Archive for ‘higher education bubble’

April 21, 2014

Downsizing trend hits higher education

by Grace

20140419.COCSorryClosed3Half of all universities and colleges may close within 15 years.

Harvard Business School professor Clayton Christensen has predicted that as many as half of the more than 4,000 universities and colleges in the U.S. may fail in the next 15 years. The growing acceptance of online learning means higher education is ripe for technological upheaval, he has said.

With budget problems “particularly acute at small, mid-tier private’ colleges“,  Moody’s anticipates a “death spiral” in failing institutions.

“What we’re concerned about is the death spiral — this continuing downward momentum for some institutions,” said Susan Fitzgerald, an analyst at Moody’s Investors Service in New York. “We will see more closures than in the past.”

Moody’s, which rates more than 500 public and private nonprofit colleges and universities, downgraded an average of 28 institutions annually in the five years through 2013, more than double the average of 12 in the prior five-year period.

Falling enrollments are a problem.

Dozens of schools have seen drops of more than 10 percent in enrollment, according to Moody’s. As faculty and staff have been cut and programs closed, some students have faced a choice between transferring or finishing degrees that may have diminished value.

At Dowling College in New York a “dormitory is shuttered, as are a cafeteria, bookstore and some classrooms in the main academic building”.

Dowling, which got a failing grade for its financial resources from accreditors last month, epitomizes the growing plight of many small private colleges that depend almost entirely on tuition for revenue. It’s been five years since the recession ended and yet their finances are worsening. Soaring student debt, competition from online programs and poor job prospects for graduates are shrinking their applicant pools.

Franklin Pierce University in New Hampshire will drop six majors.

Net tuition revenue fell 14 percent to $30.3 million last year from 2009 as Franklin Pierce boosted financial aid to attract freshmen and keep students from transferring. Standard & Poor’s cut the Rindge, New Hampshire-based school’s credit rating last year to B, five steps below investment grade, from BB. Moody’s reduced its rating to B3 from B1 the year prior.

Ashland University in Ohio cut its tuition.

Ashland University, a 136-year-old college in Ohio, reduced tuition by about $11,000 — and direct aid commensurately — for the coming school year, with the goal that a lower-tuition/lower-discount model will eliminate sticker shock and lure students. In November, Moody’s downgraded Ashland’s rating to Caa2, eight levels below investment grade, saying the probability it will default has increased after three years of enrollment declines.

As a strategy for survival, diversifying takes on a new meaning.

Some colleges are looking beyond belt-tightening for more permanent solutions. Morgan State University in Baltimore, a historically black college, is targeting more Hispanic applicants and those of other ethnicities, according to Moody’s. Chatham University in Pittsburgh, whose undergraduate program is women-only, said in February it was considering going co-ed to boost enrollment.

This just in:

Mid-Continent University, a private institution in Kentucky, will close June 30, KFVS 12 News reported….

Related:  Private colleges see declining enrollment (Cost of College)

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Michael McDonald, “Small U.S. Colleges Battle Death Spiral as Enrollment Drops”, Yahoo Finance, April 14, 2014.

April 14, 2014

It’s no longer feasible to work your way through college

by Grace

Let’s get this straight once and for all.

It’s impossible to work your way through college nowadays

Michigan State University graduate student Randy Olson listened to “his grandfather extol the virtues of putting oneself through college without family support’”  But then Olson did some calculations to show how that is almost impossible to do today.

Here is the trend of wages and tuition costs from 1987 to 2010.

20140410.COC.ImpossibleToWorkPayCollege1

 

To get a better sense of the trend, I fit a linear regression to the data. According to the model, students have to work 23.7 extra hours every year to pay for tuition. If we extrapolate this trend back to 1979 and forward to 2013, we recover the same trend that I found in my previous post: The average university student in 1979 only had to work 182 hours per year (a part-time summer job) to pay for tuition, whereas the average 2013 student had to work 991 hours (a full-time job for half the year). That’s over 5x as many hours worked for the same education!

Today’s American Dream differs from that of previous generations.

…  somehow, the idea that we can work our way through college still persists. This ethos seems to be the latest generation’s version of American Dream: If you work long and hard enough, and if you sacrifice enough, you will eventually graduate college without debt and land your dream job. But with the way this trend is going, it looks like even long and hard hours at work won’t even pay off any more.

In short, I’d like my readers to walk away knowing that it’s not nearly as easy to work your way through college as it used to be — stop telling us to do it just because you did a decade or more ago.

Loans and other forms of financial aid make up some of the difference.

… If the Federal aid trends in the past 30 years are any indication, students actually have less of their tuition costs paid for by financial aid nowadays than 30 years ago! With rising costs and lowered financial support, it’s no wonder that student debt has spiraled out of control in the past decade. The system is practically setting the modern university student up for financial failure.

Related:  Recent college graduates suffering worst unemployment rates in 50 years (Cost of College)

April 8, 2014

‘Budget woes are particularly acute at small, mid-tier private’ colleges

by Grace

Tough financial times are hitting many colleges, and “some are downsizing staff, while others are slashing athletic programs and even selling off buildings”.

Hardest hit are ‘mid-tier private schools’.

Budget woes are particularly acute at small, mid-tier private schools, which lack the massive endowments and guaranteed stream of top students of their more prestigious counterparts. In an effort to compete with higher-profile competitors, many of these schools borrowed heavily to fund expensive construction projects during the early 2000s, only to see their endowments shrink when the financial crisis hit. Making matters worse, tuition revenue has dwindled with declining enrollment.

One example of such a school is Ashland University in Oregon.

The “glory days” are gone.

… Such colleges ‘might have been doing fine in the glory days,’ when they had ‘more students coming in than you knew what to do with,’ she said, ‘but that doesn’t work now.’”

What will happen to second-tier private colleges that charge premium prices?

Students who face little chance of getting into an Ivy League school or select liberal arts college (Williams or Amherst in the East, Pomona in the West) are increasingly asking: why should my family pay $30,000 to $50,000 a year (the exact amount unknown at the time of application because of uncertainties arising from massive price discrimination in the form of so-called “scholarship” aid) to go to a mid-quality private school when for somewhat less, say $20,000 to $30,000 a year, I can go to a top public flagship school of roughly equal quality?

Related:  Private colleges see declining enrollment (Cost of College)

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“More Colleges Are Feeling the Pinch”, The Feed / The American Interest, April 3, 2014.

March 26, 2014

Colleges seek wealthy students to pay for diversity and more HDTVs

by Grace

Colleges engage in “massive price discrimination” as a way to achieve diversity.

… universities try to charge what the traffic will bear, engaging in massive price discrimination, favoring some students (poorer ones, extremely bright ones, those with preferred skin colors) more than others (more affluent, less bright kids, those whose skin color is less desirable).

A big part of enrollment management is finding enough wealthy applicants who will be able to subsidize their fellow students.  Here’s a success story.

MIDDLETOWN, CT—After carefully scrutinizing the application of high school senior Erica Allson, admissions officers at Wesleyan University confirmed Monday that the 18-year-old was the ideal candidate to subsidize the tuition and fees of three lower-income students. “Erica is truly a perfect fit for us: Not only does she show sufficient academic potential, but her parents are two highly successful professionals capable of paying the school’s annual $47,000 in tuition plus $13,000 in room and board in their entirety,” assistant admissions director Stacey Wright said, adding that she was left in awe after reading Allson’s near flawless income disclosure form. “With the money she’ll bring to campus, we can easily admit several less-well-off students, which will help us project our desired image as a highly progressive and inclusive institution, plus we’ll still have some extra left over to add HDTVs to the dining hall and install a rock-climbing wall in the freshman dorms. It’s all about striking the right balance with our student body.” At press time, administrators confirmed that they had also just admitted a social activist whose contributions to the community would offset the reputations of three football recruits.

In case it isn’t sufficiently obvious, this fictional news story comes from The Onion.

Glenn Reynolds has it right:

… One of the weirdest things about the past few years is the way The Onion has gone from a parody site to hard-news. . . .

Related:  College costs – sticker price vs. net price (Cost of College)

March 5, 2014

Federal student loan programs create perverse incentives

by Grace

Two problems with college loan forgiveness programs:

1.  They encourage students to choose less-valuable majors, according to George Leef.

.. income-based repayment would lessen or even remove the incentive that students now have to think prospectively about the cost/benefit ratio of college. With income-based repayment in place, the government is in effect telling students, “Relax—if college turns out not to do much to increase your income, you won’t have to dig deep to cover the costs.”

2.  They create “a perverse incentive for students to take out large loans they have no intention of paying back in full”, according to Walter Russell Mead.

… This is particularly true for graduate students, who have no limits on the size of the loans they can take out. As a result, the program has gone from “a safety net for undergraduates [to] a very large tuition assistance program for graduate students.”

Both income-based repayment plans and public service loan forgiveness programs absolve participants from paying back a significant percentage of the money they borrowed.

Mead describes how government policies are “Blowing Air into Debt Bubble”.

Over the past few years, the college cost crisis has evolved from merely an important issue facing parents and students into a serious national problem that could impact the future of the country. Moreover, most government programs designed to address the problem have only made it worse, inflating the bubble by encouraging students to borrow and giving colleges few incentives to lower prices. Federal student loans are the biggest offenders in this regard, but even other, more targeted programs have had this effect.

Related:

February 24, 2014

You can get a college degree for almost free

by Grace

This college degree may not be prestigious, but it’s truly affordable.  Tuition is free, although each proctored exam costs $100.

Just in time for its first graduates, the University of the People, a tuition-free four-year-old online institution built to reach underserved students around the world, announced Thursday that it had received accreditation.

The University of the People currently offers degrees in business administration and computer science.  Present enrollment is 700 students, but with newly acquired accreditation that number is expected to grow to 5,000 students by 2016.

It appears that real learning is taking place.

Classes at the university are 10 weeks long, and have 20 to 30 students — often from as many different countries — who have weekly homework and quizzes. The university depends largely on volunteer labor.  Mr. Reshef said some 3,000 professors have offered to volunteer, although so far the university has only been able to use about 100 of them.

Its deans are volunteers from New York University and Columbia.

The school was created by Israeli entrepreneur Shai Reshef, who has been able to attract the attention of some big guns in the realm of higher education.

The University of the People, almost from the start, has attracted high-level support, with partnerships or backing from New York University, the Clinton Global Initiative, the Bill and Melinda Gates Foundation, the OpenCourseWare Consortium and many others. In August, Microsoft agreed to provide scholarships, mentoring and job opportunities to 1,000 African students who enroll at the University of the People.

I’m reminded of this:

 20130614.COCHousingPrices3

 

Related:

February 12, 2014

Bad advice for college students

by Grace

Take a course called “Politicizing Beyoncé”.

20140209.COCBeyonce1

That’s Walter Russell Mead’s first bit of bad advice for college students.  Here’s more.

… Enroll in a college you can’t afford. Take really easy, fun courses. Don’t worry about marketable skills. Blame society for the consequences (unemployment) of your attitude problem. Then demand the government (or your parents) bail you out. We guarantee you all the misery you could ever want.

Mead wrote his advice after learning that Rutgers Department of Women and Gender Studies is offering the Beyonce course, which “will explore race, gender and sexuality in America via Beyonce’s music”.

College can be a time for fun and exploration, but students who are going into deep debt for their higher education should carefully consider which courses will show up on a transcript.

If you were to ask today’s employers what new college graduates are lacking, the skills to create a “grand narrative” around one’s own life and persona wouldn’t make the list. And a hefty dose of Beyoncé-inspired narcissism won’t exactly help with that pesky “sense of entitlement” problem employers keep complaining about.

I happen to enjoy watching Beyonce perform, but I really don’t want to pay $2,000 for my kid to take a class exploring her music.  On the other hand, I can see the possible value in adding an easy “A” to the credential that will enhance the odds for lucrative employment.

Related:  The growing distinction between ‘meaningful’ and ‘worthless” college degrees (Cost of College)

February 7, 2014

The growing distinction between ‘meaningful’ and ‘worthless” college degrees

by Grace

As American college completion rates continue to climb, George Will foresees a time when society will sharply distinguish “between those with meaningful college degrees and those with worthless ones”.

Today, the dominant distinction defining socioeconomic class is between those with and without college degrees. Graduates earn 70 percent more than those with only high school diplomas. In 1980, the difference was just 30 percent.

Soon the crucial distinction will be between those with meaningful college degrees and those with worthless ones. Many colleges are becoming less demanding as they become more expensive: They rake in money — much of it from government-subsidized tuition grants — by taking in many marginally qualified students who are motivated only to acquire a credential and who learn little.

Today’s “college students are learning less than they used to”.

Lindsey reported that in 1961, full-time college students reported studying 25 hours a week on average; by 2003, average studying time had fallen to 13 hours. Half of today’s students take no courses requiring more than 20 pages of writing in a semester. Given the role of practice in developing expertise, “the conclusion that college students are learning less than they used to seems unavoidable.” Small wonder those with college degrees occupying jobs that do not require a high school diploma include 1.4 million retail salespeople and cashiers, half a million waiters, bartenders and janitors, and many more.

Most college graduates are underemployed

20131228.COCCollegeDegreeNotRequired1

Related:

January 7, 2014

How the government promotes rising college costs and lowered standards

by Grace

Richard Vedder believes the federal government is fueling the higher education “arms race” that keeps pushing tuition costs higher and higher.

The government is providing fuel for an academics arms race that is going on all over the country by allowing kids to borrow huge amounts of money at very, very low interest rates, and many of these students are really not knowledgeable about finance and so forth. They go out; they borrow a lot of money. The colleges raise their fees more than they otherwise would. This provides extra income for the colleges, which goes for a ton of different things — luxury facilities, more administrators, higher pay for people, and the like — and makes college less affordable.

Instead of expansive loan programs, how should the government help deserving students?

Help low-income students by giving vouchers or scholarships. That would be fine. But empower individuals and provide information to individuals to make decisions….

In trying to control higher education, the government has stunted genuine progress and contributed to the lowering of standards.

I’m not against investment, but we are overcommitted in higher education. And as a consequence we’re getting students who are not prepared for college. We’re getting high dropout rates. We’re getting low learning levels. We get students only working 30 hours a week, going to class or studying. We get grade inflation. I could go on and on with all sorts of the manifestations of this that have happened as a consequence of this, none of which have been particularly good for American society.

December 9, 2013

Where do students put the blame for their student loan problems?

by Grace

Students put most of the blame for rising student debt on colleges and the federal government.

A national poll of four-year college students has found that they are more likely to blame colleges than other institutions for the rising levels of student debt. The poll, by the Harvard University Institute of Politics, found that 68 percent of those polled viewed student debt for young people as a major problem, while 21 percent viewed it as a minor problem. Asked who was “most responsible” for rising levels of student debt, students cited the following:

  • Colleges: 42 percent
  • Federal government: 30 percent
  • State governments: 9 percent
  • Students: 8 percent
  • Other: 4 percent
  • Refused to answer: 7 percent

Colleges may claim that they are blameless since they are subject to forces beyond their control, but it’s certainly reasonable for students to point fingers at the institutions to which they are paying tuition.

Do students think federal spending has been too little, or too much?

Federal government spending has climbed over the long term, with substantial increases in recent years*.  If it’s true that government spending has been a major reason for the dramatic escalation of college costs as well as related debt levels, then students are right to blame the federal government.  But I suspect that was not their line of reasoning, and that they want taxpayers to fund more of their education.

20131206.COCFedSpendingCollege1


Meanwhile, state spending per student has been dropping but very few students see that as the major problem.


*
 2009 marks an anomaly however since there was also a one-time accounting adjustment for all student loans issued since 1992, which made it appear that the federal government more than offset its spending for higher education during that year. These adjustments helped conceal the full magnitude of the federal government’s all-time record budget deficit in that year, which perhaps helps to explain the timing of these adjustments.
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