More on College Tuition as a Bubble

I blogged a couple weeks back about the similarity of college tuition and health care costs (up, up, up). I then linked to story about High Point University, and its highly leveraged play to recruit students.

There were several interesting comments about these stories, and many others are weighing in on related issues lately (Josh Barro, Ezra Klein, I am sure there are more).

My main thought about the escalation of college costs and worrying if it is “a bubble” is as a producer of college, a Professor; I worry that the cost structure of what we produce is too high, and that Universities will be too slow to adapt. I suspect that universities will have to look for non-traditional ways to generate revenue from non traditional students. The move toward providing free on line classes could be understood as a back door way of doing this by saying yes we are expensive, but we are providing benefit to those who cannot pay, get in, or who don’t want to do so, making the myriad subsidies “worth it”.

A series of important questions are relevant, many of which were raised by commenters to my post and to others.

  • What is the goal of college? (better educated citizenry, get a job, mixture) This story of Duke Classics professor Peter Burian retiring after 44 years is interesting and relevant to this discussion. I sense a shift at Duke anyway toward the purpose of college being a credential for a job.
  • How should the research mission of major Research universities be paid for? It it generally a given in a place like Duke that researchers bring something extra to the classroom because of their research work? Is this true? Does it make sense for researchers to teach undergraduates?
  • What is the value of colleges to the taxpayers who subsidize us in many ways, but whose children will not go to college? This question is especially important for public Universities.
  • Just as Harvard and MIT moving to provide free online courses, with Stanford having done similar will lead to copy cats (there has been discussion at Duke). Any move made by the so-called SHYMPs (Stanford, Harvard, Yale, MIT, Princeton) will have great impact, especially on places like Duke that are below these in prestige. I suspect one of these 5 will someday soon drastically cut tuition for everyone. The actual average amount of tuition received per pupil might not change much given financial aid, but this will have cascading effects for other private Universities, who don’t have as large an endowment as those 5.

In addition to the fact that both tuition and health care have risen consistently faster than other parts of the economy for many years, I think there is a similar avoidance of the hard questions this fact raises by those producing/providing these services. In short, neither Professors in the case of college, nor doctors and other leaders in health care want to focus on the notion that there is likely a cost side problem in our enterprise. I think we in universities better get out in front and not simply defend the status quo. That is what I meant by college tuition as a bubble.

Author: Don Taylor

Don Taylor is an Associate Professor of Public Policy at Duke University, where his teaching and research focuses on health policy, with a focus on Medicare generally, and on hospice and palliative care, specifically. He increasingly works at the intersection of health policy and the federal budget. Past research topics have included health workforce and the economics of smoking. He began blogging in June 2009 and wrote columns on health reform for the Raleigh, (N.C.) News and Observer. He blogged at The Incidental Economist from March 2011 to March 2012. He is the author of a book, Balancing the Budget is a Progressive Priority that will be published by Springer in May 2012.

16 thoughts on “More on College Tuition as a Bubble”

  1. “What is the goal of college? (better educated citizenry, get a job, mixture)”

    I myself am a bit of a romantic on the ideal of a liberal arts education as a force that can civilize and humanize people, train effective citizens and enrich lives.

    But at what cost? I myself attended a very high quality, very demanding liberal arts college and gave very little thought to my employability while I was in school. And I value the experience immensely. But annual tuition at the time was south of $15K. A bit of financial aid (grants) plus little bit of help from my middle class parents plus a manageable amount of student loan debt plus summers working could cover that. But could I in good conscience counsel a middle class kid to get a liberal arts degree with no thought to career prospects at a price tag approaching $50K per year? I don’t think so. Especially given the fact that I have many friends who got accounting and engineering degrees, but who are naturally curious and who read engaging, challenging books for pleasure well into middle age, while I have friends who studied English or Art or History in college but who amuse themselves mostly with TV now. Turns out that reading Sophocles and Foucult at age 20 doesn’t guarantee a lifetime of intellectual development.

    A liberal education is a wonderful thing. But paying the price of a new luxury car every year for four years between ages 18 and 22 is not the only way to broaden one’s mind (and indeed – one might argue that its not an especially effective way to broaden one’s mind).

  2. I see a number of unfortunate trends swirling together in higher education to create a perfect storm.

    There are the technological trends, which are taking down such a wide array of institutions. There are so many possibilities opened up by the rapid advance of computing and communication, but all we can see is that imminence of destruction. It doesn’t matter if it’s a school, or a bookstore, or a library or the post office or the phone company. What was, as we knew it, is going away. And, fast.

    Presumably, teaching, as a social function, will survive. Nurturing the young, and all that. Personally, I don’t see debt peonage as “nurturing”, and that’s a problem, I guess, because that’s the unlikely business model, one that is decidedly at odds with the nature of the social function, eh?

  3. Partly because of the impoverished physical / public realm in the cities and countryside where colleges are, the institutions have to go to vast expense replicating a vibrant community with extracurricular amenities similar to those found inane decent town or city in Europe. Coffee houses, recreation rooms, pool halls, bowling alleys … beat hangouts, ethnic rec halls, cheap eclectic restaurants, performance stages great and small … piazzas, pocket parks, swimming pools, botanical gardens, tennis courts … studio apartments, car-storage lots, public transit systems, movie theaters … stadiums, pizza parlors, squash courts, dance halls.

    All of these are provided by most large institutions of higher learning in the U.S., and all of them are consequently in the capital and operational budgets of same.

    If only there were a place where these things are provided by the prviate sector but in a public setting. The very concept of “campus” forces colleges to replicate the comforts that a city offer, or ought to offer in a civilized country.

    The Savannah College of Art and Design is one of the few institutions that got this right, and was able to do so because of its setting.

  4. I think what you’re talking about is something that a lot of professional schools have made explicit for decades. What’s important about going to [insert college/university name here] isn’t the narrowly-defined education, it’s the connections, either personal or professional.

  5. I come from a combination of higher ed and quasi-corporate research in nuclear physics and energy. I’ve been asking higher ed friends for a few years how they might imagine re-structuring all education for a particular vision of the future that we all share, and basically the effort’s gotten nowhere. We ended up listing the thousands of things wrong with the present system, and made zero progress imagining a happy face future that might be useful to students. Maybe you’ll do better.

    Richard Heinberg (a former higher ed professor teaching at a private college in California) recently wrote a book titled “The End of Growth: Adapting to Our New Economic Reality.” He argues persuasively that the world (and the U.S. in particular) has reached a state he calls Peak Everything (the title of an early book by Heinberg), which essentially means that we are now at the peak of a monstrous bubble supported by increasing energy growth that began about 150 years ago, but that is now poised for decline for the next century – led by Peak Oil, meaning a peak in daily delivery of conventional, cheap oil. The bubble is in human population/consumption. In essence, he is arguing we’ve reached limits to growth as predicted in 1972 in the famous book “Limits to Growth.” As a physicist who has read dozens of books on and around this subject for nearly a decade now, I am completely convinced Heinberg is exactly right in just about all his argument and conclusions.

    The implication for ALL tax-base-funded enterprises (and indeed for Everything) is obvious. In particular, education at all levels, in parallel with everything else, will shrink more or less continuously (by a large factor) for the remainder of the century as the world de-industrializes and population/consumption declines to a very small fraction of present numbers. So my question to my friends on education was: how can society continue to provide some form of education that will be essential and useful to young people (indeed all people in the near-term) for physical and economic survival in that future? We can drift into and through that future without planning for sensible change, and colleges will become small centers for some residual of the current higher ed model for rich students only. Or, we can do proper strategic planning for a much more useful shift in which higher ed (and all education) can actually be very helpful in adding value to society in decline. Right now, it is the former I’m seeing.

    Just yesterday on NPR I heard what is now happening to the U Cal system, which is in a relatively advanced state of crisis. Faculty are about to strike, students are up in arms about tuition and angry about required classes being unavailable (a result of previous cuts), and administrators must deal with continuously declining state funding resulting from declining tax receipts, and nobody can agree with anyone else about what to do. Not surprising, given what I’ve seen about resistance of faculty members to make any kind of systemic change. Now however, that resistance is likely to be fatal to the entire higher ed enterprise without a major re-think. The present system is generating graduates with unpayable student loan debt, and students unable to find work that will enable repayment. The old vision of higher education just for the beauty of advanced learning became one designed to assure recipients of degrees good jobz (many of which in fact added little or no value to society), as you implied. Now I wonder what it will next become as it collapses.

    1. @John R
      I will check out the book. I just got tenure two years ago, and had been pushing after that like crazy for a decade. It was when I started helping my 11th grader think through college choices and thinking about paying for that (even with Duke’s faculty tuition benefit) that I really started thinking about the long term financing problem for universitites, and giving advice to some of my friends who were asking was college A worth $125,000 more debt than college B? Maybe places like duke will always have enough wealthy to pay, but maybe not, and Universities should be leading the way to solve problems,esp at a place like Duke whose last strategic plan is title “Knowledge in the Service of Society”. Perhaps the online course offerings will be the beginning of a reconsideration for Universities of who our clients are, and what we owe to whom. I still have more questions than answers….

      1. “Maybe places like duke will always have enough wealthy to pay” shows how completely all this is bound up with the rest of the US’s economic and political predicament. Ignoring the actual education for the moment (I’ve been in classes with complete loser professors at an ivy league institution and utterly brilliant ones at a public university) expensive private institutions are two kinds of positional good at the same time, which may be their problem. First kind is that you go so that you can rub shoulders with the rest of the rich and powerful, and be only a phone call away from half a dozen partners at top law firms or managers at investment banks or whoever, with the ostensible positive effects on your own career. Second kind is that your parents pay the freight so they can boast about their kid at a top university (and you can drop its name later) with ostensible positive effects on social standing. If everyone attending is rich enough, these two effects reinforce each other, but if some of the students are middle-class or poor enough to depend on the economic boost from a top education, eventually the private universities will go back to their status pre-1950 or so, complete with “gentleman’s C” and staff to clean the dorm rooms.

        On the public side the “bubble” is almost entirely artificial. With a sane tax structure it, states and the federal government could guarantee nominal-cost higher education at a fraction of the price of less-useful boondoggles.

        What’s really not working, though, is the graduate-education cycle, which was predicated on an endless expansion in jobs requiring a graduate degree, especially a PhD. The way things are set up now, most professors need a constant flow of graduate students for research labor, probably enough to replace themselves 20 times over during their careers. But even with the most generous of leakage to the rest of the world, 3-10x is probably all that’s needed.

      2. @Don
        Here’s a link to several articles about post-peak-oil healthcare issues you might also be interested in. Dan Bednarz has been writing blog articles and lobbying (unsuccessfully so far) within the health-care professions for several years now – same theme as for education: plan for the real future, not a continuation of the past.

        http://www.energybulletin.net/authors/Dan+Bednarz

        For me, the Energy Bulletin website is infinitely more useful for real news than papers like the New York Times. The site has a huge archive of articles around the theme of peak everything.

        Good luck with your career, and congrats on tenure.
        cheers,
        John Rawlins
        Bellingham, WA

  6. The underlying problem, I think, is twofold.

    One is that college and especially undergraduate programs have come to serve a dual purpose of both providing a scientific education and vocational training. That is not in and of itself a bad thing and actually has many advantages, though it leads to several organizational problems that have to be resolved (many of which you note in your questions). But these problems aren’t inherently unsolvable.

    The other issue is that we don’t really have a good Plan B for tertiary education and vocational training; there’s a lack of good fallback options outside of college educations (this also affects highschool education — not even counting that, as Kevin Drum notes, we don’t really have a good Plan B for high school dropouts, either). This is in stark contrast with continental Europe, for example, which offers far more established and accepted vocational training opportunities outside of college (polytechnics, apprenticeships, etc. — details can vary greatly by country). So, in America, there’s a strong incentive to attend college because the other options simply don’t measure up.

    This shifts the supply-demand equilibrium; college has become a seller’s market (again, in stark contrast with much of Western Europe — where some countries actually have a student shortage in some disciplines). To make matters worse, there are few regulatory limits on what universities can ask, other than whether the market can bear it. And this, obviously, tends to have an adverse effect on tuition rates. It also turns universities more and more into providers of high-level vocational training rather than scientific institutions.

    Just to be clear: I don’t think that we should follow the continental European model for universities (I doubt that we could even if we wanted to), as that model has its own distinct disadvantages. But I think we should look really hard at why we don’t offer young people more good opportunities outside of college. A related problem is our lack of a decent welfare state: In America, a college education is still one of the best job security options that you can have and you also need that increased job security more.

    1. These are all good points. Then add in, if you would, a student-loan system which encourages young people to take on the financing of this path beyond its value — encouraging the consumption of the good at a rate it otherwise would not sustain.

  7. Thanks for this post. Too often I hear professors talk crazy nonsense. I forever condemn Stanley Fish for this sin. But this was honest and realistic, and I find myself sadly in agreement with the diagnosis and the lack of a solution.

    I think the best thing would be to convince parents and high school guidance counselors to suggest that graduating high schoolers who aren’t 100% sure of their future career and college path to simply take a few years off. In the 70s students often went to college to “find themselves”, but that is a fast dwindling luxury. It makes more sense for an 18 year old to move out into an apartment and find a job, and then later decide on a career path that may involve college. It would probably cost less, involve just as much self discovery and provide more of a road map for the individual’s career path. Why should we expect an 18 year old with little to no real world job experience (outside maybe fast food?) to decide on what they will do when they are 30?

    I doubt that many will be receptive to my suggestion. I’m sure the first criticism is that these students will be behind their peers who will be graduating from college when they just begins orientation. But who is really ahead? I’ve found nothing instills a greater work ethic than having to slave away at a job you hate for a few years, and nothing motivates greater studying than working towards a clearly defined career goal. The next criticism I foresee is that these few lost years will be just one big shiftless party. But that’s what college already is, and really what it always was. Why try to pretend that people at the height of their physical and sexual power should be locked away in a library? Wouldn’t they be more diligent learners if they got it out of their system while not spending thousands of dollars a year on tuition?

    I suspect that many student would shy away from a liberal arts education and take on a vocation like medical billing coder. And may be the better for it?

    Of course the terrible way we run our high schools is another huge problem, but that is another post.

    1. It turned out to be a blessing in disguise for me to be so unready for college at 17 and therefore have had to join the Navy. By the time 2.5 years rolled by and I won a scholarship, I had learned how to learn as an adult learner, and why learning mattered. Instead of flunking out, as I probably would have had I started the fall after HS, I got a mostly free ride and got a difficult engineering degree at a top Big 10 school, which has been a great foundation for further lifelong learning, I’m not one to look down at the humanities– I just think that there are very, very few students who have anything to add to them in their 20s and 30s, and most are merely playing the school game of please the prof, while acquiring no skills suitable for making a living in the post-peak oil world that John R discusses above. What I tell students and parents of students now is that their number one priority has to be to learn how to grow their own food or be useful to people who do. If they master that, they should have a chance to pursue the humanities and arts as they age. But if they assume that the growth economy is automatically going to keep creating jobs for all, they are going to be in for a very nasty surprise.

      Now I’m an attorney and not a week goes by that I am not asked to help students, parents, or even grandparents being crushed by student loans that Have purchased nothing of value and nothing that gives the borrowers and cosigners any ability to be expect to be able to make any sort of meaningful contribution to anything. As an idealistic people, we rebel against the idea of only the rich having access to the philosophy majors and what not, but as someone who was poor, I’d far rather we price poor kids out of programs unlikely to lead to the employment needed to pay back loans than to strap the loans to them. Give them scholarships or not, but student loans are a cancer.

      1. As (mostly) former students at reputable colleges and universities, we’re probably all understating the loan problem. It’s bad enough for the people who went to decent schools and got something like liberalish educations and can’t find decent jobs, but even worse for the people who went to the one-step-up-from-diploma-mills with no intent other than vocational training and didn’t even get that. No financial *or* social capital.

  8. Don: “I suspect one of these 5 will someday soon drastically cut tuition for everyone. ”

    I disagree; the elite 20 or 30 or so US colleges (especially the private ones) are in a different field from the rest of higher education. They give a massive leg up socially and economically, and have a massive alumni presence in the 1% and 0.1%. This gives them incredible fund-raising power.

    They already give financial aid (i.e., price cuts) to the small number of elite students from below the upper middle class whom they choose to admit.

    They’re in the catbird seat, and only a massive restructuring of society – one which was bad for the 1% – could threaten them in any way.

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