Skip to comments.Will Higher Ed Be Next Bubble To Burst Open?
Posted on 07/20/2011 5:11:16 PM PDT by Kaslin
When governments want to encourage what they believe is beneficial behavior, they subsidize it. Sounds like good public policy. But there can be problems. Behavior that is beneficial for most people may not be so for everybody. And government subsidies can go too far.
Subsidies create incentives for what economists call rent-seeking behavior. Providers of supposedly beneficial goods or services try to sop up as much of the subsidy money as they can by raising prices. After all, their customers pay with money supplied by the government. Bubble money, as it turns out. Sooner or later, bubbles burst.
We are still suffering from the bursting of the housing bubble created by low interest rates, lowered mortgage standards and subsidies to Fannie Mae and Freddie Mac. Those policies encouraged the granting of mortgages to people who should never have gotten them and when they defaulted, the whole financial sector collapsed.
Now some people see signs that another bubble is bursting. They call it the higher-education bubble.
For years, government has assumed it's a good thing to go to college. College graduates tend to earn more money than non-college graduates. Politicians of both parties have called for giving everybody a chance to go to college, just as they called for giving everybody a chance to buy a home. So government has been subsidizing higher education with low-interest college loans, Pell grants and cheap tuitions at state colleges and universities.
The predictable result is that higher education costs have risen much faster than inflation, much faster than personal incomes, much faster than the economy over the past 40 years.
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Nothing the Government subidizes decreases in cost as far as I’ve seen.
UW Madistan just bumped up their tuition 5.5%...blamed our new Governor Scott Walker (R, WI) for cutting funding, don’t ya know! ;)
This...is a bubble I could get behind 100% - pop it, bring the cost of education back down to reality and limit the degrees to x number of graduates per field per year based on future job availability actuarial estimates. Now we’re talkin...
Employers need to stop worshipping the diploma.
oops - bubble s/b ‘bubble burst’
I hope so.
My daughter is going to be college age very soon.
“The governments view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
I have a BS in engineering and an MBA, (Old joke, we all know what bs means, MS means more of it, and phd is piled higher and deeper) from days long ago. Today, I’d tell the kids to NOT go to college. What’s the point of liberal indoctrination after HS indoctrination, for a 100K bill that gets you NOTHING. They’ll learn more life lessons from roofing from the construction owner than from the prof. The only college worthy is Hillsdale. If kids can make admissions, poorly taught students don’t have a chance. My kids are looking at home school and other options other than government run indoctrination centers.
This is something that has stuck in my mind for years, even though I'm not a college person (a few classes here and there).
Our local newsies did a worthwhile report, years ago, on escalating college costs. While the inflation rate was 2-3%, University of Arizona was tacking 8% onto college costs, year after year.
The newsies concluded it was because of cheap loans.
And then, along came Her Highness, Queen Pelosi, election night 2008, and I remember one of the first things out of her mouth, was that they were going to make it easier for students to attend college.
Whenever a slimy pol says "make it easier", watch out for your wallet.
I knew instinctively that she meant that they would further cheapen college loans, but didn't know there would be, essentially, a government takeover of loans.
Cheaper loans meant that a student could go even further into debt, and become even more a government slave to that debt.
At the same time, our Leftist government makes it harder and harder for that student to find a decent job, in order to relieve themselves of that increased debt.
Waiting for the next shoe to drop, in my conspiratorial mind. Want to get out from underneath that debt? Well maybe you could join the Civilian National Conspiracy Corps, uh I mean the Civilian National Security Corps, and have that debt forgiven!
Naaah, wouldn't happen...our President wouldn't think like that.
Totally agree. I run into many higher (supposedly) educated stupid people.
Sounds like a job for government.
Nutty with a taste of delusion.
Another case of easy credit with minimal standards. Will have the same effect as the housing bubble - the dupes (in this case, marginal students who get a boat load of debt) will pay lots of penalties and then default. One may not be able to discharge these loans in bankruptcy, but one cannot get money they don’t have, so after paying lots of penalties, they will default and the originators will have to write off the loans. Since these are federally guaranteed, we taxpayers will get the bill..
There are a LOT of unemployed / grossly underemployed 20-something college grads with huge student loans.
It’s even possible they won’t vote for Baraq next time.
No, no - I think 2000 dollars to crowd in to a class of 100 people taught by a tired Grad Student so that some college professor can work on their book and live in a beach house is a steal.
my thinking is, if you limit the number of degrees per year (like nursing/med schools have done for decades), then you don’t have 500,000 people with psychology degrees oweing the taxpayer $150K+ in federal student loans apiece, they likely will never repay (and in fact, may tend to be ‘professional students’).
Somebody wants to get a psych degree anyway in spite of a 30-yr flood in the jobmarket, let them pay for it themselves and they can be very happy with their $18K a year career.
It is about time they go after this artifical maket. Make the colleges use all that tax exempt endowment money they have been sitting on and stashing away for years. Get all the political castoffs off of the college payrolls for doing next to nothing... Make professors actually teach classes again.
Read "Faculty Lounges"--this Barone does not put enough on the shoulders of the Parasites Hunting Dinner who rip us off, work 11-2 on Tues, Wed, Thurs, let grad students to all the teaching.
After seeing a few kids through college, college professors are starting to look a lot like ambulance-chasing lawyers.
Beware the Government-Education Complex.
ping on 12,
Your solution is bound to start the Obamanation salivating. The obvious answer to any problem you can identify: A New Government Program!! More rules!! More regulations!! Then more programs, more rules, and more regulations to solve the unintended consequences of your original program!!
Um, I suggest letting the market handle it.
Nursing med schools may do a certain amount of “guild mentality” behavior, but the real driver is the high cost of educating any kind of medical personnel. People can’t seem to understand that putting teacher in a classroom is cheap, hiring medical personnel to train students requires a hospital, an interesting patient pool...it is far more difficult to train an RN than a lawyer. But I keep hearing this “limiting” stuff. We wouldn’t be importing all these docs from Muslim countries if we could educate more US doctors. It’s cheaper to let other countries educate the docs.
Suggest you pick up a copy of “Faculty Lounges” or at least skim it in the bookstore...I believe there are a few examples of UofC.
Grove City, Patrick Henry College, some of the Catholic schools.
If you liked the Christian band DC Talk they went to Liberty University.
Financially, big state schools are good if you go in-state.
I am here to testify that they once did. Throughout my years at a small Southern college I was instructed by professors and only professors, almost all of whom were Phds. There were absolutely no grad student instructors there.
I should add that that was a long time ago: 1962-66.
limit the degrees to x number of graduates per field per year based on future job availability actuarial estimates. Now were talkin...
That would put the government in charge of predicting the future and awarding those degree slots.
I see your point, but we already have the system in place.
We already know to a certain degree, how many jobs total are available in just about every occupation, and how many jobs are expected to be added, based on reported forecasts of number of companies in each industry, with a fudge factor for start-ups. This info is produced at least annually. We could lose upwards of half of the govt people pushing around mountains of paperwork generated from loan renewals, add-on loans, defaults, etc. Costs of education go down, number of ‘professional students’ go down, quality of graduates increase, and more people can be educated towards occupations that are not already top-heavy and where they can actually find employment.
What other solution do we have to solve the runaway studentloan/educationcost problem, factoring the upward costpush of educational unions’ influence on a “free-market” system?
>> This...is a bubble I could get behind 100% - pop it, bring the cost of education back down to reality and limit the degrees to x number of graduates per field per year based on future job availability actuarial estimates. Now were talkin... <<
Government action to limit education? You Liberal, you!
But seriously, put an end to government incentives, and the market will balance itself out.
It’s basic math:
In the old days, university degrees used to be calibrated so that they were attainable by someone with what was then considered to be “elementary school teacher’s” academic ability - an IQ of 115 points.
Of course, IQ doesn’t correlate perfectly with real-world ability, but if it’s a proxy for anything, it’s for academic ability.
IQ is normally distributed.
An IQ of 115 points is 1 standard deviation above the average (which is, by definition, 100).
30% of any normally distributed population is 1 standard deviation or more above the average.
Hence, only 30% of the general population could potentially have gained a degree under the old standard. (Of course, far fewer had the chance of a college education in the “bad old days”.)
Last year, 70% of US High School grads enrolled in 4 year college.
The least academically gifted of those 70% will have an IQ one standard deviation (15 points) below the average - 85 points.
In less politically correct days, an IQ of 85 was considered “educationally sub-normal”.
Bottom line: what is the value of a qualification that is calibrated to be within reach of 70% of the population?
I’m guessing the value is materially below the current cost of a four year degree.
Sorry to be a party-pooper: of course it would be “nice” if everyone could get a college degree, but a degree that anyone can get is worthless.
Time to end the shameful scam that loads kids up with debt for inappropriate and useless “qualifications”.
The difference is that a college education produces extremely little in terms of tangible goods. When you subsidize a house, at the end you get a house. When you subsidize an oil well, at the end you get oil (hopefully). But when you subsidize a college education, all you are getting, at best, is a better mind. But there is no tangible asset acquired and, therefore, nothing of real value acquired. You *could* use that mind to get a better job or invent a better technology, etc. but there’s no guarantee of that. Some of the sharpest minds in technology today never completed college before they started making their millions.
Hillsdale college and Colorado Christian university are conservative and excellent schools
All the good that solid conservatives might do in Washington and the state governments must come to naught because these kids will be their successors.I suppose it is not a scientific sampling and perhaps this resort is experiencing some odd confluence of college retardation and modern noneducation this past half decade but I am not optimistic.
“I’ll look for it in the bookstore. I’ve been here since 1994 and this place is quite unlike industrial-sized schools like University of Illinois at Chicago (UIC).”
I attended UIC for a few years in the 90s. Talk about a total abomination of a school.
Their library collection was fantastic, and I found a small handful of good profs who really cared about their subject and doing their job, but on the whole I learned more working my way through college than in a UIC classroom. And their add/drop and refund policy was outrageous.
I transferred out after three years and never looked back.
Eventually students are going to stop paying highly inflated tuition costs and once enrollment begins to drop, the bubble will pop and colleges will start going bankrupt in droves. Like most government programs meant to make something more affordable, our governments meddling in education has done the exact opposite and has completely stifled any good innovation or progress (health care is another classic example). Technology, on the other hand, will fill the void when colleges are exposed as poor investments. For a fraction of the cost, online virtual courses can teach students just as effectively as physical classrooms. They can offer lessons by world class professors and let the students learn at their own pace. This is the future of learning, and one that is much different than the stale model thats currently our educational system.
The economics of colleges are quite interesting. Costs always rise and productivity never increases. Not very sustainable. One can only subsidize a limited amount of philosophers and anthropologists.
1) Enough schools with enough slots to accept all these students, whether there will be work for them in the future or not.
2) Government programs to make sure that there's always money available for students who want to go to college to borrow.
The students are encouraged to borrow six figures, and the taxpayer winds up supporting educational institutions that are turning out more graduates that can't find work. When the students can't find work they default on the loans, if they never find work capable of paying down the loans they never repay the loans.
The schools will always have the slots while the easy government money is there, since the easy money means there will always be students to fill the slots and keep the professors and school administrators in the style to which they have become accustomed.
How will this resolve itself? Cut the easy money programs (which we can't afford anyway) and the students will have to pay their own way or choose themselves (no government bureaucracy needed) future professions that will actually allow them to repay the loans. If they can't come up with a profession that will allow this they won't go to school and won't waste the money, because it's now their money that's being wasted, not the government's. The schools will be forced to reduce capacity to that level, and the overpaid professors and administrators will be forced to take pay cuts down to what their abilities actually justify.
Will this be painful? Will this mean some kids who want to go to college won't be able to? Yes, but why should a kid be allowed to go to college just because they want to? Will there be schools that retrench, merge and consolidate and go out of business? Yes, because we have overcapacity, and the only way to cut overcapacity is to cut overcapacity.
Welcome to an America that is not living beyond its means. It might seem tough and unpleasant, but reality is always more pleasant than unreality in the long run.
How about taxing the Billions in the University Endowments that are at the Moment TAX FREE!!!!
The cost of higher education has risen much faster than inflation since 1965 when federal grants and loans for higher education were passed by the far left. Now known as Pell Grants and Stafford Loans, the tax money dumped into these schemes has constantly increased and the prices charged by schools has chased those increases.
As tax dollars were thrown at both government colleges and private colleges the schools raised the prices they charged the students. In short order the schools raised prices even faster than the federal government threw money at them. The states also threw money at both government colleges and private colleges causing even more inflation and causing ever larger numbers of people to join those feeding at the government trough.
In 1965 Harvards tuition was $1750.00 a year. Their tuition hadnt gone up since 1963. Had their tuition gone up just at the rate of inflation it would have been $11,823.00 in 2008. Instead it was $32,577.00. Harvard s product was not better in 2008 than in 1965. The increase over inflation was just a matter of sucking up the tax dollars being thrown at schools.
The saddest part of this is the average person has not benefitted from these schemes. Students and their parents pay a larger percentage of their income to attend school today than they did in 1965 even after taking the government handouts because the price the schools are charging has gone up more than double inflation.
In 1965 the average income was $6,469.00 the minimum wage was $1.25 an hour. In 2008 the average income was $40,712.00, minimum wage was $5.15 an hour.
It took 27% of the average familys annual income to pay for a year at Harvard in 1965. In 2008 it took 80% of a familys annual income. In 1965 it took a student working for minimum wage 35 weeks to earn enough for a year at Harvard. In 2008 a student working for minimum wage would have to work 158 weeks to earn the cost of one years tuition at Harvard.
The solution is to eliminate all tax funded subsidizes of schools and for the states to sell off their government schools. The price of a college education would drop to an affordable level over night.
This is definitely the next bubble to burst. The cost of ‘higher’ education is grossly inflated and the product delivered is deficient.
This is definitely the next bubble to burst. The cost of ‘higher’ education is grossly inflated and the product delivered is deficient.
...something other than market-driven economic decision-making. Take away the bubble financing that is causing the "rent-seeking behaviors" described in the article and all sorts of miracles can occur: enrollments balanced more closely to the actual job market along with the corollary effect of eliminating on nonsense "degrees" with names that end in "studies". Always follow the money and the truth will become self-evident.
I guess they're closer to Indianapolis cronies.
I hope they do go after them HARD
The most insidious aspect of college today is that the government has inserted itself into every aspect. Set aside the obvious indoctrination and funding-curriculum extortion fears. The government controls the only lending scheme available.
If you wanted to go to school in the old days, you went to the bank and the local banker judged your fitness and whether he thought you were worthy of the risk. The fed guaranteed the loan, but your cosigner (mom & dad) were first in line. The banker in your community judged you.
Nowadays, if you want a loan, you get it from the fed directly. You’re as good or bad as any other anonymous applicant.
Fifty years of subsidy later, as others ably point out on this thread, the government interference has skewed the market up so high that you need... government money to get a degree. Forget that the cost of the degree far exceeds what you could hope to earn in the first years out of school; this is part of the plan. When no one can afford the cost of education anymore, the government will have to make it ‘free’.
The catch is that the loan today comes at a very high cost: there is no way out of it. If you fall down on your luck, if you can’t pay back the loan, the ancient remedy of bankruptcy is not available. The enforcer is the IRS, and they can raid your assets, encumber your paycheck and dun your cosigners equally. It cannot be discharged.
The old joke is that if you think you own your home, try skipping a tax payment. If you think you can afford an education, try skipping your loan payment.
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