‘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.

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

‘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.”

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.”

…
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.

Harvard online learning: ‘five years from now will look very different from what we do now’

Last week Harvard and the Massachusetts Institute of Technology announced their new partnership, known as edX, will offer free online courses.

Harvard’s involvement follows M.I.T.’s announcement in December that it was starting an open online learning project, MITx. Its first course, Circuits and Electronics, began in March, enrolling about 120,000 students, some 10,000 of whom made it through the recent midterm exam. Those who complete the course will get a certificate of mastery and a grade, but no official credit. Similarly, edX courses will offer a certificate but not credit.

Coursera and Udacity, two other MOOCs (massively open online courses) from elite universities have also recently been announced.  This online thing seems to be taking off, accompanied by ardent predictions from educators.

“My guess is that what we end up doing five years from now will look very different from what we do now,” said Provost Alan M. Garber of Harvard …

“Online education is here to stay, and it’s only going to get better,” said Lawrence S. Bacow, a past president of Tufts who is a member of the Harvard Corporation.…

President John Hennessy of Stanford summed up the emerging view in an article by Ken Auletta in The New Yorker, “There’s a tsunami coming.”…

Online learning is not brand new, but David Brooks makes a point about the recent entry by the most selective institutions:

But, over the past few months, something has changed. The elite, pace-setting universities have embraced the Internet. Not long ago, online courses were interesting experiments. Now online activity is at the core of how these schools envision their futures….

What happened to the newspaper and magazine business is about to happen to higher education: a rescrambling around the Web.

Rescrambling.  Makes me think of this.

You have to break a few eggs to make an omelet.
…

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

Ohio to stop state funding for college remedial courses

Remedial instruction is expensive and students are more likely to drop out of college.  Ohio’s response is to stop paying for it.

The annual price tag for remedial education in American colleges and universities is at least $3.6 billion, according to the Alliance for Excellent Education, a national advocacy organization in Washington. It’s also a reason that many college students quit in frustration, contributing to high dropout rates.

In a largely overlooked but precedent-setting move, cash-strapped Ohio has said it’ll soon stop footing the bill for remedial courses. The state’s 2007 budget quietly mandated that the government phase out money for remediation at four-year universities beginning in the 2014-15 academic year, and eliminate such funding altogether by 2020.

The gap between the skills with which students graduate from high school and what colleges expect them to be able to do has come under increased scrutiny, as federal policymakers push states to increase college graduation rates. At least 13 other states, including Florida, Missouri and South Carolina, have tried to slow the spiral of spending on remedial education, typically by restricting funding to colleges and universities that provide a lot of it….

Nationwide, some 44 percent of students at community colleges and 27 percent at four-year institutions had to take at least one remedial course in 2008, the last year for which data are available from the U.S. Department of Education. Even if students pass such remedial classes, research shows they’re less likely to graduate than their peers who start directly in college-level classes.

A high school diploma does not necessarily signify college readiness.

At Kent State— where just more than half of first-year students in 2006 had to take remedial courses in math, English or both — remediation costs more than $750,000 a year, an amount that Provost Robert Frank calls “non-trivial.”

“We are receiving students who successfully graduated from high school who aren’t ready for (college) math, writing and chemistry,” Frank said.

Ignoring the obvious solution
To address the remediation issue Ohio colleges are reaching out to private high schools that tend to produce college-ready students, or partnering  with community colleges that offer remedial course.  But there was no mention of actually tightening admission requirements to make sure that only qualified students are allowed in.  It seems the colleges are happy to take tuition payments from remedial students, but with decreased state funding the only alternative may be to raise prices for all students.  And so the higher education bubble continues.

Step right up and get your $10,000 college degree in Texas!

Image via Wikipedia

Speaking today on a SXSWEdu panel in Austin, officials from a few Texas community colleges and universities said that $10,000 bachelor’s degrees are available now — and more will be within the year.

Gov. Rick Perry famously called on the development of a $10,000 degree in his State of the State address in 2011. The proposal met with criticism at the time, but Texas Higher Education Coordinating Board Chairman Fred Heldenfels said it was misunderstood. “It’s not intended to be a bargain degree,” he said, offering the metaphor of a no-frills, rapid-rail route rather than an ocean-going cruise.

Going with that metaphor, I can see the value of foregoing the luxury cruise ship’s elaborate dining options and luxurious spa pampering if it means getting to the same destination at a lower price.  If it’s done right, a no-frills $10,000 college degree can be equivalent to a $200,000 traditional five-year campus party in terms of core learning.

Here’s a glimpse of how it’ll be done.

… “shredded e-textbooks,” electronic books that can be broken up according to what content is needed and downloaded at low cost…

… competency-based learning — allowing students to advance once they have proven mastery of a subject rather than requiring them to sit through a predetermined amount of classes for course credit…

… students may begin college coursework during their junior year of high school. After graduation, they must complete one year of community college and then transfer to Texas A&M, San Antonio to finish…

The $10,000 plan so far includes bachelor degrees in business administration, information technology with a focus on cybersecurity, and applied science in organizational leadership.

Aggie envy in Texas Tech-land

Now that the Aggies have shown it can be done, we’re betting the Red Raiders and others will quickly demonstrate how it can be done better.

Let the race begin.

An important step in breaking higher education’s credentialing monopoly?

On the road to the dismantling of  higher education’s expensive monopoly on credentialing comes an announcement of new online testing options for students.  

First, a review of economics.

… If the price of something rises a lot, people look for substitutes. Resources (dollars) are scarce, and individuals want to make the best use of them. They “maximize their utility” by shifting away from high-priced good or service A to lower-priced good B.

Students and employers are stuck in our current system, where colleges hold credentialing monopoly.

With regards to colleges, consumers typically have believed that there are no good substitutes–the only way a person can certify to potential employers that she/he is pretty bright, well educated, good at communicating, disciplined, etc., is by presenting a bachelor’s degree diploma. College graduates typically have these positive attributes more than others, so degrees serve as an important signaling device to employers, lowering the costs of learning about the traits of the applicant. Because of the lack of good substitutes, colleges face little outside competition and can raise prices more, given their quasi-monopoly status.

As college costs rise, however, people are asking: Aren’t there cheaper ways of certifying competence and skills to employers?

…
New competency tests as college alternatives:

The search for alternative ways is leading to other entities offering credentials for much less than the $30,000-$60,000 per year that colleges charge.  New agreements between Burck Smith’s StraighterLine, the Education Testing Service (ETS), and the Council on Aid to Education (CAE) to offer online competency tests have just been announced.

Students can tell employers, “I did very well on the CLA and iSkills test, strong predictors of future positive work performance,” and, implicitly “you can hire me for less than you pay college graduates who score less well on these tests.”

Will it be more “fair”?
The suggestion is that employers will be a driving force in the move to alternative credentialing as a way to keep salary costs in line.  This could be true, pointing to a possible increasing class divide between high and low earners, with only graduates of elite residential colleges in the running for top salaries.  On the other hand, employers would be able to spurn the graduates of the many expensive-but-mediocre colleges in favor of alternatively credentialed employees who would be able to compete for jobs on a true merit basis.

More:  How quickly will the Higher-Ed Revolution happen?

It’s happening, almost overnight: what could be the collapse of the near-monopoly that traditional brick-and-mortar colleges and universities currently enjoy as respected credentialing institutions whose degrees and grades mean something to employers.

Related:  Higher education is a prisoner’s dilemma