The Higher Education Bubble (Encounter Broadside) Paperback – June 26, 2012

The Encounter Broadsides is a series of booklets (think lengthy essays) by right-leaning authors that effectively introduce a topic to its readers. They are not meant to be comprehensive or the final say on a subject but the few I have read have been informative and accessible.The Higher Education Bubble is one such booklet written by Glenn Reynolds, a law professor at the University of Tennessee and better known as the blogosphere's Instapundit. In this Broadside, Reynolds begins his look at the dizzying cost increases of colleges and universities by quoting from a recent Money magazine report:"After adjusting for financial aid, the amount families pay for college has skyrocketed 439 percent since 1982...Normal supply and demand can't begin to explain cost increases of this magnitude."Reynolds continues:"Bubbles form when too many people expect values to go up forever. Bubbles burst when there are no longer enough excessively optimistic and ignorant folks to fuel them. And there are signs that this is beginning to happen already where education is concerned."Yes, Reynolds believes that college and university education is unsustainable in our country as we know it. He believes that while the cost of college is increasing exponentially, the value is steadily declining. Being burdened with student debt bills for the rest of your life isn't worth the cost of admission anymore, especially when the degree it produces doesn't produce a job that can commiserate the financial pain.Parents and students are beginning to catch on too, Reynolds notes. For instance, the number of students taking the Law School Admissions Test has fallen by 25% over the past two years. This has already caused some prognosticators to predict lower-tier law schools might be entering a death spiral.Reynolds provides a short history of attitudes toward college education and how it gradually transformed into a nearly-universal goal for all aspiring high school students. In two words: federal largesse. After World War II returning soldiers flooded local and state colleges due to the GI Bill. In the 1970s, Pell Grants became popular. Of course, as subsidies grew, college prices predictably rose.Reynolds suggests there are three ways college degrees have traditionally served as a "path to prosperity": 1) By teaching skills valued in the workplace; 2) By being used as a "weeding tool" by prospective employers; and 3) Providing a social network that can provide opportunities in the future. Reynolds writes:"While an individual might rationally pursue all three of these, only the first one - actual added skills - produces a net benefit for society. The other two are just distributional: They're about who gets the goodies, not about making more of them."Yet today's college education system seems to be in the business of selling parts two and three...along with selling the even harder to-quantify "college experience," which often boils down to four (or more) years of partying."In a post-bubble world, Reynolds believes that the focus will change back to "education that fosters economic value" which, in turn, will lead colleges and universities to providing more useful majors. College degrees will start to be viewed more from a "return on investment" perspective rather than as merely an item of consumption:"A six-figure consumption item is well beyond the resources of college students: Nobody would advise an 18-year-old to purchase a Ferrari on borrowed money, but if a college education is a consumption item, not an investment, that's basically what they are doing."Inheriting a lifetime of debt payments is stupid for young people just starting out in life as the higher education bubble approaches and Reynolds advice to students and families is simple: 1) Don't go into debt; 2) Look for bargains; don't be afraid to haggle; and 3) Consider other career options. Some of the fastest growing and best paid fields are those in skilled manual labor (e.g. electricians, plumbers, carpenters, etc.)For higher education institutions, Reynolds advice is more complex. First, he advises no more frivolous spending binges. Noting that state and local money towards colleges are decreasing and tuition rates cannot be hiked forever, Reynolds advises higher learning institutions to learn to value austerity.Second, Reynolds says colleges must start thinking outside the box to provide more bang for the students' buck. He writes, "Post-bubble, students are likely to be far more concerned about getting actual value for their educational dollars." This can simply mean an emphasis on online lectures or webcasts with follow-up done in a classroom with a teacher's oversight. For a few colleges, it might signify a move to apprenticeship models. But, no matter what, Reynolds writes, it must ultimately mean more rigor and less fluff. After citing studies that found a significant number of students did not show improvement in learning after four years of college, Reynolds writes:"Prices have been going up, but learning seems to have been going down. The primary reason, according to the study, is that courses aren't very rigorous. There's not much required of students, and the students aren't doing more than is required. If higher education is going to justify its cost, there needs to be much more return on investment, which means much more actual learning, which means more-rigorous course content and less fluff."Reynolds writes that a college degree has to come to mean something more than the possessor can show up on time, follow instructions and work well with others. It's far too expensive to mean so little. Until that changes, Reynolds believes all the signs of a higher education bubble are there. And the inflation of a bubble is always followed by a hard burst.

In the first decade of the new millennium we saw the dot-com bubble and housing bubble end badly. In this concise 48-page booklet, University of Tennessee law professor Glenn Harlan Reynolds explains why higher education will be the next bubble to burst. "Bubbles burst when there are no longer enough excessively optimistic and ignorant folks to fuel them."Just as the housing bubble was fueled by loose lending practices, the higher education bubble is enabled by government subsidies and guaranteed student loans. "As with any subsidized product, prices rose to absorb the subsidy."People talk about education being invaluable, but "when the investment runs well into the six figures, students would be crazy not to worry about the return." Reynolds points out that if there's no reasonable expectation of return on investment, then tuition is an expensive consumption item rather than an investment.Students presumably go to college to enable a higher standard of living, but taking on excessive student loans can have the opposite effect. "It's hard to get a mortgage, for example, when you're already in effect paying one in the form of student loans... These people may wind up living in their parents' basements until they are old enough to collect Social Security, which may wind up being garnished--no joke--for unpaid student loans." The author also points out that a large number of people taking out student loans never graduate.Many people may be better off not going to college. "Bureau of Labor Statistics predicts that 7 of the 10 fastest growing jobs in the next decade will be based on on-the-job training rather than higher education."Colleges and universities will need to adapt by delivering better value. "The first step is to ensure that students are actually learning useful things." STEM majors (science, technology, engineering, and math) will be prepared for well-paying jobs, but many others are difficult to justify. Online education may offer some opportunity to reduce costs. "Sure, there's not a lot of one-on-one interaction that way--but how much is there in a 200-student lecture class, really?"If there's a silver lining in this dark cloud, it is that disruption to the status quo may create new opportunities. Reynolds suggests "there's a need for an alternative credentialing system. Filling that need will make someone rich."In conclusion, "the higher education bubble isn't bursting because of a shortage of money. It is bursting because of a shortage of value. The solution is to improve the product, not to increase the subsidy."