The higher education bubble
Yesterday there was a Bloomberg article that explained how badly students understand their student debt. It occurred to me reading this, and not for the first time, that students are really the perfect choice of victim for the educational financing machine: they are typically naive about money, and a combination of incredibly hopeful and incredibly thoughtless about their futures – if they think about the future at all, they project themselves to be as successful as some chosen role model, against all odds. I was lucky enough to go to a state school which my parents could afford and were willing to pay for, graduating in 1994, but looking back I would have signed away on whatever dotted lines if I’d been asked.
Students don’t think to shop around for a better deal, or even bother to understand the deal they’re in. What’s the incentive for good deals in these circumstances?
More generally, the existence and price of college itself is a perfect trap for students. It’s been a growing assumption in the past few decades that one needs a college education to get a good job, and certainly in a poor job market like the one right now that is certainly true. And yet, the student debt load is increasing faster than the opportunities higher education provides.
We are just now finally seeing a “market reaction” to the outrageous costs and relatively meager returns on law school education. For example see this recent New York Times article, which I found through Naked Capitalism (and which also gave me the title for this post).
My mother and I were recently talking about Occupy Wall Street protesters and student debt. She’s been a professor in computer science for more than 40 years, and explained how she sees it:
Academia expands for students and gets subsidized by all the loans to them, without regard to what the society actually can accommodate.
So not only are students fed the line that they have to go to college, no matter the cost, and whatever the resulting debt, but they then go to college and end up with majors and/or knowledge that is actually not needed or useful to them or anybody else when they graduate.
In a given individual situation, you can always sort of blame the choice someone makes- why did you major in that at that over-priced college with that outrageous private loan? Did you really think you’d be a hot item on the job market?
But when you step back and look at this system, it’s maddening. We are essentially forcing, as a rite of passage to adulthood, each generation of our young people to go through a process which leaves them with ever more questionable skills and saddles them with an ever-increasing debt burden. When you add to this that fewer and fewer jobs are willing to train people while paying them, the advantage that a wealthy young person gets from having no debt and being able to intern for free means this system is also increasing inequality.
I understand that professors don’t like to think of their departments as businesses, and I am not someone who wants to corporatize academics in the sense of wanting departments to prove their business models by producing revenue streams or winning grants just to stay alive. But at the same time we’ve got to do a better job with this overall and help give our younger people a better chance.
Update: apropos article from Bloomberg just published here.
mathbabe 
Universities love revenue.
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Yeah. I’m a dreamer.
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I think it’s especially a problem that students seem unable to tell a good deal from a bad one. Students don’t know the difference between a for-profit college and a community college and a state school, don’t know that some may be cheaper than others, don’t realize that if they are admitted to a state school, there might be financial aid options they were not originally aware of. Here’s an anecdote: A relative by marriage wanted to get a physician’s assistant degree several years ago. She found an online school that would supposedly grant her her degree, but the source she found for her student loan could only be described as predatory in its terms. But she was taken in by the slick advertising– so much so that she didn’t even investigate comparable loans through her credit union (which she belonged to and would have been much better). And she had no idea that if she applied to her local state school, there was scholarship money they could have connected her to specifically earmarked for state residents who wanted to go into healthcare: she just looked at the sticker price, assumed it was out of reach, and didn’t realize that there was a financial aid office to help her if she was admitted. And this is a college graduate who got As and Bs– not a stupid person. End of this story is that she figured out she was being given a bad deal, worked overtime, borrowed money from family and repaid the loan, but of course quit school, and no degree.
There is a job shortage right now. If you are an optimist and believe that this will eventually get better, then waiting that time out getting more education is not a bad idea, but only if you are not digging yourself into an impossible debt hole. For some debt holes, whether or not they are good or impossible depends on whether you think there is likely to be a good job at the end, which depends on some pretty big external economic factors. But some debt holes are just predatory bad deals, and those of us who work in the non-bubble part of higher education need to do a better job of publicizing them as they pop up, offering dreams, fed off everyone’s hunger that all higher education will somehow magically lead to a better life.
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Beautifully said, Lenore.
Cathy
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Tuition costs are out of control. Yet as a faculty member, I feel completely powerless to affect change of that. My department’s budget seems to be unaffected by the tuition raises. The only thing that has changed as dramatically as tuition is the size of the administration. My university seems to have corporatized in all the bad ways, and none of the good. What to do??
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Good question. We should think about this.
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If you work in a state institution, there’s something else that’s changed dramatically, but in the opposite direction; the contribution of the state to the university’s budget. I don’t know the numbers well enough to be sure if this is correct, but I think it goes like this. The government wants to appear not to be taxing people, so it cuts the subsidy to the universities, requiring greater reliance on tuition, requiring many students (the ones who don’t have enough ready cash to pay up front) to take out loans from the federal government, then spend a big chunk of their working life paying a percentage of their income back to the government, which is not called a tax.
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that sounds like the University of Illinois model. Continuous increases, now at ~ $24K/year.
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It’s worth pointing out that 24K/year is the out of state cost. The in-state tuition is about 11k/year. See http://registrar.illinois.edu/financial/ugrad_base.html
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I very much recommend this article and the links therein regarding the development of the cost of tuition in the US over the past few decades. https://rortybomb.wordpress.com/2011/04/20/on-public-funding-of-colleges-and-towards-a-general-theory-of-public-options/
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So Cath, Prof. Mom is exactly right, and I’ve wondered for many years why ‘student’ funding is not discussed in exactly her terms. ‘Students,’ you see are simply the excused for institutions of putatively higher education to collect funding from third parties. It used to be those third parties were parents and the odd scholarship trust. Since the government got involved, and especially since the government authorized profit mediators to make guaranteed profits issuing student debt, institutions of higher education have been in an excellent position to raise the price. Whether profit units are actually students, or actually learn anything is not in any way linked to the desire of universities and third parties to keep profit flow up.
The situation is far worse for graduate schools. There are no conceivable jobs waiting in the fields of study for the _significant majority_ of those in graduate education, but the higher institutions keep the game rolling and the money coming. That’s not to say that I think the study is a bad idea in itself; quite the reverse. But taking on huge debt for the opportunity? That’s higher order ignorance in my view.
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capitalism loves chumps
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These kids full of hope (and sadly, ignorance) aren’t just students – when these kids are looking for loans, they are 17-18, ie, they are MINORS.
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There are some subtle and not-so-subtle cost drivers that are often overlooked:
=> State cuts to public colleges are forcing more students to go into debt
=> Unpaid internships that build resumes undercut undergraduates’ ability to earn money in summer, adding to the debt load
=> Open admission policies lead to higher number of students taking remedial courses, some of which are arguably unnecessary but all of which are cash cows for colleges. These non-credit bearing courses add to the debt load
A re-thinking of our education system is needed from top-to-bottom.
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Learn how to farm with horses.
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18-19 year old kids are entering into contracts to borrow tens of thousands of dollars, what could go wrong?
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I wonder how exemption from bankruptcy laws for student loans effects all this. I would think that if bankrupting your way out of a student loan was still a possibility the lenders might be more interested in the possibility of the students earning enough to pay back the loan. Assuming, of course, that students loans are actually about the profit and not just a new way to scam investors.
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you “don’t want to corporatize education”..but that is exactly what you are allowing the economic sector to do. We have friends who commonly blather regarding their 2 children’s
education being totally math-science oriented…good for them. I asked whether or not their lakefront home (down the street from ours) was paid off? They seemed taken aback, replying, no.
I informed them that my liberal arts-poly-sci, philosophy, lit education had provided me the foresight to comprehend in 2004, impending economic crash. Our home is paid off, all debt
as well-we couldn’t think of any other mode of operation that made sense. Now we help others who lacked such education…
Of course I also taught overseas-other western democracy, and learned from experience to see U.S. as others see. As such I can follow the $$$$ to exactly what was done to destroy a U.S. $6.5 trillion, world $16.5 trillion per year economies, for over 3 years already, on the way to many, many more-likely the destruction of the entire U.S. as we knew it.
How can we tell? Patriot Act, NDAA, HB 347, all authoritarian legislation aimed not at “stateless terrorism”, rather at Orwellian police state..
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I think about this problem a lot. In particular, I see two points of concern:
1. Universities get students to pay (a lot) for tuition by taking out loans. Because students and their families are not paying the entire cost out of pocket, they are more likely to overspend on tuition. The basic principle here is that it is much easier to convince someone to pay a lot of money for something if they don’t have to pay for it out of pocket, but can defer the payments. This is of course why a car dealer will encourage you to buy on credit rather than pay the entire amount upfront: you are more likely to overspend.
Another example of this phenomenon is the health care industry. If a person could afford $100 for a medical procedure, then that is what the provider would have to charge if the person had to pay out of pocket (the only other option is to lose the $100 of business). Next, introduce health insurance. By quintupling the cost of the same medical procedure, you get the same $100 out of the patient via the 20% copay, but now you can also get some more money out of the insurance company (even if at a ‘negotiated rate’).
2. Departments *are* businesses, at least nowadays. We charge exorbitant amounts for tuition and apply for large research grants with the assistance of university-employed professional grant writers who are trained to game the system and take a 40-50% cut for the university. A by-product of this is that faculty who can get grants are paid 5-figure salaries (which is a phenomenon that is really rather unique to the United States).
I argue that the corporatization of academia is already here and is in full swing. Universities are monetizing whatever there is to be monetized. The business model is to charge tuition that is paid for by student debt, and siphon off government funds that are ostensibly directed towards research. We lower admissions standards (and consequently, grading standards) and build fancy student centers to attract students who would otherwise not be in college, for yet more tuition revenue. When the Wall-Street and MBA types now in the ranks of university administrations are done with the university, it’ll probably be a hollowed-out enterprise, along the lines of the modern investment bank, where the bureaucrats work to protect their own interests, but the business has long ceased to provide much value to clients.
My question is as follows: what will it take for faculty to protect the long term viability of their craft, and their disciplines, by providing strong leadership and making sure that what they have to offer is of value to society? What about effective teaching, research collaboration with non-academic sectors of the economy, and improving public understanding of their disciplines? What about enforcing standards in education programs so that the K-12 system doesn’t become completely worthless?
How do we tweak (or more substantially change) the system to get better results?
“I understand that professors don’t like to think of their departments as businesses, and I am not someone who wants to corporatize academics in the sense of wanting departments to prove their business models by producing revenue streams or winning grants just to stay alive. But at the same time we’ve got to do a better job with this overall and help give our younger people a better chance.”
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Well put. Capitalism is not a good model for health care, education and many other societal enterprises. Unfortunately, arguing this point in contemporary U.S. is practically fruitless.
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US Companies are paying to train workers on the job: in India and China. I know several that pay staff employees for up to nine months training them to do the job they were hired to do while at the same companies US workers in the same position are expected to already have gotten a degree and education in their field and preferably have some experience. So US students have to buy their credentials while foreign workers are paid to learn the same job and more and more of those jobs are shipped overseas. Our system fails kids by both making higher education expensive requiring for many the burden of debt and by outsourcing the same jobs US kids are preparing to do. Even if education here was free it is meaningless without doing more to keep high paying good jobs in the US.
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The missing piece from the whole picture, though, is that they’re taught that they won’t ever have a “decent” job unless they have these degrees. I’m nobody to talk, of course, having achieved a bachelors, 2 masters, and a phd, all with student loans (so have more than 100K of student loan debt). But I can get a good job, no trouble, whereas I worry that my niece will be saddled with just about the same amount of debt with only a masters to show for it, and that in degree in graphic design, which will never pay for that debt … or, for at least the next 30 years.
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“only” a master’s…?
Aside from the heinous levels of debt, if everyone has to rack up FOUR DEGREES or more, when does anyone actually have time to practice a profession?
Your comment itself explicates the bubble nature of exponential credentialism.
Deschooling Society
http://www.preservenet.com/theory/Illich/Deschooling/intro.html
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Meh – as to practicing a profession, I’ve worked full-time the entire time. School, for me, is for interest, rather than out of the misguided belief that it’ll get me anywhere financially. If that were my motivation, I’d have studied business and given up having a soul.
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Dear C O,
You end your post with “…give them [students] a better chance.” Do you really think that: given the organization of power in elites and the distortion of science, technology and resource allocations by the corporate state in the interest of elite rule, that rational reform of the university can be had to give these kids a better chance? Students and faculty are just getting what the industrial workforce has gotten for the past forty years.
I am not saying that young people should not weigh their options rationally. What today is rational about the direction of the economy and the values that sustain capitalist control over the life choices of all of us? Rational choices would presume transparency and informed choices to be able to sort one’s options. Many have commented on the lack of understanding that young people have about the consequences of financing a college education. The irrationality of student decisions about their education has its origins in the way that resources have been allocated by a globally aggressive state system. Until we talk about the system that generates the “need” for certain types of educated students, we are tinkering with minor reforms.
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“We are essentially forcing, as a rite of passage to adulthood, each generation of our young people to go through a process which leaves them with ever more questionable skills and saddles them with an ever-increasing debt burden.” Pity the poor student who is forced into a worthless major. What, a major in theater studies with a minor in global area studies, both earned at Crappy State U, doesn’t lead to the same income tax bracket as a cardiologist? Blame CSU’s recruiting hucksters.
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Your sympathy is touching.
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Exciting article about a good deal for out-of-state tuition in public colleges in some of the Western US states as part of a tuition exchange in today’s LA Times. Happy to see this publicized!!
http://www.latimes.com/news/local/la-me-tuition-discount-20120422,0,7870179.story
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