The Education Bubble

[rowyn]

Higher education is in a bubble.

Tuition cost has been increasing faster than general inflation for as long as the FinAid office has existed. The FinAid table puts tuition costs at twice general inflation from 1999-2005. I could not find a handy chart from the Bureau of Labor Statistics, so I looked at their year-end reports for 2006-2010:

Year	General Inflation (including eduction)	Education	Ratio
2010	1.6	4.4	2.75
2009	-0.4	5.3	***
2008	3.8	5.8	1.53
2007	2.8	5.7	2.04
2006	3.2	6.2	1.94

*** Left off because the ratio of a negative number to a positive one is crazy.

The trend is not improving.

Enrollment rates are likewise up. From the National Center for Education Statistics: "Enrollment in degree-granting postsecondary institutions increased by 9 percent between 1989 and 1999. Between 1999 and 2009, enrollment increased 38 percent."

What I really want to know next is how much supply has increased -- how many seats are available for students and how much has that number risen? Are college class sizes growing overall? (Ie, is the growth in enrollment accompanied by a growth in infrastructure, or are more students being placed in the same number of classes?) My Google-fu has failed me here; I can't figure that out.

But the demand-side numbers suggest that supply is unable to keep up: prices keep rising, but that doesn't deter more people from wanting the product.

The government response to rising prices has been to increase student aid, in the form of grants and loan guarantees and low interest rates.

If rising prices are the problem, this is exactly backwards for solving it.

Making more money available more people to purchase a resource doesn't make that resource cheaper. It makes it more expensive, as the pool of people able to purchase it and the amount of money they have increases. Yes, eventually supply should increase, but it's easier to increase prices than to increase supply, so which is going to happen first?

Assuming the goal is to increase the supply of skilled labor, and that the government should play a role in doing so*, it would make more sense to increase the education supply. For example:

* Build more public universities
* Add more capacity -- classrooms and staff -- to existing public universities
* Offer incentives (subsidies or tax breaks) to private colleges for increasing their capacity
* Tie the above to performance & cost (you want to incentivize inexpensive high-quality schools, not costly low-quality ones).
* Improve career counseling to high schoolers (not everyone benefits from a 4-year degree and different majors effect your economic prospects differently)**.
* Offer incentives (subsidies or tax breaks) to businesses to do their own training instead of looking only for applicants with 4-year degrees.

I'm pretty sure we do some if not all of this already, but given the comparative lack of attention the supply-side of education gets, it feels like government efforts are badly lopsided on the subject.

* Big assumptions! I am not sure I agree with them, even.
** As a holder of an MA in English literature, I want to emphasize that there is nothing wrong with getting a degree in a field that is in low demand. But you really need to be aware that (a) your field is in low demand (b) thinking "it's so unfair it's not in high demand" is not going to change that and (c) borrowing money to get a degree in a low-demand field is not going to improve your econmic outlook significantly.

Comments

[octantis.livejournal.com]

This is puzzling. I'm always hearing that educational institutions of every level are starving for money, having to drop programs or curb the financial aid programs they themselves offer. If the demand and cashflow keeps going up, wouldn't we be seeing all these higher educational institutions boasting bigger and better stuff? Or at least wouldn't we be seeing professors rolling around in Benzes? Where's the money going? Research? Who's getting rich here? Assuming universities are having difficulty with funding, would adding more structure on top of it be more difficult to financially support?

[octantis.livejournal.com]

I'm not challenging the notion, by the way, I'm genuinely confused.

[rowyn]

That's interesting; I haven't been hearing news to that effect myself. I've heard the Ivy League schools are flush with cash, but I don't have any figures on them or on the average institution, so I could be wrong even on that. Do you happen to have any statistics on the subject?

[octantis.livejournal.com]

Checking on it, I see where I'd've been hearing about it. News reports say that the colleges that're being hit really hard are community colleges. That'd explain why I kept hearing about it, 'cause I'm no Ivy Leaguer.

This other article seems to indicate state universities are in trouble too, though. http://www.bestcollegesonline.com/blog/2011/07/12/10-colleges-facing-the-biggest-budget-crisis/

I didn't vet the site, but it looks legit enough, and the article is recent. I notice even Harvard is mentioned on there.

Google "college budget problems", and it seems to sift out enough of the pages about students having college financial issues to leave news reports about community colleges having crunches. Can you use your source to find stats on community college funding levels? I don't know how to find them.

I know people tend to look down their noses at community colleges, but many of them are the only option for less affluent families, and many of them have excellent programs, so I don't think they should be taken out of consideration.

[rowyn]

State universities and community colleges facing budget cuts ties in with what Shaterri was saying -- that the feds do financial aid while local and state governments subsidize state universities and community colleges.

I'm not sure if state-run colleges are raising tuition at the same rate as the private sector. Their prices are rising too, but it might be more slowly. They are certainly far cheaper than private schools, at least for local students.

[octantis.livejournal.com]

So, I'm pretty much vandalizing your LJ entry, sorry. :D I ended up making this comment a huge wall of text as I let my train of thought wander while I was trying to work out the situation.

So if I have this right, state budgets for colleges fell off a cliff, so colleges raised tuition to cover the shortfall and the increasing demand... then the feds inject a bunch of cash into the student base, but it's not as much as the colleges lost in state funding, so the same number of students, or more, are allowed to go to college, and all the federal funding is absorbed through their higher tuition by these colleges trying to make up their shortfalls.

Man, this is confusing. It's like trying to find the leak in a maze of piping.

So the feds need to stop injecting cash into the student base so that the tuition raises in colleges aren't further exacerbated by an increase in student enrollment.

So then, the problem we're left with is that, with or without the federal aid, students can't afford to go to college and yet still colleges are cutting programs. And as Shaterri says, we can't build more colleges or raise capacity, because the colleges that exist can barely get by as it is.

So what we're left with is that if the fed wants to help education in this country, it should help the colleges that exist stay in business and maintain their quality, and the colleges need to use this money to do exactly that, not do financial aid stuff that will allow more students to enroll.

I guess all we're really left with now is that colleges are going to raise their prices anyway if they want to maintain their programs, and only richer students will be able to go receive whatever this is going to be. And even if states somehow raise funds to put to colleges, the money is still going to have to be used the same way.

In the end, pretty much it's that either students in a wider variety of socioeconomic standings get to go to sub-par colleges, or only rich students will be able to receive a decent education, and anybody else is hosed.

Ugh, I guess we trace this all the way back to the very foundations. We're running into the limit of our resources. Each time poor or middle class people spend any resources that don't stay with poor or middle class people, the rich soak it up.

I guess we're seeing history repeating itself once more. The elite keep getting the lower classes to produce while the lower classes either give up their resources to the upper classes or get by on whatever they manage to hang on to. Eventually the poor are so desperate that they have the motive, and so numerous that they have the power, to dethrone the elite. I guess that's the game... keep the lower classes complacent with less and less, and the score is based on how long you manage to do that before their unhappiness plus their numbers overcomes the power you wield.

I will call this game "World of Wargraft".

[rowyn]

I think your assumption that the tuition fee increases are coming mostly from state & local schools is in error, though. I can't find data on exactly how many students attend state & local schools vs private, but private tuition is MUCH HIGHER than public. From the College Board:

In 2011-12, public four-year colleges charge, on average, $8,244 in tuition and fees for in-state students. The average surcharge for full-time out-of-state students at these institutions is $12,526.
Private nonprofit four-year colleges charge, on average, $28,500 per year in tuition and fees.
Public two-year colleges charge, on average, $2,963 per year in tuition and fees.

I suspect the average state university tuition to in-state students is about a third of that of a private university. When you hear about someone graduating with a $100,000 in debt, I can guarantee that they did not pay in-state tuition.

Also, price is not that well-correlated with quality education. Of the top 50 institutions (according to the US News ranking), 13 are public.

Furthermore, all universities offer scholarships to the best high school students, and often offer need-based funding as well. So a poor but dedicated student isn't going to have to get a loan: they can get scholarships. Another source of funding: one of my co-workers at IBM many years ago didn't get a full scholarship from her school of choice, so she researched small scholarships and grants and applied to every one that she qualified for. By adding them all together, she got enough money to cover her first year of tuition at a private school -- I think this was around $13,000 in 1989 dollars. Presumably she could do it again for subsequent years.

Anyway, I'm not saying that federal money helping out poor students is a bad idea. If federal loans only went to the bottom 20%, I wouldn't be worried. But federal loans are going to everyone, because even many families with solid middle class incomes can't afford to put their two kids through the (private) college of their choice.

Tuition costs need to come down, which means capacity needs to go up, or more kids need to go to cheaper state and local universities.

Also, schools like Harvard are not starved for cash by any sane measure: Harvard's endowment size per student is was $1,456,940 in 2007 (and has gone up since). (Endowments are not annual tuition -- they're the trust fund that funds a university through private donations, in addition to any tuition they collect). I am sure Harvard would love to have it be $2 million, and that if it drops to $1.3 million they'll no doubt have to make cuts they'll hate to make and will loudly lament. But somehow Columbia University (#4 on the US News ranking, and also an ivy-league school) was making do with an endowment of a measly $240,000 per student.

[octantis.livejournal.com]

If I expressed that assumption, it was unintentional, sorry. I was using public institutions as an example, because I assume your theory is applying to them also, and they're the institutions I'm more familiar with, what limited familiarity I have. I understand that private colleges are more costly. I see also that they're not in as much trouble as public institutions currently, that's good. (I think?) Still, public university tuition is going up significantly, at a rate that is becoming harder for the lower class to keep up with. They cite the College Board as their source, too. In terms of proportion, here's a compilation of stats, it has a section on institutions and a post-secondary subsection. It's a little hard to read... it seems like private institutions outnumber public ones? Then on this report public ones handle vastly more associates and bachelors degrees, a little fewer master's degrees, a good number fewer first professional degrees, and suddenly a higher number again of doctor's degrees? Either way, a pretty significant chunk.

I'm also not trying to imply you think federal money helping poor students is a bad idea. I don't think it's a bad idea either, necessarily. In fact, I'm usually the bleeding heart advocating support for those that are finding it increasingly difficult to access opportunities like this while cuts are coming down left and right.

I'm also-ALSO not trying to imply that public institutions are inherently inferior to the higher cost private institutions. In fact, part of my point is how important they are, because the large majority of people can't afford to go to a private college, your friend's experience 22 years ago notwithstanding. (In fact, wouldn't it be much harder for her to do that now if the feds keep driving tuition prices up?)

Tuition costs need to come down, agreed. More kids need to choose cheaper state and local universities, also agreed, but I don't think everyone who wants to will be able to do that because the universities just can't afford to take more students at lower tuition rates. Capacity needs to go up... this is where I got tripped up, not because it isn't desirable, but because it didn't seem feasible.

[octantis.livejournal.com]

My meandering comment prior is just about impenetrable because I started 'thinking out loud', so it's not very organized, sorry for that. My big rambly stream of consciousness comment before this one is an attempt to play out what's going on based on what we know and what you're saying, so I can look at it and wrap my head around it. The conclusion I came to, based on the assumption that your theory of federal loan help driving up tuition costs is accurate, and it seems plausible, is that the poor and middle class were SOL no matter what the feds do.

The feds can't subsidize student loans for any more than the lowest 20%, we know that, or at least we're accepting it for the sake of discourse. Can they drive down prices by hiring more professors and making more classrooms and trying to lure students away from the wealthy private colleges? That's what I'm trying to understand, and what I'm worried about. If that's what we're trying for, it's a tough trick to pull off. The public institutions can't even afford what they've currently got. I don't know if getting up to snuff and then taking on a bunch more infrastructure, in the hopes that they'll pull enough students away from private schools to cover it all, even with federal help, will lower costs enough that the 80% who do apply for government financial aid but don't get it, can still go in too.

I really do think it's getting harder and harder for the less affluent to get a quality education. I agree with you that the fed might/could/should help a chunk of them. I just think more of the rest are going to get kicked to the curb, and that with the increasing state of inequality it's just going to get worse. It really does look to me like a repeating history of monarchs, merchant princes, and powermongers taking up more and more of what's available until they can no longer convince the lower classes to accept less and less. I'm not sure where the breaking point is, but with all the protests it seems like there's some cracking, y'know?

Sorry I'm talking so much. I'm not getting out much these days. :I