The Soon-to-Burst Education Bubble

In early June, Glenn H. Reynolds, professor of law at the University of Tennessee and the Instapundit, wrote that the education bubble would burst soon.  He pointed out that Money magazine reported that "After adjusting for financial aid, the amount that 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 notes that:

• Just as with the housing bubble, "cheap and readily available credit has let people borrow to finance education."
• The consumer ignorance of students and parents denies how tough it will be to repay the loans.  [ I'll attest to this, especially when the same government that makes the loans easy to get causes a massive recession that harms the parent's small business.]
• There is "a belief that, whatever the cost, a college education is a necessary ticket to future prosperity."
• Bubbles burst when ignorance and excessive optimism can no longer sustain them.
• Student loan demand is decreasing and students are more willing already to go to less expensive colleges.

Reynolds says that colleges can provide a student prosperity in three ways:

1. It may make them more economically productive by providing a skill of economic value in the marketplace.
2. It provides a credential employers want for which they will not be accused of discrimination as they would if they required IQ tests and the degree suggests an ability to follow instructions and to show up.
3. The degree may assist in forming a social network that may provide jobs and opportunities.

Reynolds adds that only the first path to student prosperity does much for society as a whole.  The others are only about who enjoys the distribution of wealth.  His own deadly evaluation of colleges is that they are better at providing for 2. and 3. than for 1.  He also says they offer the college experience, which is rich in the party experience!  He does not think the colleges will do a good job of reforming themselves.  He expects that after the bubble bursts, educations will more likely be obtained on-line as Anya Kamenetz has suggested in her book DIY U.

Michael Barone has picked up on this Reynolds prediction of the education bubble burst in the Sunday Washington Examiner of 5 September 2010 in an report entitled "Higher education bubble poised to burst."  He notes that the National Center for Education Statistics has found that most college graduates are insufficiently proficient in verbal and quantitative literacy.  Philip Babcock and Mindy Marks of the University of California found that the average time a college student studies now is 14 hours a week compared to 24 hours in 1961.

Frankly, I do not believe a student belongs in college if they are not studying 36 hours a week.  This number of 14 hours of study a week makes it very clear that the average college student has no business being in college, given the expense.  A college is a very expensive playground and people 18 through 21 years old have no business spending four years playing.  This is childish and irresponsible.

The American Council of Alumni and Trustees (ACTA) surveyed 714 colleges and came to the obvious conclusion that "by and large, higher education has abandoned a coherent content-rich general education curriculum."  Jay Leno on his many visits to college campuses has long made that very clear!!!  Well, ACTA notes that college students are not taught the basics of literature, history, math, or science.  Most colleges do not require economics, American history and government, or a foreign language.  You can examine the requirements of these colleges here.

It is being noted that college administrations are hugely bloated, just as governments are.  Meanwhile, their endowments have generally taken a beating with the recent collapse of the stock market and other investments.  State governments are cutting back on the tax monies passed on to colleges.  State-funded colleges have generally had to raise tuition and fee costs.  For-profit colleges are beginning to siphon students away with offers of economically valued training.  These are signs of the impending collapse.

Barone and Glenn Reynolds agree with me that college is not for many or even most of those going to college.  Barone notes that in 1910, about 2% of Americans graduated from college.  The number of graduates in 1910 was 39,755, which is fewer than are to be found on many single college campuses today.

He observes that:

Government's student loan subsidies have enabled institutions to grow faster over the last three decades than the economy on whose productivity they ultimately depend.  ...  The people running America's colleges and universities have long thought they were exempt from the laws of supply and demand and unaffected by the business cycle.  Turns out that's wrong.

Of course governments can do wonders to obscure the law of supply and demand, but in the end, even they cannot silence its demands. This seems to be a recurring theme in my own writings on many a subject here.  In the aftermath of the college education bubble bursting, one wonders if the remaining colleges might take economics more seriously and actually try to understand how the private sector produces the goods and services which support government and colleges.  In the long run, the colleges have done more to harm the business of America than to help it.  The colleges will one day find that they were actually poisoning themselves, albeit with a slow poison.