The Next Bubble?

The idea of “bubble” has been on everyone’s mind since the escalating housing and economic crisis first erupted in July 2007. Throughout these turbulent times, one institution appeared to be coasting along above the fray: Higher Education. Higher ed has been growing for decades, becoming a staple in the national political economy. The supply and demand situation has been remarkably favorable to it: believing that higher education is a necessary, if not sufficient, ticket to personal success and social progress, the public has tolerated increasingly higher costs and tuition—forces that citizens have rebelled against in other consumer domains.
After all, didn’t ambitious citizens have to pay their dues to higher ed in order to have a meaningful chance at success? With seemingly no viable alternative or exit strategy, consumers have stretched their pocketbooks to the breaking point and taken out loans to purchase a chance at the American Dream. (Today over 35% of students rely on student loans, and the number is growing.) Not surprisingly, the last twenty years have seen tuition costs rise at over three times the rate of inflation. The overall costs for many private schools add up to $50,000 per year, while public universities cost up to $20,000 for state residents, and over $30,000 for those who hail from out of state. Meanwhile, wages for most Americans have been left in the dust.
Something had to give. The fate of the housing market comes to mind. Believing that home prices would rise virtually forever, consumers and investors were willing to stretch themselves and their debt to the limit in order to obtain housing stock. We all know what happened when that assumption ran into the brick wall of reality. Is higher education immune to such a shock?

Not according to some commentators who have burst onto the scene in recent months. In an article on a few months ago, a leading financial analyst observed, “We are at a trend line that cannot be sustained. Tuition must go down, or there will be limited demand for high-priced private schools.” The recent economic debacle enhances the credibility of this prediction. As we speak, high-priced Antioch College is closing its expensive (and excessively politically correct) doors after 157 years of existence. According to many sources, Antioch is the beginning of a national trend.
Last September, Timothy Burke, a professor of history at Swarthmore, wrote an influential essay at Inside Higher Ed in which he asserted that “the party’s over” for higher ed’s tuition and building binge. Burke focused on five main reasons for a contraction in higher education: 1) declines in tuition growth; 2) underperformance by endowments; 3) pullbacks by donors (indeed, on November 26 the Wall Street Journal published a lead story on how the economic crisis has caused a downturn in charity giving nation-wide); 4) lower funding from public and private sources; and 5) the fact that revenues from IPOs, investment property rights, and technology benefit only a few institutions. A respondent to Burke’s piece added three other factors: 1) fewer students are attending college as the nation’s demographics change; 2) “growing public awareness of the declining economic returns of a college degree” is causing a backlash; and 3) such on-line schools as the University of Phoenix provide education at a fraction of what residential institutions charge. (Will the Internet affect higher ed the same way it has affected newspapers?)
A prescient friend of mine recently related a thought he had while teaching a few years ago at a “third tier private school” that had high tuition. At “job fairs” at the school, most of the positions being offered involved jobs as low-level managers at Target, McDonalds, and similar businesses. My friend surmised that students had to wonder why they or their families had depleted their bank accounts to pay for an educations that led to positions that simply did not require the pedagogical preparation the school offered. To be sure, a liberal education is a precious thing in its own right. But its preciousness has a way of declining when its costs put middle class citizens in a vise—especially when those citizens are already living in the vise of the new economy.
How all this plays out is unclear. Obviously higher education will (and should) survive. But there is no reason to think that higher ed will be immune to the shakeouts and reorganizations that have affected so many other institutions in this age of globalization, which has wrought a heightened level of what economist Joseph Schumpeter called “creative destruction.” Burke and others speculate that we might witness such changes as new thinking about how to allocate precious resources in the pedagogical mission; heightened prioritizing and avoidance of overlap in programs and courses, leading to layoffs despite tenure protections; less indulgence in providing expensive student “creature comforts;” efforts by institutions to charge more for the knowledge they produce; reconsideration of how non-tenured, adjunct faculty are used; and the need “to develop new mental habits, to stop assuming or believing that growth is the default.” Some schools will no doubt disappear, and others will consolidate. Some will decline, while others will thrive by gathering up some of the pieces.
And perhaps fewer young adults will attend college. This is not necessarily a bad thing, for the growing gap between aspiration and reality, and between cost and benefit is not a healthy phenomenon. Millions of young adults might be better off attending schools or apprentice programs that train them to perform such important and responsible jobs as carpenters, electricians, plumbers, and mechanics. Charles Murray presents a forceful argument for such change in his new book, Real Education. When I asked my same friend what the students were like at the expensive liberal arts college discussed above, he replied, “Many of them had no reason for being in college.” I have heard similar comments from numerous colleagues across the country.
Meanwhile, liberal arts programs for older students might flourish, attracting individuals who have finally discovered the motivation to learn and expand their intellectual horizons that they lacked in their earlier years. To borrow from Shaw, who famously lamented that youth is wasted on the young, liberal education is often wasted on young adults, many of whom are prone to be impatient of and unreceptive to the wonderful intellectual benefits that liberal education can bestow.
Crisis is the mother of both hardship and opportunity. And like most entrenched, privileged organizations that encounter historical challenge, there is no reason to think that higher ed is prepared for what impends. As Burke remarks, “At least at selective institutions, I find that in everyday conversation about curricular questions, administrative choices, and so on, the assumption of growth or plenitude is deeply ingrained.”
I have encountered similar attitudes, which I attribute to basic human nature and the peculiar sense of entitlement that often arises from the enjoyment of a privileged position. But when the demand side fundamentally shifts in a free society, the supply side ultimately must adjust. The reality principle must prevail sooner or later, however much established interests and the political class attempt to hold it at bay. What innovative yet painful ideas based on necessity now slouch toward higher education, waiting to be born?


  • Donald A. Downs

    Donald A. Downs, winner of the 2013 Jeane Kirkpatrick Academic Freedom Award, is Emeritus Professor of Political Science at the University of Wisconsin Madison and Faculty Advisor to the Institute for Humane Studies’ Free Speech and Open Inquiry Project.

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9 thoughts on “The Next Bubble?

  1. Perhaps it is time to bring back strong trade guilds in some modernised form, to which mechanics and plumbers and electricians and carpenters and the like may belong and from which they may take pride in guild-enforced professional competence, replacing the “pride” that they would otherwise take from having had a fluffy and very expensive college eduction which actually is of little practical value to their professions.
    As for “stuff for the soul”, good trade guilds are perfectly capable of offering classes in for example the humanities (*and* without the political correctness), in addition to trade-related instruction, at much lower cost.

  2. As an older student who returned after an absence of almost 20 years, the comment about why some of them are sitting in class was spot on. I am attending the same college that I did previously, and notice a definite decrease in the demands and challenges of the instructors. Worse grades are thrown out, extra credit offered, and attendence and punctuality are huge issues. Test reviews are sometimes the test itself. In my dynamics class, a student talked about suing for discrimination. Dynamics and statics in engineering courses are typically known as the make or break courses, and now I guess, because you want to “pay” for an education, you have the right to get one. I don’t think it is the instructors themselves, but the culture they find themselves in. Students challenge grades, parents complain about assignments, etc. My chemistry teacher recieved a call from a lawyer who’s client claimed he should have told her she was failing and should have dropped the class. I guess she missed the Fs on her returned tests and quizzes. They all post grades constantly. To go to this college and not know how you are doing, means you should hang up the college career.

  3. Here’s one way of looking at things:
    In ’68, the average hourly wage was $2.94, and UW tuition was $301.
    In ’08, the average hourly wage was $18.35, and UW tuition was $6,330.
    Dad could pay for tuition in 2.5 weeks in ’68, and had to work 8.6 weeks in ’08 to make the same amount of money (before taxes, of course).
    So, a father has to work 3.4 times longer to pay tuition now than he had to work in ’68.

  4. I am not taking any loans out to pay for my daughter’s college education. For her to attend a private school, it must be at cost parity to the in-state public ones.

  5. The amount of debt incurred by college students has injected tremendous liquidity into higher education. With all that money coming in, why wouldn’t unit prices increase? As you say, looks like the housing bubble all over again.
    Also, the internet will make teaching college courses much more efficient, particularly in terms of the number of professors required. It will be interesting to see what happens to the concept of Tenure when there is an over-supply of well-qualified instructors. Will the doors slam shut on non-tenured professors, creating a cartel, or will the market level the playing field? I’m betting on the market.
    Good article.

  6. I like your observations, but I think the question of how higher ed will react to the hard times yields some less than favorable outcomes.
    Colleges and universities already ask for and receive tons of welfare even as the value of what they produce remains unclear. Charles Murray article “For Most People, College Is a Waste of Time” is the polite version of this argument, “America’s Most Overrated Product, the Bachelor’s Degree” by Marty Nemko in the Chronicle of Higher Ed is probably the more accurate assessment.
    These institutions are only out for themselves, and it can probably be argued that they’ve done incalculable damage to our political discourse, inasmuch as they radicalized it and made most people unable and unwilling to listen to or be able to articulate the arguments of others.
    Until we figure out why we value education, they’re going to be relentless in getting dollars, and we’ll be suckers and give it to them, believing blindly that an education is something which happens in a classroom, and not something we work for.

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