The College Bubble and the Public Defunding of Colleges

There’s been a lot of discussion regarding a “bubble” in higher education. The best recent piece on this has been Malcolm Harris’ Bad Education for n+1 magazine, which compares the state of higher education to the housing market. The piece has gotten response from Sara Mayeux (guest blogging for Adam Serwer) and Swarthmore Professor Timothy Burke. From Burke, I think these comments are good:

I think the N+1 essay is fairly on-target….Where will the higher education bubble pop most destructively? 1. For-profit online education with no brick-and-mortar anchor. The degrees are not valued much by employers, but more importantly, their business model rests on charging high prices for extremely cheap services, fueled by the availability of credit to desperate students. There’s only one way out for the for-profits before they go spiraling to hell the same way subprime mortgages did: trimming their margins to the bone while enhancing the quality of their product and becoming a serious price alternative to brick-and-mortar higher education. Not going to happen: their CEOs like their multimillion dollar paydays too much. 2. Expensive brick-and-mortar higher education (both small and large institutions, public and private) that doesn’t deliver prestige value, doesn’t deliver actual services or value-added instruction, is under-resourced in relationship to price, and which offers students little vision of what the human or instrumental gains they’ve secured at such high cost. Institutions which are selling narrowly tailored vocational training in fields which are already vastly overcrowded or which might evaporate overnight are going to get hit hard if the recognition takes hold that such degrees rarely match value to cost over more than a few years after graduation.

What educational neighborhoods will retain their value if the bubble bursts? 1. Community colleges. That’s already quite clear even before the bubble pops: many of them offer an attractive mix of value, quality and accessibility. 2. Expensive universities where there is a specific, indisputable connection between the high-quality educational program offered and specific high-paying careers with long-term prospects. MIT or CalTech, to name two.

What’s in the balance? Expensive colleges and universities that are well-resourced, have significant established cultural or prestige value, and strong instructional programs as well as a wide range of services. Places like Swarthmore.

All three above are worth a read as this is likely to stay a talking point over the next few years (from a similar story by New York Magazine: “But it is hard to think of a time when skepticism of the value of higher education has been more prominent than it is right now”).  I still prefer the analogy, used by Jeffrey Williams in Dissent Magazine, of student loans not as subprime but instead as the new form of indentured servitude.  The length of term, the idea of mobility and “transport” to a job, debt secured not by property but by personhood, limited legal recourse, etc. all fit very well. I mentioned this concept once to an economic historian, who told me a big problem with indentured servants in the United States colonies was that they would run away or die in a few years, so they had to be worked hard in a Goffman-style total institution in order to recover value.  With our longer lifetimes and the ability of debt holders to track and see, it’s much easier to take a small cut over a vastly longer timeframe than what transpired in the colonies.

It’s telling that the anxiety isn’t really focused on this public part of the problem. Every story about this topic is missing a crucial part of the narrative, and that’s the abandonment of the public funding of public colleges, a trend that has escalated during the state budget retrenchments of the Great Recession. From Nicholas Johnson, Phil Oliff and Erica Williams, Center for Budget and Policy Priorities, An Update on State Budget Cuts:

The report tells about all the hits coming to students.  The University of California has increased tuition by 32 percent since the middle of the 2009-10 school year, Florida has a total two-year increase of 32 percent, undergraduate tuition at Georgia’s four public research universities will increase 16 percent, etc. California is important, as their regent’s battle to de facto privatization of their school system will set the course for many other states.

A leverage induced bubble is particularly painful for the economy. The debt that is fueling the current costs of college are the result of a long-term set of decisions to shift the costs away from taxpayers and towards debt burdens for individual students.  If you think that direct funding of public colleges, like all public options in markets where there is high consumer inelasticity, serve as a check on runaway price inflation and subsidization of private incumbents, this further retrenchment bodes poorly for the prospect of higher education.

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7 Responses to The College Bubble and the Public Defunding of Colleges

  1. Stephan says:

    “The counterpart for education (financing) would be to ‘buy’ a share in an individual’s earning prospects; to advance him the funds needed to finance his training on condition that he agree to pay the lender a specified fraction of his future earnings. There seems no legal obstacle to private contracts of this kind, even though they are economically equivalent to the purchase of a share in an individual’s earning capacity and thus to partial slavery.”

    — Milton Friedman, Capitalism and Freedom

  2. Mike says:

    Isn’t there a pretty strong adverse selection problem with equity in people? How do “ownership” claims work? Obviously if there were shareholders in me as a person they’d be mad I’m not trying to do high-end finance but instead policy wonkery – could they sue? How are those counter-arguments handled?

  3. Stephan says:

    Ah … my mistake. By only posting the comment one might think I’m in support of this crazy idea. I’m not. I support our continental European model of public funded universities. I would require students to pay a fee (€1,000/Semester?) but for other reasons. I did post this Friedman quote to highlight, that for me the current US system of college education funding is sort of partial slavery or to use a more fitting term debt peonage.

    And to answer your question. I first read the quote in the Science Fiction novel “the unincorporated man”. In the book your shareholders don’t give you the option to do policy wonkery. I mean you’re their property and as every self-respecting libertarian will tell you: men can do whatever they like with their property. The difference to slavery is you’ve the option to buy back your shares and become a free man.

  4. reclaim uc says:

    just one minor comment: the UC system has increased tuition by about 40% since fall 2009. in november 2009 they approved a 32% hike, then in november 2010 they approved another hike of 8% on top of the previous increase.

  5. Mike Easterly says:

    When I was in the UC system, I always wondered why I never saw any parents protesting tuition hikes.

  6. That Bell article from your meritocracy post makes the point that college graduates are likely to be smarter and more motivated than people who don’t go to college. So how much of the increase in tuition/debt is really capturing some of the return to “talent” above and beyond capturing the return on the investment in human capital?

    Especially given that college degrees are such a fundamentally necessary signaling device I wonder if schools are getting back more than just the cost of the voyage.

  7. Pingback: Do Public Universities Still Exist? - E.D. Kain - American Times - Forbes

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