7 Reasons there's an education bubble - and it's going to burst
We’ve written on the topic of two bubbles before: the housing bubble and the Web2.0 bubble, which we believe is still in the inflation phase. At the risk of sounding overly pessimistic, we’d like to write about a third bubble that shows many of the same danger signs: education. Students are taking on historic levels of debt to pay for ever-rising tuition costs, while the existing industry model is growing archaic due to technology such as online instruction. The industry must evolve if it is to remain competitive; here are seven reasons that will force such change.
The value of a degree has declined: Basic economics dictates that (generally speaking) the more you have of something, the less valuable it becomes. As a greater share of the population has become college educated over the years, a degree now carries less of a competitive advantage in seeking employment than it did in the past. It’s even been said that college is the new high school. A more highly educated population is certainly not a bad thing, and such degree dilution might even spur many to continue on to graduate school. But that brings on the burden of more time and money, and further delays entry into the workforce when many are anxious to begin earning a living. And what happens when a Ph.D is the new high school diploma?
Grade inflation: As this New York Times blog article illustrates, the value of college has been further diluted by grade inflation. Just as currency inflation makes a dollar less valuable, grade inflation makes an “A” grade less of an outstanding achievement. In generations past, earning straight B’s or C’s might have been considered perfectly respectable, but today it is mediocre at best except in the most difficult areas of study. This is indicative of institutions churning out degrees rather than focusing on the process of learning.
This causes a dilemma: any professor attempting to deflate their grade distributions would put their students at a disadvantage relative to their peers in other classes and schools. Despite the desire to present a truer representation of student performance, few would jump at the chance to be the first to make such a move. For this to happen, the industry as a whole needs to make a unified effort so that it doesn’t impact students disproportionately. Until then, grade inflation will continue to diminish the value of a degree while tuition costs rise.
Personnel bloat: If the main goal of an institution is to teach, one would expect that the majority of staff on campus would be professors. Instead, the ratio of professors to administrators has dwindled, in some cases to less than one to one. It might sound nice to have a multitude of coordinators for student activities or for the secretary’s assistant to have an assistant, but many of these positions do not support the college’s core mission. They simply drive costs upward and need to be reined in.
Questionable academic relevancy: In an attempt to foster strong reading and writing skills, schools often mandate a number of courses in literature. In the name of well-roundedness, these often consist of poetry, drama, Shakespeare, and like subjects, but many students still finish the courses without strong comprehension and composition skills. The same situation exists in many other subjects, which shows how today’s curriculum has drifted from the premise of imparting critical skills and knowledge. While subjects such as those above should certainly be available to pursue, a back-to-basics approach is needed (in the form of raw grammar and technical writing for this example) to make it more relevant to today’s workplace.
Out of control tuition costs: As with any asset, such as housing, price growth cannot outstrip income growth forever. At some point, it must level off, or, more likely, return to the historical mean. This can be either sudden and severe or gradual. Tuition costs continue to outpace incomes, and people are increasingly having trouble justifying the high costs.
Compounding this problem is the fact that the end user, the student, often isn’t the one paying the bill, and when they are, they’re not in full control of the process. Whenever someone pays for something on behalf of someone else, less emphasis is placed on value, and when students are persuaded into taking on huge debt loads to finance an education, they usually don’t have adequate ability to analyze how they can justify that cost. In either case, people accept these rising tuition costs as a given rather than devising ways to fix the root causes.
Justification of the above issues via platitudes: Preceding the housing market collapse, people justified the high prices with platitudes along the lines of “buy now before they go up even further” or “that’s a small price to pay for the American dream.” Education sees similar rationalizations in the sense that it makes one “well-rounded” or “worldly.” Those aren’t bad things, but they are lousy justifications for spiraling tuition costs and crippling debt so early in life. Just like in the housing market, they won’t hold true forever.
People are opening up to alternatives: Investor Peter Thiel created a unique though controversial program that pays promising candidates not to go to college and instead start a business. The concept draws upon many of the tenets described above and is based on the premise that industrious individuals would be more productive as entrepreneurs than in an academic setting. As with any startup, the chances of success for these individuals are low, but the potential reward is significant. While this is obviously infeasible for the general public, it shows that people are becoming mindful of the fact that the cost-benefit analysis of traditional education isn’t holding up. Alternatives such as online or self-directed education should become popular given the availability of learning materials online and the technology to consume them.
As with all bubbles, nobody knows when it will burst, or whether it will be a collapse or a slow deflation. Nonetheless, the education bubble shows many of the same signs as those in the past, and with technology-driven alternatives emerging, it’s clear the existing traditional model needs to evolve.