Is Higher Education Going the Way of Newspapers?

How do you know when a sector of the economy is in a "bubble"? Well, one of the signs is when everyone starts talking about it being a bubble. With higher education, everyone knows that some kind of correction is coming, they just don't know how big or how soon.

College tuition has been increasing at an unsustainable rate, going up roughly 10% per year for the last ten years, far outstripping inflation. College debt is also unsustainable. Student loans are already bigger than credit card debt and are expected to exceed $1 trillion this year.

One of the great lessons drawn from the housing bubble is: if something can't go on forever, it won't. And the higher-education bubble has a lot in common with the housing bubble. Both products are legitimately valuable and have traditionally been an important investment that helps individuals rise into the middle class and build wealth. In both cases, the government decided these products were so worthwhile that they should be promoted with subsidies, tax breaks, favorable regulations, and—most potently—government-guaranteed loans.

The purpose of government involvement in education, even more so than in housing, has been to detach higher education from any consideration of its economic value.

With housing, the consequence was that home loans were increasingly extended to those who had no credible way of repaying them; We can see all of the same consequences in higher education. We hear reports of students borrowing $100,000 to get degrees in sociology, putting them underwater on their student loans in the same way that other people are underwater on their mortgages

This article argues that like what happens to the newspapers, the internet could actually change the face of higher education, especially if tuition gets to be too prohibitive.

The article states:

There is one respect in which the higher-education bubble may not be like the housing bubble. We can be assured that housing will eventually recover, because people will always need a place to live. People will always need education, too, but it does not follow that they will always need universities. That is why higher education may follow a different course. Its bubble has been like the bubble for housing—but its collapse may be like the collapse of the newspapers.

The newspapers have been collapsing because of a technological advance that makes them obsolete. The Internet has lowered the cost and increased the speed of communication, causing both to converge toward zero. By contrast, paper has become the slow and expensive medium for the transmission of ideas. Printed publications are becoming a luxury item, like fountain pens, to be enjoyed for the nostalgic charm of feeling the texture of the pages under one’s fingertips, but not to be purchased for everyday use.

This has hit newspapers the hardest, because they made money by packaging information with other services that had enormous economic value: the old-fashioned “classified ads.” When I was a kid, if you were looking for a job, you picked up the newspaper and looked at the want ads. More to the point, if you were an employer, you paid to place those ads. The same goes for grocery stores offering coupons, for someone looking to sell a used car, for small entrepreneurs trying to sell their services, for singles looking for a date.

Today, where do you go for those same purposes? All of them are done online. All. The newspapers have been disconnected from an enormous stream of commerce on which they used to rely. That’s why they won’t recover. All they have left to offer is their content.

Universities face the same underlying economic problem. They, too, bundled their core product, education, with other services that had enormous economic value and which could seemingly only be obtained by going through the universities. The universities served as a system for credentialing and for social networking. A student emerged from a university with a network of social contacts—other students, alumni, professors—on which he could draw in looking for work. And his degree certified a certain level of expertise (if it is in a specific technical field) or at least certified his ability to engage in a sustained course of study over a period of years. But this kind of credentialing is just another form of social networking.

Some mighty big suppositions here. The newspapers are dying because people are getting their news from the internet? That hasn’t been my experience. I meet a lot of people who pay scant attention to the news. They know some of the propaganda because it’s repeated over-and-over in many medias (talk shows, movies, etc...), but a variety of news items? Nope. I do believe that the universities are out of control and overcharge for an inferior product. But, who’s the biggest purchaser of the university’s products? That would be government. They hire the most graduates and pay for the most research. Try to convince government to shut down the universities.

In the local rag today, University of Tennessee officials are calling for a 12% tuition increase and a $100 fee increase. The problem is lack of free market forces. When I went back to school a few years ago as a ‘non-traditional student,’ I was the only one I knew in my classes actually writing a check every semester to UT. Most were on the lottery scholarship, which old farts like me didn’t qualify for. Several others had other academic scholarhips that I wasn’t eligible for because of a lack of recent academic history. And others had grants or loans that paid for tuition and books with some drinking money leftover. Tuition increases were meaningless to them. I don’t mean to sound like I’m whining (which I guess I am a bit), because going back to school was a wise financial investment for me, but until free market forces are applied to higher education, costs will continue to rise out of control.

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