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]

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.