Sunday, May 20, 2012

Robert Reich on the Higher Education Bubble

"Outstanding student debt now totals over $1 trillion. That's more than the nation's total credit-card debt. 

The extraordinary rise in student debt is due to two related facts: the cost of a college education continues to increase faster than inflation, and state and local spending per college student continues to drop -- this year reaching a 25-year low.

But this can't go on. If unemployment stays high for many years, if the wages of young college grads continue to fall, if the costs of college continue to rise and state and local spending per college student continues to drop, and if the college debt burden therefore continues to explode -- well, you do the math.

At some point in the not-too-distant future these lines cross. College is no longer a good investment."


At 5/20/2012 10:11 AM, Blogger PeakTrader said...

Cooper Center Study Shows Major Economic Impact of Higher Education
October 1, 2009

"Every dollar spent by the Commonwealth of Virginia on higher education produces more than $13 in job-creating economic activity, says a new study conducted by the Weldon Cooper Center for Public Service at the University of Virginia.

Each higher education dollar also results in $1.39 in increased tax revenues that flow back to the state's coffers."

At 5/20/2012 10:17 AM, Blogger PeakTrader said...

New Study Links Education to Economic Growth
Jan 26, 2010

"If all 30 industrialized OECD countries raise their average PISA scores by 25 points in the next 20 years, there would be a total gain of $115 trillion in GDP over the lifetime of the generation born in 2010.

This impact wouldn't be felt until today's young students become significant members of the workforce, but by 2042 GDP would be 3% higher than it would have been without improvements in human capital. That gain would rise to 5.5% in 2050 and 24.3% by 2090.

For the U.S., that would mean a growth of almost $41 trillion in GDP over the next 80 years - and that's their conservative goal."

At 5/20/2012 10:25 AM, Blogger Mark J. Perry said...

Sure, both college education and homeownership provide individuals, households and society with great benefits. But the danger is when the government decides that the market is not providing "enough" college graduates or homeownership, and they introduce taxpayer-funded schemes, subsidies, policies to stimulate and increase college graduates and homeownership.

Consider now that many college graduates can't find jobs, and manufacturing companies can't find enough skilled workers for advanced manufacturing positions. Instead of going for a four-year college degree, many high school students would be much better off going for a 2-year program, or a certificate program, and acquire skills that are marketable, and without so much student loan debt.

Main point is that college and homeownership have been greatly OVERSOLD to the American people, using taxpayer dollars, which have led to unsustainable bubbles in both markets.

At 5/20/2012 11:09 AM, Blogger PeakTrader said...

It's a bubble only if it bursts.

The 30-year higher education expansion and the 30-year Information Revolution expansion seem to be a self-reinforcing cycle, through education and income.

Fewer higher education opportunities may have resulted in a slower expansion of the Information Revolution.

The U.S. spent more on higher education, but it also leads the rest of the world combined in the Information Revolution.

Human capital has a powerful effect on an economy. Afterall, economies are made up of people.

At 5/20/2012 12:10 PM, Blogger AtlantaDude said...

Due to demand for college that is much more inelastic than demand for housing and the limited supply of on-campus enrollment slots, the tuition bubble won't "pop" on its own. Therefore, I would do the following. It is win-win-win and could be a modern form of stimulus as well

1. Obama signs an executive order stipulating that all universities who want to continue to receive federal funding must do the following:
a) Build and offer online equivalents for at least 50% of their undergraduate degrees;
b) admit anyone who meets the minimum GPA and SAT requirements they use for admission to their on-campus programs (can vary by school);
c) make NO distinction at all between the online vs on-campus degrees awarded;

and maybe

d) set the tuition equal to one half the salary of the average graduate teaching assistant (may not be necessary in the long run).

Here is the win-win-win result:

A. More prospective students gain access to prestigious universities

B. Struggling middle class families see tuitions drop for online alternatives initially and on-campus versions long term due to price competition

C. Top universities and their professors gain wider influence

D. Top universities gain a windfall of revenue. At the cost of some dilution of their brands, which they would not do unprompted due to prisoners dilemna, but when done together has limited relative effect.

E. America boosts its human capital due to wider access

F. Obama is a hero for relieving this vexing problem for family budgets

G. If he put a 3 year deadline on having the programs in place and a stipulation to use US firms and coders, it could be a jobs program fit for today, unlike roads etc which bring low-wage jobs

Its a 7-way home-run in my humble opinion. Worst case, it is a semi-productive stimulus program.

The only losers are 3rd tier colleges.

At 5/20/2012 12:28 PM, Blogger PeakTrader said...

AtlantaDude says: "...The only losers are 3rd tier colleges."

Online Learning Has Drawbacks

A study conducted by two economics professors at Michigan State University found that students in a virtual economics course performed significantly worse on examinations than their counterparts in the live sections.

Published in American Economic Review...The professors suggest that online courses are better at teaching basic concepts than they are at developing complex analytical skills.


Professors Embrace Online Courses Despite Qualms About Quality
August 31, 2009
By Marc Parry

The major survey of public colleges and universities found that 70 percent of all faculty members believe the learning outcomes of online courses to be either inferior or somewhat inferior, compared with face-to-face instruction.

Professors with online experience are less pessimistic. Among those who have taught or developed an online course, the majority rated the medium's effectiveness as being as good as or better than face to face.

But in a potentially controversial finding, even among professors who have taught online, fully 48 percent feel it is either inferior or somewhat inferior.

Responses came from more than 10,700 faculty members at 69 public colleges and universities across the country.

At 5/20/2012 3:46 PM, Blogger AIG said...

Main point is that college and homeownership have been greatly OVERSOLD to the American people, using taxpayer dollars, which have led to unsustainable bubbles in both markets.

It is one argument to say that college has been oversold thanks to taxpayer subsidies. I agree with that.

But in order for that to have happened, it means that the prices for colleges had been kept artificially LOW, in order to stimulate demand.

But in the past you have made the argument that the mere increase in prices is an indication of a "bubble". How is it an indication of a bubble, if prices are moving closer to what their real market-price would be?

We all agree that the real market price of providing the education in a regular 4-year state university is a LOT higher than the 5-12k they usually charge.

Third, how is it a bubble is prices move higher and therefore discourage the entry of people into this market who intend to make a bad investment. The very increase of the prices is the deflation of the "bubble"

Fourth, how can one say that "college" is a bad investment, when there is no such thing as "college", but many individual combinations of degree types and schools? Each one has a very different value proposition. An engineering degree is NOT a bad investment, even if it costs 50k a year. The same goes for many types of degrees and many schools.

Saying "college is a bad investment" is like saying "a job is a bad investment, since there is such high unemployment right now".

Only an economist can make such a statement, because only an economist can dare aggregate things that have no relation to one another simply based on the fact that they share a similar adjective, like "college".

At 5/20/2012 4:21 PM, Blogger AtlantaDude said...

"Online learning has drawbacks"

Online learning does have drawbacks, but at the end of the day, most degrees are simply tickets to the working world, proving that the student can learn, get things done, etc. And, I say that as an engineering school graduate. The knowledge transfer componennt of softer majors is even less significant.

So, yes, online learning has some drawbacks, but paying $250,000 to demonstrate the ability to learn, etc. in a traditional campus setting also has significant drawbacks.

At 5/20/2012 5:24 PM, Blogger PeakTrader said...

AtlantaDude, college should be hard, not easy, regardless of the field of study. That's likely why online classes are inferior.

At 5/20/2012 6:24 PM, Blogger AIG said...

The knowledge transfer componennt of softer majors is even less significant.
Which is an argument for why online learning wouldn't work, because "knowledge transfer" is not what education is about.

We have 10 years + of experience with "online learning". What we know so far is that it cannot, and does not, compete with traditional methods of education.

It competes for a different market; that being the market of working professionals who physically cannot attend classes, and for working professionals who are only looking for a "certificate" to advance to the next level of promotion in their work.

As "traditional" universities move more and more up the food chain towards more research focus, the "online" schools become less and less competitive to them.

but paying $250,000 to demonstrate the ability to learn
Who pays 250k for university? Nobody.

At 5/20/2012 7:34 PM, Blogger Jet Beagle said...

Reich: "At some point in the not-too-distant future these lines cross. College is no longer a good investment."

I think this is a simplification. I have no doubt that pursuing a degree in social studies or fine arts is already a poor investment for most students. But investing time and money to obtain degrees in engineering, the sciences, nursing, and accounting will continue to be a good investment, IMO. Not sure about some of the other business degrees.

At 5/20/2012 7:42 PM, Blogger Jet Beagle said...

AtlantasDude: "most degrees are simply tickets to the working world, proving that the student can learn, get things done, etc. And, I say that as an engineering school graduate."

Not sure about the state of education today. But I do know about my 1976 degree in computer science and my 1983 MBA in finance. Over my 35 year career I used knowledge and skills acquired in at least 1/3 of my classes. I could not have skipped most of the other 2/3 of my classes, though. Neither at age 21 nor at age 30 did I know what tasks I would handling over the next 40 and 31 years. And I certainly didn't want to limit my future by taking too focused a curriculum of study.

I do not share your opinion about college education being simply a ticket - at least not education in the fields I know about, including accounting, finance, computer science, math, and nursing.

At 5/20/2012 7:45 PM, Blogger Jet Beagle said...

AIG: "Who pays 250k for university? Nobody"

If anyone does, they're damn fools.

At 5/21/2012 11:12 AM, Blogger AIG said...

Completely agree with you Jet Beagle.

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