The Higher Ed Bubble–Not as Big as You Think

Cross-posted from Big Think.

When even the judicious George Will is chiming in on an important policy issue, you just know the concern must be serious and supported by all the right studies.

THE HIGHER EDUCATION BUBBLE, the thinking goes, is just like THE HOUSING BUBBLE.

The prices of houses went up for a good while much more quickly than the
rate of inflation, even as the quality of new houses became more shoddy.

One reason is that the government decided that everyone should be a
homeowner.  That’s the American way.  So government made it way too
easy for people to qualify for loans covering the whole price of the crazy
expensive hunks of junk. 

Then the bubble burst.  The owner was stuck with a mortgage for much
more than the house is suddenly worth.  Can’t make the payments!  Can’t
sell the house for anywhere near the value of the mortgage!  Banks get
stuck.  Lives get ruined.  The economy swoons.  We haven’t even
begun to feel the full effects of the irresponsibility of government, banks,
and consumers who should have known they were taking a too-good-to-be-true road
to comfort and prosperity.

Savvy entrepreneurs like Peter Thiel saw and predicted the bursting of the
housing bubble.  Several years ago they started to do the same with the
education bubble.  Now Will is on board.

Is the education situation really the same as the housing situation? 
Well, college tuitions are going up much faster than the rate of
inflation.  And studies are apparently showing that the quality of the
product is getting more shoddy.  More students are choosing lightweight
majors (often ending in “studies”) or techno-lite majors (often ending in
“technology” or “management” or “relations”) where it’s hard to prove that
they’re learning anything at all. 

Students are studying less than ever. Grades are so inflated that the most
common grade is now an A.  And dorms are cesspools of self-indulgence.
Residential students are complaining about being bored or unchallenged, which
really means that their sense of entitlement has soared.  It’s your job,
the thought is, to be entertaining and interesting to me.  I’m
paying you to have a four-year vacation from challenging myself.

Veering Away From Actual Education?

The HBO series Girls reminds us that graduates who major in film
studies from elite Ohio
schools such as Oberlin sometimes leave college with none of the habits or
opinions traditionally connected with moral and intellectual virtue.  They
can’t hold jobs!  They continue to live off their parents!  They’re
full of vanity and lacking genuine self-respect!  They can’t even
pair-bond as a prelude to reproduction!  Even their safe sex is not so
safe–not to mention somewhat random and otherwise degrading.  Yet they’re
sometimes saddled with enormous student loans.  For what?

Why is college so expensive?  Well, some blame the self-indulgence of
overpaid and underworked tenured faculty.  (No study could show, however,
that pay for faculty at most colleges has risen anywhere near as fast as
tuitions.  Overall, average faculty salary increases pretty much mirror
the rate of inflation.)

Others blame the bloated self-indulgence of college and university
administration.  There are studies that show that faculty have a lot less
control over what colleges actually do.  The priorities of the newly
empowered and more highly compensated administrators are veering away from
actual education.  More and more college administrators are ambitious
careerists in their thirties who jumped the shark teaching as soon as they
could. The number of academic administrators has, in fact, been increasing
considerably more rapidly than the actual numbers of students.

Will mentions the “diversity” bureaucracies, which often deal with real
problems but have the entrenched interest of making the problems seem much
worse than they really are.  Dare I suggest the impious thought that
such bureaucracies expand in staffing and funding as the problems they were
created to deal with (racism, homophobia etc.) recede?   But of
course diversity bureaucracies are rarely that big a deal in terms of funding,
and they’re hardly ever the main interest of the top administrators.

Colleges Paranoid
About Retention

To defend some administrative expansion for a moment:  Fund raising,
admissions, and “retention” have become much more complicated.  Colleges
seem stuck with treating students much more like consumers, and so with
indulging student whims and whines.  That’s led, for example, to a kind of
amenities arms race–resort-style health facilities, gourmet food, and so forth.

Colleges used to worry about the character and moral fiber of their
students, and so they had a lot of in loco parentis social regulations
and demerits and so forth.  Now they worry that students aren’t happy or
too stressed or lonely or short on self-esteem.  Colleges are paranoid
about retention–that if the consumers aren’t happy they’ll just choose another
brand of college. They also spent a significant amount of time and resources
being concerned with the health of students, as if the main variable associated
with being healthy isn’t being young.

Let’s say there’s something to each of these charges of self-indulgence,
although in each case the charge is exaggerated. (And I presented each charge
with plenty of irony.)

American colleges could easily be much worse than they are, and many of them
should be the envy of the world.  There’s nothing in the world that
compares to the diversity (beginning but far from ending with religious
diversity) of American private colleges.  One problem with being too
obsessed with all these problems–which are, let’s face it, problems bound to
pop up in a high-tech liberal democracy–is that the experts come up with quick
fixes, sell them to college administrators, and then all our institutions march
lock-step toward solutions that undermine the diversity.

 Often the solutions are bound to be
worse than the problems.  Here’s one reason why:  The administrators
themselves, full of models of excellence derived from business (encouraged by
government when the Republicans are in power), schools of teacher education
(which should be abolished or keep to themselves), and political correctness
(encouraged by government when the Democrats are in power), demand
quantitative, measurable, assessable solutions to tricky and often “goes with
the territory” problems.   A problem with techno-democracy is that it
tends to harness everything to the imperatives of technology or “the
measurable.”  There’s more than some irony in addressing techno-democratic
excesses with techno-democratic methods.

Many Shouldn’t Go To College, But Do

Now let’s return (finally) to completing the comparison of the housing
bubble with the higher education bubble.  Government–by making loans too
easy to get and too cheap–encourages young people who mean well and don’t know
better to borrow huge amounts of money to pay the outrageous tuitions and
associated college costs. 

Just like government used to buy the questionable theory that
everyone should own a house, government now believes that everyone should
graduate from college.  The evidence is that people who graduate from
college earn a lot more money than those who don’t.  But is this data so
clearly cause-and-effect?  And isn’t it true that many people now go to
college who shouldn’t?   And isn’t it equally true that many jobs now
require college degrees that shouldn’t?  Does the real value of a college
education–which is education–go down when it’s made too easily available to

The tragedy Peter Thiel described is graduates so encumbered by debt that
they have to accept boring jobs rather than be free to take on entrepreneurial
risk.   The bigger tragedy is those stuck with debt and no job at all
or no job better than one they could have gotten without a degree.  A
bigger tragedy still involves those who were suckered to take out the big loans
but end up not graduating at all.  All they got from college is crippling

Private colleges just aren’t worth the rapid escalating sticker
prices. Colleges are engaged in mission impossible when they try to
provide convincing quantitative data otherwise.  So the bubble will
pop and the cost will plummet.  It’s a scandal that government helped
to enable suckers to take on “mortgages” for much more than the degree and “the
experience” are worth. 

There are all sorts of things wrong with this line of thought. Here’s the
first one:  It’s remarkable how few students pay the sticker price of
private colleges.  Studies now show that the net price of a private
college education is actually going down.  That means that “the discount
rate,” of course, is going up.

I gather that at Swarthmore–pretty much the most elite of our elite
colleges–the sticker price is $53K+, but the average student actually pays
under $20K.  The line of Swarthmore is that every accepted student is so
good that they all, in effect, have prestigious merit scholarships.  So
Swarthmore doesn’t give merit-based discounts.  They’re all

But at private colleges even a bit below Swarthmore’s “pay grade,” there are
both need-based and merit-based discounts.  The merit-based discounts are
usually given fancy names, like Presidential Scholarships, but they are really
just cuts in cost based on stats–GPA, SAT, etc.  Colleges value students
with superior stats both because they usually contribute to the academic
environment of the place and because one accepted measure of a college’s
quality is the stats of its students.  If the college’s rating goes
up, then others might pay more for the education is offers.  Potential
donors will surely be equally impressed.

Subsidies For The Comparatively Small and Poor

That surely means that every student at Swarthmore who finds the $20K a
struggle involving excessive loans could have gotten a free ride at a somewhat
less prestigious–but still really good–college.

 So what colleges are typically doing
is subsidizing students who are comparatively poor and comparatively
smart–and targeted minorities and in many cases athletes–while soaking the
comparatively rich and stupid (or unaccomplished).  Someone could whine
that once again it’s the rich, white male who suffers. 

Except:  Men have become a scarce and therefore valuable
resource on the campuses of liberal-arts colleges.
  My college is
thrilled when admissions comes in under 70% women, for example.  So I
can’t prove it but you can be certain that more and more colleges are thinking
of male applicants as more valuable–and so deserving of a little more of a
break in cost–than women.  It’s the rich and unaccomplished female applicant
who most likely to be stuck with sticker shock. 

I’ve been told more than once that one reason colleges keep raising their
sticker prices quite unreasonably is to make the product seem worth more. 
That’s one way, they think, to convince potential students to pay more for

There seems to be two arms races:  Both tuitions and discount rates are
competitively escalating. 

Colleges are constantly thinking of ways to keep the discount rates down
while being filled up.  Success in this area is between uneven and
nonexistent in many cases.  One real cash crisis colleges feel is that
students aren’t paying anywhere near close enough to the asking price.

It’s now easier than ever–with the Common Application–for students to apply
to a large number of colleges and so to receive a large number of discount
offers.  Students with something to offer can play the colleges off
against each other.  More students are becoming more savvy consumers, and
colleges have to respond.

There’s a lot more I could say, and I will.  But for now let me
conclude that the size of the bubble has been exaggerated too.  
The college market is much more a buyer’s market than the housing market was
during the boom years.  It’s because colleges aren’t really worth their
sticker prices that most students aren’t coming close to paying them.

Even the loan problem is greatly exaggerated by George Will.  But I
still would get government out of the loan business.  And responsible
colleges should cap the amount students could borrow over four years at about
30K.  Students short on money should borrow less and work more to fund
their educations.  It might take a little longer to graduate, but
fortunately we live in a time when adolescence has been extended even
longer.  Private, residential colleges should reconfigure themselves to
allow for and encourage students to have jobs that pay real wages (and have
nothing to do with college credit)–as opposed to unpaid internships and so

Surely guys like Peter Thiel would be all about funding such initiatives.  And my college–Berry College–has
had one for decades.


One thought on “The Higher Ed Bubble–Not as Big as You Think”

  1. I don’t know if it makes much sense to compare the two bubbles in size and impact, but my immediate thought is this: In the housing bubble years, a large percentage of those buyers who took out mortgages would have been a lot better off if they had not done so and continued to rent their housing; similarly, over the last decade or more, a large percentage of students who enrolled in college have spent lots of time and money to learn very little of value and many would have been better off if they had done something else following high school. Do we know which of those percentages is greater? It’s probably impossible to quantify, but I suspect that the percentage of students who have gone to college without any gain is higher.

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