‘there has been a severe contraction in the quality of higher education’

In writing about the higher education bubble, Jerry Bowyer had this observation.

Furthermore, there has been a severe contraction in the quality of higher education in America. Did we really think we could open the floodgates and not affect the quality of graduates? Can you turn college into the new high school, and not get high school-like results?  Grade inflation will only keep the problem concealed for so long before the general public becomes aware that outside of a few highly challenging programs and majors, the quality of American higher education is plummeting. Graduates are mastering fewer facts, can’t think critically about the facts they have mastered, and can’t express whatever ideas they have mastered in clear, cogent, grammatically correct sentences. Employers already know this.

Professor Mark Perry thinks most college professors would agree with Bowyer.  As others have, Perry compares the housing bubble to the higher education bubble.

Similarity between ‘good renters’ and ‘good high school graduates’

It seems clear now that because of dual political obsessions, we have “oversold” both homeownership and college education to the American people, by artificially lowering the costs through government intervention and subsidies.  As economic theory tells us, if you subsidize something you get more of it, and that’s what happened with both homeownerhip and college education – but we got too much of it, and that has led to twin bubbles.  Just like government policies turned “good renters into bad homeowners,” it’s now apparent that government policies have turned “good high school graduates, many of whom should have pursued tw0-year degrees or other forms of career training, into unemployable college graduates with excessive levels of student loan debt that can’t be discharged.”  Perhaps economics textbooks in the future can illustrate the concept of “government failure” with these two examples of government-induced, unsustainable bubbles?

Just as too many unqualified home buyers took on mortgages in the run-up to the housing bubble, maybe too many unprepared high school graduates are enrolling in college.

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Related:  Typical undergrad ‘could not write a paper or solve an algebra problem’

More on the ‘bifurcation’ of higher education

Nicholas Lemann argues that elite colleges are actually priced too low.

Where higher education is actually underpriced is in the top-tier schools. That may sound offensive, but price is determined by what people are willing to pay, and the top twenty-five or so schools in the country could charge even more than they do. The number of applications to those schools continues to grow faster than their cost. (Ivy League colleges will charge about sixty thousand dollars next year.) That’s because the perceived value of their degrees continues to rise. Now that we know that either Obama or Romney will be President next year, we also know that, from 1989 through at least 2017, every President of the United States will have had a degree from either Harvard or Yale or, in the case of George W. Bush, both. That could be a three-decade accident, or it may be a sign of something lasting—the educational version of the inequality surge, elevating “one per cent” institutions far above the rest.
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The trend in higher education may be in the direction of sharper class distinctions, and Lemann thinks pumping more taxpayer money into more colleges will improve opportunity and help society.

In higher education, the United States may be on its way to becoming more like the rest of the world, with a small group of schools controlling access to life membership in the élite. And higher education is becoming more like other areas of American life, with the fortunate few institutions distancing themselves ever further from the many. All those things which commencement speakers talk about—personal growth, critical-thinking skills, intellectual exploration, breadth of learning—will survive at the top institutions, but other colleges will come under increased pressure to adopt the model of trade schools. Student loans open access to students, and give colleges more freedom. Obama and Romney will have plenty to disagree about, and it’s good that the interest rate on student loans isn’t on the list. For the federal government to pump extra tuition money into the system, in the form of low-cost loans, in order to spread opportunity more widely, and to allow more schools to provide more than skills instruction, seems like a small price to pay for the kind of society it buys.

I don’t think simply pumping extra tuition money into the system will bolster the growth of rigorous institutions that produce intellectual graduates with strong critical thinking skills.  The problem I see is a scarcity of high school graduates adequately prepared for those types of colleges.  Unless that changes, we’re likely to continue to see the growing bifurcation between elite universities and “trade schools”.

‘bifurcation of student demand favoring the highest quality and most affordable’ colleges

Moody’s Investor Services gave favorable ratings to colleges and universities that offer the highest quality and most affordable higher education options, noting the increasingly strong consumer interest in these types of schools.  Moody’s sees a bifurcation of demand, with declining interest in expensive, mediocre schools.

Lower-tier schools charging $50,000 or more annually are beginning to look like dinosaurs, soon to be extinct and possibly replaced by less expensive online alternatives.

Moody’s Investors Service, in a report earlier this year, said it had a favorable outlook for the nation’s most elite private colleges and large state institutions, those with the “strongest market positions” that had multiple ways to generate revenue. Ohio State, for instance, received a stable outlook from Moody’s last fall, though the report cautioned about the school’s debt and reliance on its medical center for revenue.

But Moody’s issued a negative outlook for a majority of colleges and universities heavily dependent on tuition and state revenue.

“Tuition levels are at a tipping point,” Moody’s wrote, adding later, “We anticipate an ongoing bifurcation of student demand favoring the highest quality and most affordable higher education options.”…

“We know the model is not sustainable,” said Lawrence T. Lesick, vice president for enrollment management at Ohio Northern University. “Schools are going to have to show the value proposition. Those that don’t aren’t going to be around.”

Mark Cuban on the higher education bubble

MARK CUBAN ON THE HIGHER EDUCATION BUBBLE:

This comparison between higher education and the newspaper business seems apt.

The Higher Education Industry is very analogous to the Newspaper industry. By the time they realize they need to change the costs to support their legacy infrastructure and costs will keep them from getting there.

Easy loans

Its far too easy to borrow money for college.  Did you know that there is more outstanding debt for student loans than there is for Auto Loans or Credit Card loans ? Thats right. The 37mm holders of student loans have more debt than the 175mm or so credit card owners in this country and more than the all of the debt on cars in this country. While the average student loan debt is about 23k. The median is close to $12,500. And growing. Past 1 TRILLION DOLLARS.

We freak out about the Trillions of dollars in debt our country faces. What about the TRILLION DOLLARs plus in debt college kids are facing ?

The point of the numbers is that getting a student loan is easy. Too easy.

You know who knows that the money is easy better than anyone ? The schools that are taking that student loan money in tuition. Which is exactly why they have no problems raising costs for tuition each and every year.

Purpose of college

As far as the purpose of college, I am a huge believer that you go to college to learn how to learn. However, if that gaol is subverted because traditional universities, public and private, charge so much to make that happen, I believe that system will collapse and there will be better alternatives created.

Reading this on Cuban’s blog, I was amused by his writing errors.  I’m sure he writes quickly and eschews basic spell checking.  Somehow, it’s entertaining to see “its” and “thats” with missing apostrophes in a billionaire business magnate’s writing.  The lesson might be that perfect grammar and correct spelling are not always essential for good communication.  There are probably a few other self-made billionaires who can’t be bothered to know when to use “it’s” instead of “its” *.

* Actually, I think the more common mistake is to add an unnecessary apostrophe.

Related articles

• ‘Higher Education Bubble May Explode in Taxpayers’ Faces’ (costofcollege.wordpress.com)

The student loan problem: ‘I’m not going to worry about it right now. I had to take that plunge.’

SOME HIGHLIGHTS FROM THE NEW YORK TIMES FRONT PAGE ARTICLE ON STUDENT LOANS

Statistics show it’s a growing problem, but not a crisis.

* About two-thirds of bachelor’s degree recipients borrow money to attend college, either from the government or private lenders, according to a Department of Education survey of 2007-8 graduates; the total number of borrowers is most likely higher since the survey does not track borrowing from family members.

By contrast, 45 percent of 1992-93 graduates borrowed money; that survey included family borrowing as well as government and private loans.

For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000, the Federal Reserve Bank of New York reports….

Students and their families are often clueless, failing to consider the ramifications of their actions.

Even discounted, the price is beyond the means of many. Yet too often, students and their parents listen without question…

Many students and parents don’t have a firm understanding of the cost of attending college, or the amount of debt they will incur….

“Ultimately with everything in financial aid, from start to finish, the student and their family need to take responsibility and monitor their aid,” Melanie K. Weaver, the director of financial aid at Ohio Northern, said in an e-mail. “With over 3,000 on aid it is difficult for our office of 10 staff members to stay on top of every student.”…

“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” said Ms. Griffith, a marketing major. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”…

Ms. Potter figured she would have to borrow about $10,000 a year. But the tuition increased every year, and because she didn’t declare a major until her junior year, she needed five years to graduate.

A social worker, she now owes $80,000…..

“Maybe at the time I was a little naïve,” said Mr. Frank, 22, a senior who owes $80,000. “Everyone was like, ‘You can get grants, you can always get loans.’ I wanted to play football really bad, and I hoped eventually I’d get a football scholarship.”…

“I didn’t quite think in terms of money”…

“I kind of ignored the fact that I had to pay all these loans”…

An opaque pricing and financial aid system adds to the problem.

Instead, college pricing is complicated by constant tuition increases, a vast array of grants and loans and a financial-aid system that discounts tuition for most students based on opaque formulas. “No one has a vested interest in simplifying the process but families,” said Mark Kantrowitz, the founder of FinAid, a Web site devoted to explaining college financial aid. “It obscures the price of a college and makes the choice of college not depend on the price but other factors.”

Factors contributing to the growth in student loans

… as with the housing bubble before the economic collapse, the extraordinary growth in student loans has caught many by surprise. But its roots are in fact deep, and the cast of contributing characters — including college marketing officers, state lawmakers wielding a budget ax and wide-eyed students and families — has been enabled by a basic economic dynamic: an insatiable demand for a college education, at almost any price, and plenty of easy-to-secure loans, primarily from the federal government.

Until recently, college administrators might have ignored the problem.

“I readily admit it,” said E. Gordon Gee, the president of Ohio State University, who has also served as president of Vanderbilt and Brown, among others. “I didn’t think a lot about costs. I do not think we have given significant thought to the impact of college costs on families.”

The goal of “college for all” means more taxpayer funds for student loans

To that end, the Obama administration has given out more grants and loans than ever to more and more college students with the goal of making the United States first among developed nations in college completion. The balance of federal student loans has grown by more than 60 percent in the last five years. And in 2007, Congress made sure the interest rates on many of those loans were well below commercial rates; currently, a debate over keeping those lower rates from doubling in July is roiling lawmakers.

While the student loan problem is not a crisis, it is a drag on the economy.

Economists do not predict a collapse of the student loan system, which would, in essence, mean wholesale default. And if there were one, it would be unlikely to ripple through the economy with the same devastating impact as the mortgage crash. Though now larger than credit card and other consumer debt, the student loan balance remains smaller than the mortgage market, and most student loans are issued by the federal government, meaning banks wouldn’t be affected as much.

Still, economists say, growing student debt hangs over the economic recovery like a dark cloud for a generation of college graduates and indebted dropouts. A study of recent college graduates conducted by researchers at Rutgers University and released last week found that 40 percent of the participants had delayed making a major purchase, like a home or car, because of college debt, while slightly more than a quarter had put off continuing their education or had moved in with relatives to save money….

State government spending on higher education has increased, but not as much as in other areas.

In the late 1970s, higher education in Ohio accounted for 17 percent of the state’s expenditures. Now it is 11 percent. By contrast, prisons were 4 percent of the state’s budget in the late 1970s; now they account for 8 percent. Federal mandates and court orders have compelled lawmakers to spend more money on Medicaid and primary education, too. Legislators could designate a greater percentage of the budget to higher education by raising taxes, but there is no appetite for that….

Colleges aggressively market themselves as affordable.

Colleges are aggressively recruiting students, regardless of their financial circumstances. In admissions offices across the country, professional marketing companies and talented alumni are being enlisted to devise catchy slogans, build enticing Web sites — and essentially outpitch the competition.

Affordability, or at least promising that the finances will work out, is increasingly a piece of the pitch.

After all, colleges are not in the business of turning away students.

… And most colleges aren’t much help. Student debt is not their primary concern in the end — the loan money usually gets deposited directly with the colleges, so they get paid either way — and the main job of the admissions staff, after all, is to admit students.

One recommendation:  a standardized form

While there are standardized disclosure forms for buying a car or a house or even signing up for a credit card, no such thing exists for colleges.

For-profit schools are a particular problem, but keep in mind they serve more disadvantaged students.

… Students at for-profit colleges are twice as likely as other students to default on their student loans. Moreover, among students seeking a bachelor’s degree, only 22 percent succeed within six years, compared with 65 percent at nonprofit private schools and 55 percent at public institutions. (For-profit students, however, tend to do better at obtaining associate degrees and certificates.)

Leaders of the for-profit industry defended themselves, saying they were providing higher education for lower-class students that traditional colleges had left behind. “The reality is the type of students we attract have no other opportunity,” said Steven Gunderson, head of a leading trade organization. “We are the ones that provide a path to the middle class.”

It ultimately comes down to the students’ responsibility.

But even with more information, students and their parents seem willing to pay the ever-escalating price of a college degree, which remains the key rung up the ladder of economic mobility.

Denise Entingh, 44, dropped out after two quarters at Columbus State Community College because she didn’t want to wait any longer to get into the nursing program. So she signed on at the Hondros School of Nursing, a for-profit college that advertises “No Waitlist!” on a billboard a few blocks from Columbus State.

Ms. Entingh said she expected to borrow about $45,000 to get a bachelor’s degree in nursing from Hondros, which costs more than three times as much as Columbus State.

“It scares the hell out of me,” she said of her debt load. “But I think it will be all right. I’m not going to worry about it right now. I had to take that plunge.”

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Whew!  After all that, I may not want to write anything else about student loans for the next six months!
(But I probably will.)

* CORRECTION:  The original article misstated the percentage of students who had borrowed as 94%.

Related articles

• Still paying down student loans when you’re middle aged or older (costofcollege.wordpress.com)

‘changes in tuition were not driven by changes in state appropriations’

What have been the primary reasons for rising college costs?  Andrew Gillen says declining state funding is not one, and has research to back it up.

Changes in state funding and college tuition do not track closely over a ten-year period.

It is clear that the two bars are not equal. The 2003-2004 changes are the only ones that fit Fethke’s story, while the rest show a tenuous relationship (correlation of 0.21). Particularly striking are the increases in tuition even when state appropriations were increasing (2000-2001 and 2004-05 through 2007-08). The conclusion is that historically, changes in tuition were not driven by changes in state appropriations. Examining longer time periods rather than yearly changes does strengthen the connection, but it is still nowhere near 1 to 1 (e.g. a one dollar change in appropriations is associated with only a $0.06 to $0.15 change in tuition in the long run).

I don’t doubt that declining state funding contributes to rising tuition costs, but I agree that other factors figure more importantly in the equation.  Gillen has argued that increases in financial aid are a major cause of higher tuition, describing an updated Bennett hypothesis arising from the dysfunctional competition in higher education.  I plan to write about that soon.

This recently released report – The Great Cost Shift: How Higher Education Cuts Undermine the Future Middle Class – highlights state cuts as a reason for tuition increases.  However, in my quick review I did not find that the evidence presented was sufficiently compelling to prove it as the most important factor.

College-educated wives dropping out of the workforce

College-educated wives married to similarly educated husbands are leaving the workforce in increasing numbers, creating a trend that may hinder an already weak economic recovery.  But will young men’s lower college graduation rates reverse this trend?

… between 1993 and 2006, there was a decline in the workforce of 0.1 percent a year on average in the number of college-educated women, with similarly educated spouses.

That contrasts with growth of 2.4 percent a year between 1976 and 1992.

The result: the labor force in 2008 had 1.64 million fewer such women than if the growth rate had kept up its earlier trend, slightly more than 1 percent of the total workforce in that year….

May have a negative effect on economic growth

Stefania Albanesi, a senior economist at the Federal Reserve Bank of New York and one of the study’s authors, said the loss may hurt economic growth at a time when the nation can ill afford to have highly skilled workers on the sidelines….

Dropping out of the workforce is not just for the super-wealthy, and babies are not the reason these women are staying home.

But the trend is not limited to top earners. It has been detected among households earning around $80,000 per year….

… it’s not the tug of looking after young children that makes most educated women give up their career.

“These women usually give up their jobs when their children are school-age and not babies any more,” Albanesi said.

This doesn’t surprise me.  I know I’m not the only mom who found that juggling babies and work was a lot easer than caring for older, school-aged children while working full-time.  As they grow older, the logistical, disciplinary, and emotional needs of children can become more complicated.  For me, out-sourcing childcare for my pre-teens proved more challenging than finding a good caregiver for my babies.

Will the more women than men graduating from college, will this trend be affected?

Educational homogamy, the tendency to marry someone of the same educational level, is a decades-long pattern particularly strong among college graduates.  With the declining “supply” of men who are marriage material for educated women, what will happen?  Will female college graduates change their behavior and join their less-educated sisters in the growing trend of having children outside of marriage?  Or maybe they will begin to marry down in greater numbers.  In this case, quitting work to care for children may not be such a good option for wives out-earning their husbands, and we may see more men staying home to care for children.  That would be a significant shift in traditional gender roles, with unpredictable effects on families.

Add in the higher education bubble to these possible scenarios and anyone’s prediction about the next 30 years starts to look very fuzzy.  All I can think to do is advise my children to be ready for anything and be careful what you wish for.

Related articles:

• Non-marital births by education level as part of the growing class divide
• US Economy: Women Leaving Workforce Over Past 20 Years (wire.kapitall.com)
• Decline in Labor Force Participation Reflects Demographics, May Not Be as Bad as Reported

Still paying down student loans when you’re middle aged or older

Still paying on student loans when you’re middle aged or older can certainly dim the outlook for a financially secure retirement.

Student loan debt amassed by parents is growing faster than loans taken out by the student.

Parents’ loan debt has more than doubled over the last decade — exceeding $100 billion dollars or 10 percent of all outstanding student loan debt, according to the independent research firm FinAid.org.

“Parents of every income level are increasingly borrowing for their children’s college education. It doesn’t matter whether the parents are low income, middle income or upper income. There’s been dramatic growth in the percentages of parents who’ve been borrowing,” says FinAid.org founder and publisher Mark Kantrowitz.

Many parents who co-signed loans or borrowed money on their own for their children’s education now face the loss of their retirement nest eggs, homes and other assets….

Parents have an average of about $34,000 in student loans and that figure rises to $50,000, including interest, over a standard 10-year loan repayment period.

Aging Americans 60 and older owe about $36 billion in student loans.

Some of these older Americans are still grappling with their first wave of student loans, while others took on new debt when they returned to school later in life in hopes of becoming more competitive in the labor force. Many have co-signed for loans with their children or grandchildren to help them afford ballooning tuition.

It’s probably best to avoid the twenty-year plan for paying student loans.
I recently read where a 40-something mom explained that since she and her husband were still paying down their student loans, saving for retirement and for her children’s college education had taken a back seat.

11.8 million borrowers aged 40 and older owe $278 billion in student loans, averaging almost $24,000 per debtor.

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It’s relatively easy for a parent to qualify for a student loan:  Qualifying for a parent Direct PLUS loan

The Minerva Project is an attempt to establish an elite online university

The Minerva Project is attempting to create an elite online university, a move that if successful could accelerate the higher education reform being driven by escalating costs and improving technology.

Traditionally, for-profit colleges have operated on the lowest rungs of America’s educational ladder, catering to poor and lower-middle-class students looking for a basic, convenient degree or technical training. Aspiring Ivy Leaguers have remained far out of the industry’s sites.

That is, until now.

This week, the Minerva Project, a startup online university, announced that it had received $25 million in seed financing from Benchmark Capital, a major Silicon Valley venture capital firm known for its early investments in eBay, among other successful web companies. Minerva bills itself as “the first elite American university to be launched in a century,” and promises to re-envision higher education for the information age. The chairman of its advisory board: Larry Summers, the former treasury secretary and Harvard president. Among others, he’s joined on the board by Bob Kerry, the former United States senator and president of The New School.

A shortage of elite schools

… The demand for elite, American-style education far outstrips the current supply, he explained, not just stateside, but worldwide….  applications from qualified students are skyrocketing, while admissions rates are falling.

The Minerva business model

… The idea is to scoop up those students who are being shut out, whether it’s a smart American kid who has to opt for a solid state school when they had their heart set on Brown, or the child of a well-to-do family in Beijing, by offering them a great education and a worldwide network of contacts. Minerva will admit applicants based on their academic chops alone — jocks need not apply — and students would live in urban dorms scattered across the globe’s great cities. They’ll take online courses designed by highly esteemed professors from other established institutions. Meanwhile, tuition would cost “less than half” the price of the standard Ivy league sticker price (so somewhere around $20,000 or below). That, anyway, is the plan.

There are opposing opinions on whether something like this can work, and I can only go on my feeling that some big change is around the corner.  Exactly how it will shake out is probably anyone’s guess, but imposing stringent admission standards would be critical in raising the prestige of any online institution.

The value of peer interaction on a physical campus is cited as one reason online college will always be considered second best.  On the other hand, the argument is made that young people are finding online interaction to be just as important as  face-to-face meetings.  Perhaps related,  it has recently been reported that a smaller percentage of teens are bothering to get their driver’s license these days.

A physical campus helps create a community of scholars who engage in various social, artistic, political, and humanitarian pursuits that are integral to the experience sought by elite students.  But if an individual has the smarts and the initiative, an online community could also offer support for getting this type of experience,  just without the need to go into debt for next 20 years.

Will the Minerva Project be the the first elite online university?  If so, we may have to make room for an online Ivy League.

The Minerva Project

Related:  Online degree from London School of Economics for $5,000

Can webcasts replace 200-student college lecture classes?

Webcasts instead of large lecture classes could produce better results and cut costs.

Glenn Reynolds writes in Popular Mechanics:

… Now that webcasts are a routine feature of corporate training, perhaps it’s time to make better use of the Web for education. Take the top teachers in a field and let students at multiple colleges access their lectures online. (Sure, there’s not a lot of interaction that way—but how much is there in a 200-student lecture class anyway?) Once the basic information is covered, students can apply it in smaller advanced classes, in person. Would this save money? Possibly—and it would almost certainly produce better results.

This seems promising, especially if the webcast professors speak clear English.  I still hear stories of college lecturers with heavy foreign accents that create problems in understanding the lesson.

I recently participated in a webcast that was probably better than if I had attended the same presentation in person.  The expert speaker covered the issues clearly while I was able to view the relevant images on my computer, switching screens at my convenience.  We were able to submit questions during the webcast, with some being answered right then and others answered later via email.  It was all very convenient.

Read more: Can Technology Fix the College Debt Crisis? – Glenn Reynolds on the College Bubble – Popular Mechanics