Is Higher Education the Next Bubble to Burst?
Wed 01 Jul 2009 – 10.33
It’s almost a taboo to speak of colleges and universities as businesses. The decisions they makes aren’t based on profits, they’re based on academics, right? Well, sort of. Higher education is a business, where the “products” are the graduates, and the effort is to sell those graduates to the world with the goal of getting more raw materials, students. And money. And prestige. It’s tricky.
But in America, as well as other nations, higher education carries with it a massive pricetag; attending is a sure-fire way to start your young adult life in debt. While most parents and economists alike will tell us that it’s an “investment” in our future — one that will increase the earning potential over our lives as a whole — the upfront costs are painful enough to warrant some evaluation. After all, the most basic laws of capitalism show us that if the the price of goods and services gets too high, people will stop buying! This even applies to supposéd critical purchases like gasoline, clothing, food, and now education.
I read recently, for the first time, the notion of higher education as a bubble that will soon burst. An over-inflated industry taking risks on its own future, which is now less-than-certain. The main point here is about the ever-rising costs of tuition and fees, making education unaffordable for all but the super-rich. Here’s a sobering statistic:
According to the National Center for Public Policy and Higher Education, over the past 25 years, average college tuition and fees have risen by 440 percent — more than four times the rate of inflation and almost twice the rate of medical care.
This, primarily, leads writers Joseph Cronin and Howard Norton to conclude that “there is a growing sense among the public that higher education might be overpriced and under-delivering.”
Their article appears in The Chronicle of Higher Education, and addresses such less-than-talked-about issues of how to pay these crazy fees. For example, parents will now debate whether or not $1000/week for their child’s education would not be better spent buying a house, or starting a business, or simply investing (conservatively, I hope) as a way to subsidise that child during the start of his/her career. An interesting read.
Along the same lines, MSN Money takes a look at the financial aspects of a higher education, complete with bar graphs and comparison charts. The thesis here is similar: less return on a costlier investment. Would it not be better to simply save the money towards travel, housing, kids, etc.?
How can that be? College degrees bring higher income, but at today’s cost they can’t make up the savings they consume and the debt they add early in the life of a typical student.
The metaphor here resembles that of renting vs. buying a home. A few years ago, (before the housing market collapsed) The New York Times concluded that it was a better investment to rent and invest, rather than buy an apartment in San Francisco or New York. In other words, the housing markets in those cities were over-valued, and the rate of return wasn’t worth the initial investment. Much like education? Of course, that study assumed that a potential homeowner was in the position to buy in the first place! Most renters simply don’t have a lump sum of cash available for downpayments and/or other investments.
With education, there is a similar lurking variable — can the student get a loan at all? With the credit woes lately, many students are being turned away, often because their parents don’t have, or aren’t willing to offer, collateral for such a financial burden. Would your parents take on an additional $200,000 in liabilities during a time when their retirement funds are shot and their house isn’t worth the dirt it’s built upon? Perhaps not.
I will never say so plainly “college isn’t worth it,” the time is impossible to value for the life experiences and for what you learn — in and out of the classroom. However, I am a firm advocate that the four-year college, with summers off and some crappy internships thrown in, is not the only way to go about things. Professional apprenticeships, gap years, co-ops, sandwich courses, fast-tracks, part-time, and other alternative methods of study are just as viable, and may help students transition easier into full-time work. After all, if you find yourself unemployed, and your income is minimal, then college definitely wasn’t worth it.
I didn’t need a degree in engineering to figure that one out.
So, is College worth it? Is Higher Ed the next bubble to burst? What do you think?
posted by Scott in careers, education, personal finance.
1 Comment | Leave a comment »
I don’t think it will be the next bubble to burst. I feel that the knowledge and experience I personally gained is well worth the price tag. It’s hard to explain but getting a higher education will definitely open new doors for you.
Before, I couldn’t wait to be done with school because I hated studing. Now I actually enjoy going to a book store to read and learn new things.
Comment by John Traveler on Fri 03 Jul 2009 — 16.07 |
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