higher wages attributed to college graduates.

College grads typically arrive on campus with big labor market advantages. The typical college grad was unusually employable even before they started college.

The choice of major and the probability of graduation are two important factors that influence the college premium.

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The ‘concert effect’

Caplan also discusses the “concert effect” caused by the growing rate of college completion.  Similar to what happens at a concert when some members of the audience stand up, everyone else has to follow in order to enjoy the performance.  Can you see better when you stand up?  Not really, but you are forced to stand because everyone else is doing the same.  Does a college degree make you a better employee?  Not really, but we feel compelled to go to college because “everyone” else is doing it.

The forum podcast is available at the Cato site.  More topics are covered, including the sheepskin effect, why college professors never have to check IDs, and how college is a four-year party for most students.

 Related:  “Let’s be clear, going to college is not always ‘worth it’” (Cost of College)

June 17, 2014

Proliferation of master’s degrees produces wasteful ‘credential inflation’

by Grace

The master’s degree is the fastest-growing college credential in this country, but is that a good thing?

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Eight percent of the population now holds Master’s degrees, the same percentage that held bachelor’s degrees (or higher) in the 1960s, reports Vox. Master’s degrees in education were by far the most popular, holding at around a third to a quarter of all such degrees from 1971 to 2012, though MBAs had taken the top spot by 2010. In fact, the increase in the number of MBA degrees is astonishing: Only 11.2 percent of master’s degrees were in business in 1971, but in 2012, they were a whopping 25.4 percent.

This “credential inflation” is “in large part driving the student loan crisis”.

The rise of the master’s degree is likely a product of credential inflation. As more and more people acquire bachelor’s degrees, those who wish to make themselves stand out go on to get the MA. And as Vox points out, while a Master’s degree does have a positive impact on earnings, the overall debt of people with undergraduate and Master’s degrees has grown markedly in the past decade. In fact, as we recently noted, graduate student debt is in large part driving the student loan crisis.

The recently expanded loan forgiveness program is “tailor-made for graduate students”.

Students who took out big loans for graduate school and those with higher incomes stand the most to gain financially under President Obama’s expansion of the federal government’s loan forgiveness program.

Lawyers, doctors and other highly trained professionals who utilized federal loans throughout their post-high school education could walk away with most or all of their graduate school debt forgiven by the federal government under the program, say experts.

Is this good for our economy?

… But we shouldn’t want an economy that favors people with polished résumés over people with good ideas. This data is not a good sign for our economic health.

It seems to be another case where excessive government intervention has created inefficiencies resulting in unintended consequences

Public support for higher education helps to create unnecessary barriers in many fields where advanced degrees are now required credentials. … Neal McCluskey argues that “cheap college has almost certainly fueled credential inflation, not major increases in knowledge or skills.”

ADDED 6/17/14:

Advanced degrees don’t generally improve student achievement levels.

A number of studies have shown that teachers with advanced degrees don’t, necessarily, produce higher student achievement than teachers who hold only a bachelor’s….

One study from the Center for American Progress reported “that states waste money by giving salary increases to teachers as a reward for getting a master’s degree, spending nearly $15 billion annually on such pay hikes”.

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Randy Olson, “College degrees awarded per capita in the U.S.A.”, Randal S. Olson, June 12, 2014.

Walter Russell Mead, “The Rise of the Master’s Degree”, The American Interest, May 22, 2014.

Susan Ferrechio, “The surprising winners of Obama’s student-loan program”, Washington Examiner, June 12, 2014 .

Tyler Durden, “Unintended Consequences Of Obama’s Student Loan Policies”, Zero Hedge, June 13, 2014.

Ida Lieszkovszky, “Liberal Think Tank says Advanced Degrees Don’t Make Better Teachers”, StateImpact Ohio, July 18, 2012.

June 11, 2014

President Obama expands student loan forgiveness program

by Grace

President Obama has signed an executive order forgiving repayment for millions of student-loan borrowers.

The president announced Monday the expansion of 2010’s “Pay as You Earn” program that caps some graduates’ repayments at 10% of their monthly discretionary income. The executive order increases eligibility of the program to include those who took out loans before October 2007 or stopped borrowing by October 2011, a move the White House says will expand payment relief to nearly five million people.

Sweetening the pot of loan forgiveness

The federal government offers different repayment plans to help cash-strapped borrowers, including income-based repayments, the graduated repayment program, and forgiveness programs for on-time payments and public-sector employees.

Under many of the plans, low-income borrowers can have their balance canceled after 25 years of on-time payments. The president’s plan moves the forgiveness date to 20 years or 10 years for those in public service jobs.

It’s not likely to boost the economy, which is suffering from the effects of rising student loan amounts.

“It will slightly increase the amount of debt that is forgiven, but it’s not going to be enough to stimulate the economy,” says Kantrowitz. “If the government were to forgo all student loan debt immediately, it would have a 0.4% impact on the GPD. It wouldn’t really move the economy.”

But it my “unintentionally” push college costs higher.

Beth Akers, a fellow in the Brookings Institution’s Brown Center on Education Policy, says the move could also unintentionally push college tuition prices higher.

“The income piece is a necessary safety net for borrowers. It gives security to not be afraid to take on debt to go to college, but the forgiveness part isn’t always necessary. It induces people to borrow more than they need to, which can have a negative impact on college prices.” She says students are still getting a positive return on their college education investment—but too often, people are borrowing more than necessary. “We need to be careful when granting aid to borrowers because it can raise the prices on the front end.”

Joanne Jacobs seems to agree.

The big winners are people who borrowed for graduate school and private colleges, which can keep raising tuition without fear of scaring away students.

Related:  “Federal student loan programs create perverse incentives” (Cost of College)

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Kathryn Buschman Vasel, “Obama Announced Student Loan Changes–What it Means for Borrowers”, FOXBusiness, June 09, 2014.

May 26, 2014

2014 college graduates are ‘the most indebted class ever’

by Grace

The average Class of 2014 graduate with student-loan debt has to pay back some $33,000 … Even after adjusting for inflation that’s nearly double the amount borrowers had to pay back 20 years ago.

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… A little over 70% of this year’s bachelor’s degree recipients are leaving school with student loans, up from less than half of graduates in the Class of 1994.

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 … According to a new Pew Research report, a record 37% of young households had outstanding student loans in 2010, up from 22% in 2001 and 16% in 1989….

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Related:  ‘Growing student debt may be a reason for weak housing market’ (Cost of College)

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Phil Izzo, “Congratulations to Class of 2014, Most Indebted Ever”, Wall Street Journal,  May 16, 2014.

Richard Fry and Andrea Caumont, “5 key findings about student debt”, Pew Research Center, May 14, 2014.

Richard Fry, “Young Adults, Student Debt and Economic Well-Being”, Pew Research Center, May 14, 2014.

May 14, 2014

Fewer high school graduates are enrolling in college

by Grace

Fewer high school graduates are choosing college.

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Just under 66 percent of the class of 2013 was enrolled in college last fall, the lowest share of new graduates since 2006 and the third decline in the past four years, according to data released Tuesday by the Bureau of Labor Statistics. Among all 16- to 24-year-olds, school enrollment experienced its biggest decline in at least two decades. The report echoes other recent evidence that college enrollment has begun to ebb after surging during the recession.

Many analysts have attributed the slowdown in college attendance to the rapidly rising cost of a higher education. But while mounting concern over costs does appear to be putting downward pressure on tuitions, the evidence suggests that the drop in enrollment is being driven by a different factor: the improving job market…

College enrollment surged during the recession as young people hid from the weak job market by staying in school. The increase was particularly pronounced at community colleges and among older students — those in their late 20s and early 30s — likely the result of people who lost jobs returning to school.

The drop in enrollment was strongest among women.

… Women still attend college at a higher rate than men, as they have for decades. But the gap is narrowing: In 2013, 68.4 percent of female high school graduates enrolled in college, versus 63.5 percent of male grads. In the class of 2009, by contrast, 73.8 percent of women attended college, versus 66 percent of men.

The disparity may reflect the better job opportunities available in female-dominated industries than in male-dominated ones. For example, the construction sector, a major employer of young men, has only recently begun to recover from the housing bust, while the health care sector, which employs many young women, has added jobs throughout the recovery.

Half of all universities and colleges may close within 15 years.

If you combine this falling enrollment with the end of the steep increase in the numbers of high school graduates, it’s easy to understand the downsizing trend in higher education.

Meanwhile, competition for spots continues to rise among the top four-year colleges, where enrollment and costs are still on the rise.

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Ben Casselman, More High School Grads Decide College Isn’t Worth It”, FiveThirtyEight, April 22, 2014.

May 6, 2014

America’s poor families can have nice stuff but they cannot afford college

by Grace

Here’s why America’s poor and middle-class families can have flat-screen TVs in every bedroom but cannot afford to pay for their children’s college education.

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In 21st-century America, it’s entirely possible for poor people to have much of the same material comforts — cars, TVs, computers, smartphones — as more affluent people, yet be trapped in low-paying jobs with little prospect of improvement.

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Drew Desilver, “Chart of the Week: How America’s poor can still be rich in stuff”, Pew Research Center, May 2, 2014.

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April 29, 2014

How is higher education like the travel business?

by Grace

Is higher education going the way of travel agents?  This question arises from an Inside Higher Ed post by Joshua Kim, Dartmouth Director of Digital Learning Initiatives. 

The Web has put lots of travel agents out of business.

The Web has made lots of things about traveling easier, and probably cheaper.

But in displacing all those travel agents we may have lost something important.  We may have traded convenience and costs for quality.  

The cautionary lesson for higher ed may be that we should always be weary of any technologies that replace people.  We are a people driven business.  A relationship drive enterprise.  Relationships are things that technology does very poorly.

My guess is that the travel agents that are still thriving are the specialists.  The professionals that can combine their knowledge and experience with available technologies to create new opportunities to find and plan great trips.

I see his point, although there are many areas where replacing people makes good sense.

While personal relationships are still valued among the few travel agencies catering to elite travel, for most of us Google has replaced the human touch in planning trips.  In some ways this parallels the path that higher education has taken.  The most selective colleges offer the highest level of  personalized attention, ushering students through a learning experience that rewards them with impressive credentials at the end of four years.  Most other schools provide less, ranging from personalized attention with questionable learning at a high price to online learning that is a scaled-down version of a typical classroom setting.

I believe that we will leverage technology to tackle challenges around costs, access,and quality.

Most people probably agree with Kim that technology has the potential to improve higher education, as it has improved many other aspects of modern life.  But it seems that technology is often viewed as a blanket solution to many problems, including the very serious issue of skyrocketing costs.  In taking this approach, colleges are trading costs for a much diminished level of quality in higher education.

Related:  More on the ‘bifurcation’ of higher education (Cost of College)

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