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August 10, 2012

It’s Not Just the Students; Colleges Are Going Broke Too

As student loan debt surpasses credit-card debt as the leading liability for Americans, the reality of a “higher-ed bubble” is becoming increasingly obvious. Yet it isn’t just the students that are going broke; a new report from the Economist suggests that the same fate is befalling everyone connected to higher education, including the universities themselves:

Federal support for higher education remains at historically high levels, but states have cut back. To make matters worse, endowments (and their returns) have shrunk, money from philanthropy has dried up and those universities that provide need-based aid have suddenly found their students are needier.

All this suggests that colleges have good cause to worry about their debts. Unlike grades, they cannot be inflated away. Even Harvard, Yale, Cornell and Georgetown have been on an unsustainable path in recent years, says Bain, though all have big endowments to cushion themselves.

Glenn Reynolds, the author of “The Higher Education Bubble”, predicts that the bubble will burst “messily”. People have long believed that “whatever the cost, a college education is a necessary ticket to future prosperity.” Easy credit has allowed them to pay ever more, and colleges have raised fees to absorb the extra cash. However, this cannot go on forever, says Mr Reynolds, especially when people start asking whether a degree in religious and women’s studies is worth the $100,000 debt incurred to pay for it.

As universities start to face budget crises of their own, some serious fat trimming is in order. Fortunately, at many universities, there is plenty of fat to be cut. Students can live with out state-of-the-art gymnasiums and student centers, and faculties will still be able to conduct research without that extra library wing. These shiny amenities may look nice on an admissions brochure, but they do little to help educate students.

At some schools, however, this likely won’t be enough to plug the gap. These schools will have to start looking more seriously at ways to educate students more efficiently while cutting costs. Nobody yet knows what this will look like, but it will likely involve a combination of cuts to administration and staff and adoption of new education technology.

This won’t be a painless process, but on the bright side, the schools which do this successfully will be among the first to pioneer a model for higher-ed that is better suited for the 21st century.

Posted in Blue Social Model, Education, Quick Takes
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  • thibaud

    The system will eventually be weighted toward flagship state schools + top-tier private institutions that have significant endowments and world-class research facilities worthy of sizable federal grants.

    Admin will be slashed and online courses will proliferate. The strong will get stronger. HYPSM, the Ivies and the public institutions with huge endowments such as U-Texas, U-Michigan, U-Virginia will thrive.

    Bad news for small private colleges that neither produce great research nor attract elite students who as super high-earning alumni can fund massive endowments.

    Which is to say, the Amhersts, Williamses and maybe another 20 or so world-class private liberal arts colleges and engineering-focused schools like Harvey Mudd.

  • thibaud

    Which is to say, Amherst + another 20 elite institutions * will survive *, but any small college that unlike Amherst, Williams, Swarthmore, Mudd etc is not world-class * will begin a long downward spiral.

    Maybe our host should jump while there’s still time.

  • Richard S

    The student loan market might also become more of a market. People studying accounting or engineering are probably more likely to pay their loans back than are ethnic studies majors. If that’s the case, the interest rate should reflect it. If the interest rate does not reflect such data, it is because the government is restricting economic liberty, particularly the liberty of contract.

  • Jim C

    Start by eliminating everything with the word “diversity” in the name. That should free up billions of otherwise wasted dollars.

  • Corlyss

    Re: online learning. I’d sure miss haning out at the student snack bar and trolling the bookstore for books I really didn’t need but promise to read someday.

  • Corlyss

    With a billion dollar endowment fund, I don’t see Harvard going away any time soon. Pity, that.

  • Eurydice

    Well, sure. If the customer can’t afford to buy the product or if the product has become obsolete, then the industry’s got a problem. And I’m not sure anybody needs for the Economist to “suggest” that. Here in Boston, with its 30+ educational institutions, budget-cutting and changes in the industry are all that anybody’s been talking about for years now. Still, with $32 billion, Harvard’s plenty sustainable.

  • Tom Gates

    My university just hired a sexual orientation coordinator. It is not worried about money.

  • Neville

    Many of these schools are already aggressively mining their reputations by admitting affluent students from the US and (especially) abroad, giving them ‘A’s and awarding them degrees while disregarding their abject academic shortcomings.

    There is a broad and deep market for this sort of expensive four year vacation plus ‘name’ certification, so the phenomenon may continue for another generation before the colleges concerned see their reputations melt down. Many happy academic and administrator retirements can be banked along the way, so these institutions are unlikely to change course.

  • http://web-logos.blogspot.fr/ James C Brown

    lest one forget that for millions of persons, a college is above all an NCAA Division I sports program. Cutting the fat, at some schools – big ones – will mean sacrificing education opportunities to maintain competitive teams. Though its quite possible that the ranks of top-notch, million $, Division I programs will shrink, too.