With last week’s release of student loan repayment data by the Education Department, I am beginning to again hear chatter about the so-called “higher education bubble.” It began with an informal conversation I had with an enrollment manager and since I have heard similar grim predictions from two reputable financial analysts that track the higher education industry for investors in for-profit schools. No one can argue that this is a turbulent time in higher education. The fundamentals of the business of education are changing before our eyes due to economic realities, the distribution channels are being revolutionized with the maturation of online education, and greater accountability is taking shape in the form of increased regulatory scrutiny as well as greater consumer savvy. Do all these factors, however, portend the bursting of a bubble the likes of which we have not seen since the housing or dot.com bubbles?
University of Tennessee law professor, Glenn Harlan Reynolds, has been an extensive promoter of the bubble idea. Reynolds has warned students to refrain from taking on student loans. He goes as far as to warn some students to “rethink college entirely.” The basis of Reynolds’s argument is that it is likely one day soon that people will wake up and realize their education is not worth the money they borrowed for it. Reynolds further argues that the vast majority of growing occupational fields no longer require a traditional college education but instead an apprenticeship and/or career education.
Reynolds’ foreshadowing of the burst of the higher education bubble is also based on the ideas that institutions have for too long been living way beyond their means, that the flow of easy credit (student loans secured by the federal government) is not sustainable, and that the market (students and employers) will demand significantly greater value from post-secondary institutions.
It is difficult to argue with many of Mr. Reynolds’s points. In the just released US News & World Report 2010 college rankings edition, the top headline on the cover reads “Are They Really Worth It?” and the opening article pointedly declares that “if colleges were businesses, they would be ripe for hostile takeovers, complete with serious cost-cutting, and painful reorganizations.”
As we have seen over the past few years, even our most prestigious Ivy League institutions with hefty endowments are suffering. Many tuition dependent institutions are teetering on the brink of insolvency and once renowned state systems such as the California State University have suffered irreparable damage due to the new financial realities.
In our own practice, where we support nearly 680,000 prospective and existing students annually, we see a level of savvy from students we have not seen in the past. Students, particularly adult learners, are wanting to know what their education will tangibly accomplish for them, will their program of study provide them with the practical knowledge they need, and what real career placement assistance will be provided to them.
We are also seeing the federal government consider new regulations that will in effect restrict the flow of credit to institutions (particularly for-profit schools such as Kaplan, Strayer Education, and Corinthian Colleges) that fail to achieve certain benchmarks as it relates to student loan repayment.
Employers are also beginning to chime in. Earlier this year, a survey commissioned by the Association of American Colleges and Universities (AACU) found that only one in four employers feels that our institutions of higher learning are preparing students for the “challenges of the global economy.” Closer to the ground, we are seeing students that for the past several years had been clamoring towards pursuing an MBA to better their career prospects now demanding advanced degrees that provide more specialization such as masters degrees in finance, taxation, and accounting. Students are reporting that employers are just no longer excited by an MBA education unless it is from a very selective institution. Unfortunately, many schools that launched MBA programs over the past decade (especially online), are beginning to see declines in enrollment because they are not keeping up with consumer preferences – both student and employer.
Finally, there is the student loan issue that is becoming an increasingly serious problem. After all, according to the Wall Street Journal, student loan debt has now exceeded credit card liabilities and the Education Department’s recently released repayment data suggests only 51% of outstanding student loans are currently being repaid. There is little question that this issue will continue to adversely impact some student borrowers as well as the taxpayer.
As evidenced by both data and trends, Mr. Reynolds’s arguments are based on several highly accurate assumptions – factors that have been and will continue to radically alter the higher education landscape. Things will need to change – everything from tuition pricing growth to what schools teach. We, however, find it difficult to subscribe to Mr. Reynolds’s darker overall theory that stakeholders – whether they are students, parents, employers, or the government, will wake up one day and determine that a college education is not “worth” the investment. College-going rates continue to increase and expanding college completion is a big priority of many policymakers. It is also necessary if our nation hopes to maintain its leadership position in the global economy. Further, the same AACU survey mentioned earlier, found that 97% of employers intended to place the same or increased emphasis on hiring candidates with at least a bachelor’s degree over the next year. While there is plenty of constructive debate on whether higher education is worth it, one just needs to look at July’s unemployment numbers. Only 4.5% of college graduates were unemployed while over 10% of individuals with just a high school diploma were.
There will be plenty of fallout and any higher education stakeholders that do not take the realities we are seeing seriously do so at their own peril but we would not spend much time worrying about the entire sky falling on higher education.