There has been much talk recently about higher education being the next bubble, i.e., "the next overhyped thing that is going to burst in the face of the people dumb enough to believe in it", or something along those lines. Here are a few links to get a refresher on the debate.
In "Higher Education: The Latest Bubble?", the anonymous reporter writing the Schumpeter column in The Economist explains that Peter Thiel, PayPal's cofounder with a track record of identifying bubbles, "believes that higher education fills all the criteria for a bubble: tuition costs are too high, debt loads are too onerous, and there is mounting evidence that the rewards are over-rated."
His take about university presses is also worth reading (excerpt: "I am regularly shocked by the quality of the books that flow into The Economist's offices from university presses, by the tediousness of the subject matter, the contortions of the prose and the willingness of the authors to bow the knee to various exhausted academic pieties... in the name of challenging conventions...")
He also quotes a vociferous review in Slate of a book written by an apparently well-known English professor at Harvard, review that, shall we say, is not kind to the book's author and which Schumpeter seems to agree with, using it to illustrate his concern "about the quality of a great deal of higher education, especially in the humanities". (I haven't read it.)
The TechCrunch article by Sarah Lacy ("Peter Thiel: We're in a bubble and it's not the Internet. It's higher education") that started this round of the perennial discussion on the value of higher ed, provides more quotes by Thiel (he touches upon the issues of scarcity and status, for instance) and additional insights: "over the last year, as unemployment hovers around double digits, the cost of universities soars and kids graduate and move back home with their parents, the once-heretical question of whether education is worth the exorbitant price has started to be re-examined even by the most hard-core members of American intelligentsia."
Thiel's idea has been to "[p]ick the best twenty kids he could find under 20 years of age and pay them $100,000 over two years to leave school and start a company instead." I find that method dubious, although I hope the students will self-select and have the strength to decline the money if they recognize that they are not yet ready to become entrepreneurs. I'd prefer having him give the money to recent college grads who can convincingly argue that their debt burden (from college loans) is preventing them from turning their dreams into reality and becoming entrepreneurs or nonprofit leaders.
In "Is there an education bubble", Conor Friedersdorf at The Atlantic has a thoughtful blog post about the pros and cons of attending college and graduate school (excerpt: "I tend to think going to some college (though not necessarily the most expensive one) is a good decision for most people - even if it ought to be a lot cheaper. But grad school is a lot less certain.")
I loved his comparison between the college grad announcing he's quitting his job to take on $100,000 in loans to attend journalism school, and the one who quits his job, raids $5,000 from his savings account "and spend two months surfing, drinking beer, and reading David Foster Wallace novels in Costa Rica".I also found his own take on his move to New York for graduate school very interesting. In addition, the comment by "Poor Grad", starting with "It's time to end this monstrosity known as the American university system", adds many points worth debating.
In "Is it really the next bubble?", The Economist's anonymous journalist writing the Lexington column refutes the argument of a bubble by providing statistics about the monetary gains provided by a college degree: "According to data from last year's census, average earnings in 2008 totaled $83,144 for those with an advanced degree (ie, a master's professional or doctoral degree), compared with $58,613 for those with a bachelor's degree only. People whose highest level of attainment was a high school diploma had average earnings of $31,283."
I like numbers in general, but I am always highly suspicious of aggregate numbers. Averages encompass workers with different amounts of experience, different majors, different fields of expertise. Getting a doctorate in engineering opens doors both in academia and industry. A doctorate in the humanities doesn't provide the same value-added in industry compared to a master's or even a bachelor's. Far more valuable would be to look at the extremes. In addition, averages are biased by outlier points: the extremely high salaries of a minority will drive up the averages, while the extremely low ones will have a comparatively smaller effect, since they can never fall below zero.
Lexington also provides weekly median numbers, which are more interesting, and even intriguing: for instance, doctoral-degree recipients edge out professional-degree recipients for the lead, at $1,532 a week vs $1,529. I found that curious because professional-degree holders are expected to work in industry, while doctoral-degree recipients will be found both in academia (which pays less) and in industry. In addition, doctoral studies are often funded by the school through Research or Teaching Assistantships, limiting the amount of debt most students take on, while students in professional-degree programs such as MBA or JD often take on loans to pay for their studies.
Therefore, it seems for this quick look at the bar chart that the professional degree is not as good an investment as students often believe. (Or used to - according to an article in Slate, "the number of applicants to law school has dropped a whopping 11.5 percent year-to-year—to the lowest level since 2001 at this point in the application cycle.")
I don't think higher ed is a bubble - if it was a bubble, everyone would be worse off when it bursts, in the same way that all investors who owned dotcom stock lost money in the dotcom bubble, and homeowners saw the value of their property decrease after the crash. But having a college degree will always remain valuable for the people who could afford going there, either because of their family's resources or because of financial aid. The university degree will always give access to an alumni network, in addition to a student network and a professor network.
The problems start when someone takes a risk (goes to a college or to a graduate school that costs him hundreds of thousands of dollars in loans) in the hope that the gamble will pay off, and it doesn't. If the downside risk is too big, people simply shouldn't enroll - they can wait a few years, or enroll part-time if they really care about getting that JD or MBA soon.
Master's programs, granting professional degrees or otherwise, are a lucrative line of work for universities, since Master's students typically don't receive financial aid and they are not funded through Teaching or Research Assistantships. In fact, the tuition of Master's students might go a long way toward providing PhD students with stipends in departments with little funded research. So there is an incentive for universities in enrolling Master's students. There is also an incentive for them in keeping their students happy so that they become alumni donors, and many universities have placed their students successfully. But students for whom a top-notch placement must happen in order for them to feel their investment was well-spent might want to rethink their decision. Can they handle the downside if things don't turn out as expected?
In a way, the disappointment about higher ed might stem from a confusion between cause and correlation. Parents see successful people who went to this or that college, so they want their child to enroll so that he can become successful too. College grads see successful people who attended this or that business school, so they want to enroll so that they can have the same success. But going to college is rarely the cause of success.
Instead, people who have become successful tend to have attributes - creativity, tenacity, resilience, etc - that helped them get them where they are, from being accepted into this college or receiving that job offer. Some people develop a clear sense of self late, and so don't benefit from college as much as others. Young adults enroll in expensive graduate programs to escape their current situation, which is rarely a wise move. Having a MBA diploma will not cause success to happen.
Unfortunately, because a diploma is something tangible, students eager to follow their role models on the path to success (and the students' parents) tend to focus on it at the expense of smaller, less radical changes that would take longer to bear fruit but would be a lot cheaper and have less risk. But college and graduate school degrees are only correlated to a certain type of success. They provide experiences, networks, and (hopefully) a seal of quality. But there are many paths to success and in the end, what matters is to pick a path you can afford.
Lag test: 5 days =P
In all seriousness though, I think the main issue stems from the fact that diplomas these days aren't so much seen as a demonstration of knowledge as a hazing process for companies to vet candidates. The reason that universities (especially brand names like Harvard/Stanford/etc...) can charge an arm, leg, and the candidate's first born is that their demand is largely spurred by demands of employers.
"Must have high GPA from Ivy League or other top school"
Blah blah blah, I'm sure many of us have seen those job postings. In my opinion, the prices of universities directly result from A) their use as vetting tools for firms large and small B) the dreams of young hopefuls thinking that they can fulfill those demands with a degree.
In my opinion, I think something stinks in that process between graduation and first-time employment. The entire point of a GPA that employers are entitled to know is in my opinion, stupid, as it's probably just run through a machine to cull people. Ditto the university name. And if a machine doesn't do it, in many cases, an HR person who in many cases isn't too much brighter, will.
I think that may have a lot to do with the thought that this is a bubble--no longer are people paying for the education, so much as branding.
Posted by: Ilyaquant.wordpress.com | April 26, 2011 at 11:44 PM
Professor Thiele,
I have to disagree with your assessment here. Student loans currently account for a total $829 billion of debt (http://www.huffingtonpost.com/2010/08/09/student-loan-debt-outpace_n_676044.html). At the same time Universities (certainly Lehigh) continue to raise tuition. While a business week profile of the returns on college still showed that a degree was worthwhile in most cases (http://www.businessweek.com/interactive_reports/bs_collegeROI_0621.html) these numbers only represent the average. In many cases a college education provides a negative return, a problem which will only be exacerbated by the recent recession. Lehigh is relatively safe, but take a look at a lot of other schools out there that charge the same as Lehigh without offering nearly as high of a return. A bubble is a system that cannot sustain itself, and this certainly qualifies.
Students still go because a college education still has a platinum image. This is the exact same mentality as those who bought houses because home values always went up. Eventually prices started falling. Similarly, companies have slowed hiring. Some have outsourced it. Eventually some may look to some kind of alternative certification process that promises a worker is competent at a much smaller cost than ~$200,000 over four years. The company then can train the employee themselves for a much lower cost.
Lastly, regarding the 20 students that Thiel plans to fund, why is college the right choice for them? We all know that MIT's courses (as well as many other institutions) are available online for free. What's to stop them from accumulating all the knowledge of an MIT graduate while saving $200,000? Ultimately, Universities are in the business of selling degrees and, as you mention, connections. These former students will make their own connections, and have the ability and more importantly the motivation to obtain their own knowledge and, more importantly, experience. Is that a bad thing?
Posted by: BenjaminMumma | April 27, 2011 at 04:39 PM
Hi Ben,
I have a hard time seeing higher education as a bubble because the system does work very well for a subset of students. The higher ed system will always provide (some) students with good training - the skill set, and thus the intrinsic value of the degree, will still be there (for the students who benefit from going to college). For me, a bubble bursting should have a negative effect across the board - start-up stocks were negatively affected by the burst of the dotcom bubble, housing prices went down after the burst of the housing bubble. Contrary to stocks and houses that are liquid assets, colleges decide on tuition rates only once a year and people only decide on attending college once, but can live in many different houses and trade many different stocks. Also, there is no mechanism to "dump" the degree, in contrast with getting rid of a stock or a house. So I am not sure how we would define/observe a burst. In addition, an individual buys stocks/houses later in life. An 18-year-old student does not necessarily realize the financial burden of going to college, and her parents might be reluctant not to let her go to her dream school, even if the price tag is steep. In fact, the lack of direct accountability/feedback mechanism and the time lag between payments and result (job) explain a large part of why the costs have been allowed to mushroom, in my opinion.
That is not to say that I don't find the cost of attending college in the US exorbitant - I do. I actually find myself very fortunate that I didn't go to college in the US so I didn't have to deal with that. In France the system is funded by the taxpayers. This is not a feasible option in the US (even public universities receive little money from the states.) Somewhat like health care, costs should be brought in check. Does a college need yet another administrator with a fancy title and generous salary? Does it need so much overhead? Does it need research programs? Does it need yet another pretty-looking building? and a state-of-the-art gym? What about varsity sports? Or more generally, a nice-sounding but expensive strategic direction?
I am also not convinced that many students have at 18 the knowledge and experience to figure out how they can make the best contribution. Few people even know what they are interested in at that age. Even fewer will have developed the talents yet to make that interest come to life. Some contributions do require the formal training that college provides - there are only so many great ideas college dropouts can have and commercialize. I also think most companies dreamed by young high school grads are in fields with low barriers to entry and thus subject to competition, price pressure, and job insecurity. As for MIT's OpenCourseWare, I love their free lectures, but it is easy to think you understand the material when you read slides from the web, and then struggle miserably when you try to do the problem set. I could see a system of apprenticeship as a workable alternative for some professions, but that is a big risk to take for companies/mentors when they don't know the person (regarding the time investment in particular). So students who want to go down that route probably have to interact with potential mentors for a while before they can convince them to take them under their wing. For most, it is going to be a steep hill to climb. Certification is also a good idea, but how much students paid for their education is not the company's problem, so I don't know what the incentive would be there.
For many students (not all, as some ill-prepared students go to college just because they see their friends do the same, but many), college remains a necessary step and gaining higher education will remain valuable. The real issue is really to rein in the costs despite the lack of clear accountability. More and more college presidents out there should put an end to this academic arms race and announce an end to all the frills (fancy gym, pretty cafeteria) to provide high-quality low-cost education instead.
Posted by: Aurelie Thiele | April 27, 2011 at 08:41 PM
Worthy read: "Texas Could Offer a Stripped-Down Degree for Just $10,000, Commissioner Says" in The Chronicle of Higher Ed http://chronicle.com/article/Texas-Could-Offer-a/127281/
Obviously the goal of $10,000 is "ambitious" (euphemism) - with about 125-130 credit hours to get a degree, or 16 credit-hours per semester, that would come up to $160-240/course (most courses, at least at Lehigh, are worth 3 or 4 credits). As the article makes clear, this would not apply to on-campus courses - with about 24 lectures per semester, a $160-240 range would bring the value of a lecture to $6.67-$10.00 each. I hope I add more value than that. But the idea of lowering down the costs of higher ed is worth exploring.
Posted by: Aurelie Thiele | April 27, 2011 at 10:30 PM
Great post, and thank you for sharing. As someone with 4 degrees (Lehigh, UofM, and 2 from MIT) I could certainly be biased. However, I have two somewhat competing opinions on the matter. First, I think the value of the degree shouldn't be based on purely financial terms. It impacts your role as a parent, a citizen, and more. Also, not everyone should go to college. It's an individual choice. I think our trade school infrastructure in this country is woefully behind. Do what best fits your interests and capabilities.
Jamie Flinchbaugh
Posted by: Jamie Flinchbaugh | May 01, 2011 at 10:07 AM
Thanks for commenting, Jamie! You make a great point when you say a degree impacts one's role in society, which can't be measured solely in financial terms. I completely agree with "Also, not everyone should go to college. [...] I think our trade school infrastructure in this country is woefully behind."
Posted by: Aurelie Thiele | May 01, 2011 at 09:59 PM
Thought about Jamie's comment ("It impacts your role as a parent, a citizen, and more") when I read this.
http://chronicle.com/article/Degrees-for-What-Jobs-Wrong/127328/
Posted by: Aurelie Thiele | May 03, 2011 at 03:24 PM
Professor Thiele,
Thanks for the reply. I was going to write back earlier and then finals got in the way.
As far as a bubble bursting, I think that at some point, people will realize that the cost of many schools has risen too high. Those schools will struggle to bring in the students to cover costs, and eventually go bankrupt. Other schools will have to stop jacking tuition up 3% each year, and schools will have to cut down on costs as you mention.
My problem is that many schools should be trying to cut unnecessary costs anyway. But the differences that exist, some of which you alluded to, between the education market and a normal market result in poor incentives for Universities. Actually, you can read a post I wrote on the subject, linking it to Lehigh's clustering initiative here: http://mumma.co/blog/2011/04/27/education-is-a-business-lehigh-laughs/
Ultimately I may just be a little cynical toward higher education after five years full of it. But I do think that there are alternatives that need to be explored for both educating students and for evaluating how prepared people are for entering a given industry.
Ben
Posted by: BenjaminMumma | May 14, 2011 at 11:59 PM
Hi Ben,
Thanks for the link to your post - it was a great read! You make a lot of good points.
I'd add that I'm not sure so many universities should have research programs. There should be more options to provide quality undergraduate education at low cost. In the same way that there is some level of grade inflation throughout the country (students see that a good GPA gives them access to more potential jobs so they all want better grades, creating upward pressure), there is research inflation in the sense that everyone wants to say they're at the cutting edge of innovation and creating new knowledge (writing papers, graduating PhD students) instead of simply repeating existing knowledge in the classroom, but research requires start-up packages and other expenses that the endowment and students' tuition must then pay for.
While it makes sense for Tier 1 schools like Lehigh to maintain research programs, I wonder what it means to get a PhD from a Tier 4 school, for instance, and to which extent bottom-ranked schools can create new knowledge that other schools couldn't have produced. In that case, students' tuition money might be better spent to, say, pay another instructor to have fewer students per section, rather than funding grad students' assistantships. In general, I am also concerned with increases in the number of top administrative positions and the pressure (to get grants) that the ambition to increase number of faculty members and number of doctoral students creates. The potential for a vicious circle is quite obvious.
As a side note regarding the post at your blog, I do truly believe the best students at Lehigh are on par with students in the Ivy League (especially students in the Integrated Business & Engineering program, but others too). It pains me that students are subject to hefty price increases, especially when they're already stretched thin financially. A good way to proceed would be to guarantee undergrads a price tag for the upcoming four or five years, depending on the year they matriculated (there would still remain some uncertainty if the student doesn't do well in class and loses part or all of his financial aid, but at least the visibility would be increased.)
Posted by: Aurelie Thiele | May 15, 2011 at 11:11 PM
Related read: "Is college worth it?" in the NYT "The Choice" blog http://thechoice.blogs.nytimes.com/2011/05/15/pew/?hp
Posted by: Aurelie Thiele | May 16, 2011 at 07:07 PM
FYI, here is a link to an article suggesting ways that MIT could substantially reduce tuition costs:
http://philip.greenspun.com/school/tuition-free-mit
Posted by: Gregbo | May 22, 2011 at 09:02 PM
Thanks a lot for the link, Greg! Definitely food for thought.
Posted by: Aurelie Thiele | May 27, 2011 at 05:11 AM