College Bubble, Part 612

A couple of years back, I suggested in these pages that higher education was facing a bubble much like the housing bubble: An overpriced good, propped up by cheap government-subsidized credit, luring borrowers and lenders alike into a potentially disastrous mess. Subsequent events have proved me right as students have begun to think twice about indebtedness and schools have begun to face pressure over tuition. For higher education, costs have skyrocketed even as the value of their product has been declining, and people are starting to notice.

Just last week, the New York Times, normally a big fan of higher education, ran an article on "The Dwindling Power of a College Degree." In our grandparents' day, a college diploma nearly guaranteed a decent job.

Now, not so much: "One of the greatest changes is that a college degree is no longer the guarantor of a middle-class existence. Until the early 1970s, less than 11 percent of the adult population graduated from college, and most of them could get a decent job. Today nearly a third have college degrees, and a higher percentage of them graduated from non-elite schools. A bachelor's degree on its own no longer conveys intelligence and capability."
This is a simple case of inflation: When you artificially pump up the supply of something (whether it's currency or diplomas), the value drops. The reason why a bachelor's degree on its own no longer conveys intelligence and capability is that the government decided that as many people as possible should have bachelor's degrees.

There's something of a pattern here. The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle class people go to college and own homes, then surely if more people go to college and own homes, we'll have more middle class people.

But homeownership and college aren't causes of middle-class status, they're markers for possessing the kinds of traits -- self-discipline, the ability to defer gratification, etc. -- that let you enter, and stay in, the middle class.

Subsidizing the markers doesn't produce the traits; if anything, it undermines them. One might as well try to promote basketball skills by distributing expensive sneakers.
Professional basketball players have expensive sneakers, but -- TV commercials notwithstanding -- it's not the shoes that make them good at dunking.

If the government really wants to encourage people to achieve, and maintain, middle-class status, it should be encouraging things like self-discipline and the ability to defer gratification. But that's not how politics works.

Passing out goodies generates more votes, even though doing so undermines the character traits upon which prosperity depends. That may change as the global political class, pretty much everywhere, runs out of other people's money, but it hasn't quite changed yet.
For higher education, the solution is more value for less money. Student loans, if they are to continue, should be made dischargeable in bankruptcy after five years -- but with the school that received the money on the hook for all or part of the unpaid balance.

Up until now, the loan guarantees have meant that colleges, like the writers of subprime mortgages a few years ago, got their money up front, with any problems in payment falling on someone else.

Make defaults expensive to colleges, and they'll become much more careful about how much they lend and what kinds of programs they offer. China, which has already faced its own higher education bubble, is simply shutting down programs that produce too many unemployable graduates.

So far, Sinophile pundits like the New York Times' Tom Friedman don't seem to be pushing this idea for America. I wonder why not.

Another response is an increased emphasis on non-college education. As the Wall Street Journal has noted, skilled trades are doing quite well. For the past several decades, America's enthusiasm for college has led to a lack of enthusiasm for vocational education.
That may be changing as philanthropists ranging from Andy Grove of Intel to Home Depot's Bernie Marcus work to encourage the skilled trades. We need people who can make things, and it's harder to outsource a plumbing or welding job to somebody in Bangalore.

Of course, the thing about skilled trades is that they require skill. Even with training, not everyone makes a good welder or machinist any more than just anyone can become a doctor or lawyer.

And there are dangers in focusing too narrowly on a career path that looks good right now: The biggest constant in the global economy of the past several decades has been wrenching change. Jobs that look great today may not look so good in a few years.

The answer to that, I think, is adaptability. Whether their training is liberal arts, engineering or a trade, most people getting out of high school today will probably have to navigate multiple career paths over a lifetime.

How do we teach adaptability? That's a subject for another column, but you might ask yourself: Are tenured professors the best people to do that?



Read more at the Washington Examiner: Sunday Reflection: The higher ed bubble is bursting, so what comes next? | Glenn Harlan Reynolds | Columnists | Washington Examiner​

 

The US now monitors schools for their student loan default rates. Schools with high default rates can lose their eligibility for Federal aid, which generally does shut them down.

However, schools have lobbied hard to weaken these regulations -- particularly for-profit schools, which tend to have the highest default rates, the greatest dependency on Federal aid, and the most money to spend on lobbyists and campaign contributions.

 

I especially like this idea: "Student loans, if they are to continue, should be made dischargeable in bankruptcy after five years -- but with the school that received the money on the hook for all or part of the unpaid balance." This would make the administrators of profit schools be much more careful about who they encourage to get loans to attend their schools. If they abuse the system, they could be left holding the bag.

 

Also, let me add this thought: "Master's is the new bachelor's!"

 

Student loans should be dischargeable in bankruptcy -- just like any other type of loan. Schools and private lenders should face the risk that they may not be repaid if a student defaults. If that were the case, rationality would be restored to the student loan market overnight.

As it is, only students and government have "skin in the game". The schools and private lenders face no penalties for defaults. Since they have no responsibility, they act irresponsibly, with schools charging higher and higher tuition and the lenders bankrolling more and more debt. Why shouldn't they? The schools get paid up front, and the lenders get guaranteed repayment. All the risks are borne by the student and by the government (= taxpayers).

 

The Wall Street Journal has considered what would happen if this approach was used in the US:

 

:: Sigh :: It's what I keep hearing lately. . .

 

The high unemployment in psych majors isn't because a psych degree is useless, but instead because psych is the backup major for those that can't hack a more rigorous major (engineering, biology, chemistry, etc). It's the fallback degree for when your dreams of getting your original major collapse during your Sophomore year because you are failing organic chemistry. Given the short time frame left, you reach out to whatever major you can finish up quickly, so you aren't stuck in college for 6 years. That is psych (or communications or political science or... it all depends on the college, but psych seems to be universal).

If you remove psych programs from, say, 50% of colleges, you will just shift those students into something else they can knock out in a couple year - the aforementioned communications or political science. You get rid of those, and people will shift to history. Or American Studies. Or just a "general studies" degree. Or... there will always be a quick and (relatively) easy program to shift into.

Point is - the problem is not inherently with the degree program*. The problem is with the students. The students are unemployable, but not because of psychology programs.

*Of course, some psych programs are a complete joke. But some computer science programs are also a complete joke (At the last college I taught at, I heard a rumor that for a few years, before I was there, football players were encouraged to major in computer science - that should tell you just how rigorous it was during that time period). I'm sure we could find a chemistry program at some college that is easy to pass.

 

LOL You have a PhD in comedy.

 

Yeah, but it's one of those for-humor schools. The only PhDs in comedy worth pursuing are non-humor.

Also, have you checked the professional accreditation? It's accredited by LOL, but everyone knows that's just a cheap knock-off. You really want ROTFLOL accreditation.

 

Oh yes, the ROFLOL is a widely recognized and highly respected accreditor: Regional Organization That Facilitates Learning Online Linguistics. I think that Maniac is on the board of directors for this austere organization.

 

Actually, the PhD is the new associates.

 

Exactly MC. Thats why Obama got one!

 

In Australia, course work Masters degrees are expensive, while research degrees are generally covered by scholarship. The universities get paid for completed PhD's and, I think, research Masters as well. Obviously, there are quality controls and substandard degrees are out the door. The theory is that the research can be used for development and it is a cheap way to buy it. Probably a good idea. Access to the PhD is limited largely by scholarship.

My take on the situation is that the older model here had plenty to recommend it. Universities provided a wide educational experience to develop analytical ability, while industry groups and associations provided practical hands on skills. They have developed a hybrid model here where the person with an undergraduate general degree then can go to a technical college (a vocational school) to do a vocational postgraduate diploma that is skills specific and trade orientated. It is almost a "back to the future" model.

I don't think that universities do professional education as well as industry could and did, in some cases, in the past. They tend to saturate industries where, before, it was almost self regulating. A lawyer, for example, did an apprenticeship in a law firm then sat for the bar examination equivalent. The supply was more in step with the demand. Now the universities are after fee paying students and care solely about the demand they can create for their own courses. Law graduates here are having difficulty getting starts and the job prospects are even further diminishing, yet the law faculty intake is still very high.

On the other hand, there are some occupations, like medicine, that are prohibitively high in educational cost. They are only accessible to the very well off or to those who can get a very large student loan. The result is that there is a short supply of medical practitioners and rising costs of treatment. There is a movement to Nurse Practitioners to lower costs and to fill the gaps. Foreign Doctors from India and Pakistan are also being accessed to address the shortfall.