Will Higher Education Be the Next Bubble to Burst?

This article does a good job of articulating the feeling that I've had for the last few years. I've been thinking that education is a service with a price tag way above the value it delivers to its clients. The only thing that keeps the education industry afloat is the fact that the need of education is engraved within the minds of the public. The decision to "go to school" is often based on no pragmatic economic justification.

Yes, we all have heard the "college graduates make $1 million more over their lifetime than high school graduates". But this statistics has been questioned numerous times. The major argument is that those who go to college are generally more responsible and capable individuals who are likely to succeed without a degree as well. In other words, this justification may be similar to "successful people wear Rolexes". Having been exposed to all facets of higher education, I cannot help but think that education is not completely useless yet the value it delivers to students is vastly overrated. Higher education will have to initiate "perestroika" or it will collapse just like the Soviet Union.

Will Higher Education Be the Next Bubble to Burst?

By JOSEPH MARR CRONIN and HOWARD E. HORTON

The public has become all too aware of the term "bubble" to describe an asset that is irrationally and artificially overvalued and cannot be sustained. The dot-com bubble burst by 2000. More recently the overextended housing market collapsed, helping to trigger a credit meltdown. The stock market has declined more than 30 percent in the past year, as companies once considered flagship investments have withered in value.

Is it possible that higher education might be the next bubble to burst? Some early warnings suggest that it could be.

With tuitions, fees, and room and board at dozens of colleges now reaching $50,000 a year, the ability to sustain private higher education for all but the very well-heeled is questionable. According to the National Center for Public Policy and Higher Education, over the past 25 years, average college tuition and fees have risen by 440 percent — more than four times the rate of inflation and almost twice the rate of medical care. Patrick M. Callan, the center's president, has warned that low-income students will find college unaffordable.

Meanwhile, the middle class, which has paid for higher education in the past mainly by taking out loans, may now be precluded from doing so as the private student-loan market has all but dried up. In addition, endowment cushions that allowed colleges to engage in steep tuition discounting are gone. Declines in housing valuations are making it difficult for families to rely on home-equity loans for college financing. Even when the equity is there, parents are reluctant to further leverage themselves into a future where job security is uncertain.

Consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college. There is a growing sense among the public that higher education might be overpriced and under-delivering.

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The Case Against Graduate School

By Marty Nemko

Colleges’ PR flaks relentlessly trumpet that the more education you have, the more money you’ll make.

That’s terribly misleading--it varies so much with the individual. The question is, “Is grad school right for you?”

In my 20 years as a career coach, among my saddest feelings have been hearing the fears of the many people who gave years of their lives and mortgaged their financial futures to get a graduate degree only to still find themselves so poorly employed they’re unable to pay back their backbreaking student loans, let alone earn a decent living.

This article presents arguments against colleges’ propaganda so you can make a more eyes-open decision about whether to go back to school.

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Motivation in Academia

From the perspective of extrinsic motivation, academia can be the most demotivating place to work in.

It's not uncommon for newly hired faculty members to get paid more than faculty who has been with the department for many years. This is the kind of reward you get for giving your whole life to the school.

PhD students experience this too. In fact, it's even worse in their case. Unlike professors, doctoral students do not get annual pay raises, so the difference is often even more drastic. I remember when I joined the PhD program, I was making twice as much as doctoral students who had been with the department for 3-4 years. The irony here is that a senior doctoral student not only deserves to get paid more by most human standards, he or she has a much greater objective need for money. After spending several years in the program most PhD students are usually broke and in desperate need for money. After I spend several years in the program, I discovered that new PhD students were paid 50% more than I was making....

So I've been on the serving as well as receiving end of this wonderful motivation scheme. Does miracles to your motivation and loyalty to the department!

How much does online degree cost?

Online degrees seem to cost even more than offline degrees. Or, at least, there's no substantial price difference between online and offline education. You would think that online delivery would bring down school's costs, resulting lower fees for students. But this doesn't seem to be the case. They justify high costs by saying that students have to pay the premium for the convenience.

Education is an Attractive Industry

Education is the kind of industry Warren Buffet would love to invest in:

• Everyone thinks he or she needs eduction. It's just a part of our value system. People who don't have education are often looked down upon (unless your are Bill Gates, of course)
• There are very smart people willing to sacrifice 10 years of their lives just to get a minimum wage job as a lecturer at a university.
  
• People are always willing to pay for eduction. Money is often irrelevant to the decision. They will go into all kinds of debt just to get education. Very often, there may not be a strong economic rationale behind this investment - but people want it no matter what. Even if they end up in a situation where they clearly see that their investment hasn't paid off , they may still be happy about it. "Well, at least I'm an educated person!".
  
• Many educational products (knowledge/information) are very scalable - there's little or no marginal cost involved in producing these products. For example, if you create an electronic textbook, the cost of burning each additional CD with the textbook on it is not substantial.Yet the education industry manages to charge a lot of money for those products.
  
• Education industry players are often able to sustain their competitive advantage for decades, despite the fact that their products can be replicated with ease. For example, one can easily set up a school with a curriculum identical to that of Harvard. Yet it will probably take decades and billions of dollars to steal some of the market share from Harvard. Objectively, quality of education may not be that different - but it is very different in the eyes of the public.
  

But the irony is that despite being in a very attractive industry, many schools still demand a lot of funding from the government. They just waste the economic potential that they have.