Archive for ‘higher education bubble’

December 18, 2014

Informed consumers put pressure on rising college costs

by Grace

For the first time in years, the rise in tuition at many colleges is expected to be below the rate of inflation.

Today’s college students are more aware and informed about rising costs and financial aid, and more sensitive to price. That’s going to put ongoing pressure on the whole higher education industry’s finances, according to a Moody’s report (paywall) which gave a gloomy outlook for the whole sector.

A severe version of this is putting major pressure on US law schools, which are actively competing on tuition (paywall) for students, slashing faculty, or closing altogether. Since the 1970s, US tuition costs for undergraduate and graduate degrees have climbed to historic highs. But tuition hikes have slowed substantially as the number of schools have grown, spurring more competition.

This year, a far greater number of the graduate and undergraduate schools Moody’s surveyed projected under 2% tuition growth, a fraction of what we’ve seen for years, and below the cost of inflation:

20141214.COCDecliningTuitionIncreases1

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Max Nisen, ” People are getting smarter about college costs and it’s squeezing the whole industry”, Quartz, December 4, 2014.

December 16, 2014

Many college students are clueless about their student loans.

by Grace

The findings of a Brookings Institution study “suggest that a significant share of undergraduate students do not understand how much they are paying for college or how much debt they are taking on”.

20141213.COCMisEstimateCollegeDebt2

Students who do not have a good idea of their level of borrowing may make expensive mistakes that they will later come to regret. They are also likely to be surprised or even fearful when their first loan payments come due, which may impose an emotional burden on borrowers. More broadly, it may perpetuate popular narratives about crushing student loan burdens, which could discourage promising students from pursuing a college education.

We tend to think that college students are smart, but findings like these certainly put that belief in doubt.

Related:  College students are ignorant about how student loans work

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Beth Akers and Matthew M. Chingos, Are College Students Borrowing Blindly?, Brookings Institution, December 2014.

David Leonhardt, “What Students Don’t Know About Their Loans”, New York Times, December 10, 2014.

December 15, 2014

The decline in college enrollment continues

by Grace

College Enrollments Drop for 3rd Straight Year

Here’s a related trend.

Trend of sharp growth in high school graduates is ending.

20130730.COCDecliningHSGraduates2

The declining number of high school graduates coupled with a (possibly) recovering economy and soaring tuition point to falling college enrollment.

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

November 12, 2014

Almost every parent in the world wants college for their child

by Grace

A survey asking parents in 15 countries revealed that 89% of them want their children to go to college.

Although parents around the world have different views on what a good education should provide at different stages, they are united in their high educational aspirations for their children, with nearly nine in 10 (89%) parents wanting their children to go to university. More than three in five (62%) want their child to go on to study at postgraduate level.

20141108.COCCollegeForAllAroundTheWorld2

As the chart shows, 55% of American parents want their children to go on to postgraduate school.

“College for all” seems to be a common wish all over the world.

Source:  The Value of Education Springboard for success, an” independent research study was commissioned by HSBC and carried out by Ipsos”.

November 3, 2014

Reduce college dropout rates by only admitting qualified students

by Grace

One way to lower the college dropout rate is by providing extensive remediation and financial aid to students who struggle to stay in college.   Another way is by restricting admission and financial aid to students who are prepared to handle the course work.  Richard Vedder thinks the second option makes more sense.

College dropouts pay a heavy price, in both financial and opportunity costs.

There are two fundamentally different approaches to dealing with the problem. One says “let’s remove some of the problems that afflict today’s dropouts.” In particular, let us remove some of the educational and economic barriers that might enhance dropping out. Let’s give more financial aid to the low income student, for example, or more and better remedial education. In other words, let us spend money trying to alleviate some causes of dropping out.

The second approach is almost the opposite. Let us not accept into four year colleges students whose record suggest would have a very low probability of success. For example, students in, say, the bottom half of their high school graduating classes typically have a very low probability of graduating successfully in a reasonable time frame (four or five years) from college. Students with very low SAT (say a composite on the verbal and analytical sections of below 900) or ACT (say 18 or less) scores should not be admitted to four year schools. Indeed, it should be possible to devise a “probability of college success” index based on a combination of three factors: quality of the high school attended, high school rank, and scores on college admissions test.

Those failing to meet the admissions thresholds should be allowed to attend community colleges or non-degree schools offering certificated vocational training and, if they succeed there, be allowed to proceed to four year schools. This approach should not only reduce the dropout rate, it should save a good deal of money, both for students and taxpayers. It should reduce student loan repayment problems a bit, and lower loan delinquency rates.

Above all, a more restrictive admissions approach would in the long run reduce the mismatch between the availability of relatively high paying jobs and the numbers of college graduates seeking those jobs. We have too many college graduates, not too few.

Vedder argues this solution is not “anti-minority”.

The 1 DuPont Circle crowd (the higher education establishment’s lobbyists) would fight such a proposal tooth and nail. They would argue that it is anti-access, anti-minority. I would argue it would be a proposal for successful access and align student expectations more closely with potential outcomes. It would reduce enrollments and revenues for the colleges, forcing some needed creative destruction upon higher education.

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Richard Vedder, ‘The Dalit of American Higher Education: The Social “Untouchables”‘, Forbes, 10/16/2014.

October 22, 2014

Federal aid programs allow colleges ‘blithely to raise their tuitions’

by Grace

New York Times economics pundit Eduardo Porter explains “Why Aid for College Is Missing the Mark”, allowing ‘colleges “blithely to raise their tuitions,” at little benefit to students’.

In 1987, when he was Ronald Reagan’s education secretary, the conservative culture warrior William J. Bennett wrote a famous essay denouncing federal aid for higher education because it allowed colleges “blithely to raise their tuitions,” at little benefit to students.

Nearly two decades later, it seems, he was broadly right. Indeed, he didn’t know the half of it.

It’s not just that many colleges and universities are bleeding taxpayers. The government’s overall strategy to subsidize higher education is failing at its core task: providing less privileged Americans with a real shot at a college degree. Alarmingly, it is burdening low-income students with risks they cannot bear and steering them into low-quality educations.

“Institutions of higher education in the United States extract a lot of money without delivering value but the government has no way of influencing that,” said Andreas Schleicher, the top education expert at the Organization for Economic Cooperation and Development, the research organization for the world’s major industrial powers. “It has very few levers of control over equity-related issues.”

Porter comes down on for-profit colleges, leaders in enrolling low-income students.  But their higher tuition does not produce consistently successful outcomes.

Low-income students in the United States often end up with the short straw: no degree, no job and a bundle of debt that they must pay anyway.

The level of government spending on higher education does not seem to be at the heart of the problem.

State and local financing for public higher education fell to some $76 billion last year, nearly 10 percent less than in 2003 after inflation. On a per-student basis it is 30 percent less than it was a decade ago.

But that doesn’t mean there is less government money in the system. Federal aid to college students more than doubled over the period, to some $172 billion last year. Of that, nearly 25 percent went to private, for-profit colleges.

More accountability is needed.

Porter believes the “case for government financing of college is as strong as ever”, but the method of allocation is “wasting both money and opportunity”.  Although I may disagree with his specific recommendations to fix the problem, I wholeheartedly agree with the need “to curb abuses arising from the haphazard distribution of billions of dollars of taxpayer funds with very little accountability”.

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Eduardo Porter, “Why Aid for College Is Missing the Mark”, New York Times, October 7, 2014.

October 20, 2014

You probably need a college degree to get hired as a secretary.

by Grace

Only college graduates need apply for secretarial jobs.

More than half of employers now require a college credential for all jobs, and nearly one-third now hire college graduates for jobs that previously went to high-school graduates, according to a 2013 CareerBuilder survey of 2,600 hiring managers. Labor-market analytics firm Burning Glass Technologies recently found that 65% of postings for executive secretaries and assistants call for bachelor’s degrees, but just 19% of current secretaries have such credentials.

I recently heard about a long-time secretary who had been laid off and could not find another job because she did not have a college degree.

But a degree doesn’t necessarily make a candidate more qualified, it’s often just a way to screen applicants.

Few hiring managers say that college graduates are more qualified than nongrads for jobs in retail and warehouses, but as long as the job market is tight, employers say they can afford to be picky.

No wonder “parents push their kids to go to college”.

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Melissa Korn, “A Bit of College Can Be Worse Than None at All”, Wall Street Journal, Oct. 13, 2014.

October 13, 2014

Student debt doubled for high-income families

by Grace

Borrowing for college among high-income families increased from 24% to 50% over the last twenty years.  Similar increases occurred among middle-income families.

… A new Pew Research Center analysis of recently released government data finds that the increase in the rate of borrowing over the past two decades has been much greater among graduates from more affluent families than among those from low-income families. Fully half of the 2012 graduates from high-income families borrowed money for college, double the share that borrowed in 1992-93.1.

20141008.COCPewHiIncomeBorrowers1

 

These numbers show how college affordability is no longer just an issue for low-income families, but now affects families across the income spectrum.

What has changed over the course of roughly two decades then is the pervasiveness of student borrowing across income groups: In the early ’90s, only among graduates from low-income families did a majority of graduates finish college with student debt. Now, solid majorities of graduates from middle-income families (both lower-middle and upper-middle) finish with debt, and half of students from the most affluent quartile of families do the same.

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Richard Fry, “The Changing Profile of Student Borrowers”, Pew Research, October 7, 2014.

September 1, 2014

Will today’s families regret that they “grossly overpaid” for college?

by Grace

20 years from now, people who grossly overpaid for their bricks & mortar college experience and are still paying off their massive student loans, will feel like incredible chumps.

Looking at families digging deep into their pockets to pay exorbitant college tuition, this same thought has crossed my mind.  As college administrators ponder the rough road ahead, Stuart Butler of the Brookings Institution advises that it will take more than a few tweaks for some institutions to survive the coming years.

…  if today’s college leaders—even at the Ivies—believe they can merely tweak their business models to carry them into the future, then they are in for an even more unpleasant surprise. They should ponder the still recent experience of the music industry, film and television, booksellers, and news media. If they did, they would soon recognize that the higher education industry is encountering a multi-pronged and existential threat composed of successive waves of disruptive innovation. This disruption will force top-to-bottom changes in the very concept of higher education and its relationship with the broader economy.

Butler sees a pattern affecting many industries, including higher education.

1. The underserved consumers are targeted first, “leaving the upstarts to occupy a sector of the market of little interest to industry leaders”.  Online news aggregators looked to “young people with distinct tastes and only casual interest in the news”.

…Early versions of online courses appealed to students who could not easily maintain a regular schedule, or who needed more time to understand material….

2. The initial product is substandard.

… The Apple I, introduced in 1976, hardly seemed a harbinger of doom to the managers of IBM’s mainframe monsters. So it is no surprise today to read college presidents denigrating MOOCs and the cheap, no-frills degrees being rolled out in Texas and Florida….

3. Episodes of adaptation and refinement occur amid harsh criticism.

… The clunky Apple I sold just a couple hundred units, but the elegant Macintosh, introduced twenty years later, ransacked the computing industry.

That’s why the shortcomings of MOOCs today should be of little comfort to the higher education establishment….

4. Unbundling is to be expected, as both hospitals and newspapers have discovered.

As with hospitals and newspapers, bricks-and-mortar institutions of higher education are particularly vulnerable to unbundling. Universities are modular institutions, and lower-cost competitors can easily siphon off customers and revenue from individual modules. For instance, universities are partly a hotel and food service industry, and partly sports and entertainment centers. They have invested heavily in buildings and services that package these elements together at essentially one price. But this makes them vulnerable to competitors that find much less expensive ways to provide discrete modules like housing or even basic first-year classes—or that simply shed costly facilities like libraries or student centers, as online colleges have done.

While credentials are highly valued, academic information is priced at nearly zero.

Indeed, the most challenging and decisive feature of unbundling and competition for the low-cost parts of the college bundle of services comes from the fact that the price of academic information is falling nearly to zero. Why pay a ton of money to sit with 300 other freshmen, listening to a Nobel Prize winner you will never actually meet on campus, when you have access to everything he has written, maybe even video versions of his lectures, free of charge on the internet?…

Even the social part of college can be unbundled.

But what about the social “college experience”? Well maybe that can be unbundled, too. Does undergraduate college have to last four years, or could the residential, networking, or sports elements occupy just part of the period of study at much less total cost? Britain’s Open University has for years brought students on campus for just a few weeks each year. It retains a similar model today using online classes instead of its original televised courses. Yet it is number three in the UK for student satisfaction, tied with Oxford. Moreover, for many young people today online networking provides the relationship of choice for professional purposes, not just for social life. For them, Facebook, LinkedIn, and texting can be a more efficient and even more personal way of building and maintaining future career contacts than paying for a dorm or hanging out at a college gym.

How should universities respond?  Brooks recommends that they need to “price discriminate” in a way that supports what they are selling.  And “they will have to determine their true competitive advantage”.  So some schools, Ivies and other elite institutions, will be able to maintain high prices for the exclusive campus experience they are selling.  Other schools will drop their prices for the cut-rate learning experience they provide.

How should families respond?  Butler’s forecast is consistent with other predictions of sharper class distinctions and a  ‘growing bifurcation between elite universities and “trade schools”‘.  So families should be careful about paying premium prices today for what may be heavily discounted 20 years from now.

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Stuart Butler, “Tottering Ivory Towers”, The American Interest, August 11, 2014.

August 21, 2014

Should the government enable every kid to go to college?

by Grace

If college is supposed to represent some sort of advanced or more demanding level of education, why has it become a national priority to send every kid to college?

Jim Geraghty asks this question in an article questioning the wisdom of our government’s expansive student loan policy.

Is it really in the country’s best interest to enable every aspiring college student to attend college? Right now the federal government is in the business of loaning money to young people to attend college, only to watch significant numbers — 600,000 or so last year — fail to pay the money back. College students are defaulting on federal loans at the highest rate in nearly two decades, with one in ten defaulting on their loans in the first two years. This is not merely one late check; to meet the Department of Education’s definition of default, a borrower’s loan must be delinquent for 270 days — nine months.

The college gets its money, the taxpayer loses theirs, and the deadbeat student can be left with all kinds of frustrating consequences — seized tax refunds, garnished paychecks or benefits, or a lawsuit. (Though the deadbeat student is often in this situation because their college education failed to prepare them to find a job in a mediocre-at-best economy and make a living, so there may not be much money in their wages to garnish.)

How many of those students really should go to college? If college is supposed to represent some sort of advanced or more demanding level of education, why has it become a national priority to send every kid to college? Wouldn’t the nation be better off if at some point it said to these young people, “you can go to college if you want, but we’re not paying for it”?

Remember the burst of the housing bubble?

 “If nothing else, the recent financial crisis should have taught us that it’s not in the country’s best interest to enable every aspiring homeowner to buy.”

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Jim Geraghty, “The American Dream Peddlers”, National Review Online, April 23, 2014.

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