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January 13, 2014

Trends from 2013: the higher education bubble

Bryan Alexander:

This concept, which I began to track in early 2012, built across multiple fronts in 2013. The bubble idea holds that colleges are overpriced, that student demand is questionable, and both could drop together. I have tested this concept throughout 2013 through social media and in-person presentation, using multiple trends and analyzes, and even developed an alternative model (peak higher education). My verdict now is... the bubble might be happening.

A series of major trends supported the bubble concept in 2013:

College and university tuition and fees continued to rise, despite several tuition freeze experiments. This is consistent with a rising bubble, among other interpretations.

Student debt rose throughout 2013, inspiring widespread anxiety. This is also consistent with a bubble (as well as other models: consumer behavior in a captive market, and also consumers reacting to media panic, etc.)

A number of institutions took drastic steps to stave off financial crisis, including merging with other campuses, ending academic programs, and laying off faculty (I dubbed the latter two "sacrificing the queen"). These events could be advance signs of a bubble about to pop.

The number of students taking classes went down across many sectors (see "Enrollment decline" above). If this continues, then that's a sign of a bubble popping.

Some graduate programs suffered badly in 2013, most notably law schools, who saw declining revenues, applicants, graduates, and jobs.

Outside of campuses, political pressures remained steady. Some of this occurred in partisan terms, as Republicans extended their criticism of public K-12 to all of higher education, sometimes with an anti-union dimension.

Indeed, I find bubble arguments most often made by conservatives. However, 2013 also saw Democrats joining in for a full-court bipartisan press on higher education, from a presidential charge to build a new institutional assessment system to high-profile governors and mayors calling for reduced higher education fees.

Posted by Jim Zellmer at January 13, 2014 12:40 AM
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Comments

I'm not sure that the application of the "bubble" works so well here. With both housing and stocks there is not a total correlation between the actual cost of the product and what people are willing to pay for it. Prices can rise exponentially only based on demand. Beyond the consideration of endowments the assumption is that there is some direct correlation between what it costs to run a university and the tuitions set. I also realize that staffing of universities beyond instructional staff has risen over the years and that endowment funds are not generating the kind of income that they have when I went to school.

Posted by: John Dickert at January 19, 2014 7:47 PM
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