Is Higher Education the Next Bubble to Burst? (1)

One of the basic premises of “Analytics and Lifting Out of Recession” is that higher education needs to reimagine and transform itself to thrive in the post recession economy. This transformation needs to include a reduction in the net cost of achieving degrees and certificates.

Reducing the net cost of learning is critical for two reasons. First, the capacity of students and parents to afford higher education has taken a serious hit, and will likely continue to deteriorate even after the economy improves. Financial aid has become problematic. Second, the cost of higher education has continued to rise faster than inflation and in comparison to other services and products. For many students and families, the higher education experience they aspired to and planned on may be beyond their reach.

In an article in The Chronicle of Education, “Will Higher Education Be the Next Bubble to Burst?” Joseph Marr Cronin and Howard E. Burton suggest that higher education may be “an asset that is irrationally and artificially overvalued and cannot be sustained.” This is the definition of a bubble, like the dot.com and housing bubbles. This article first appeared in the May 22, 2009 issue of TCHE and was reprinted on July 1, 2009.

Connecting the dots of evidence suggests they may have a point.

• 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 (the rising cost of which is almost universally regarded as unsustainable).

• The price of education at elite institutions has reached $50,000 a year and the cost of public higher education has grown substantially; the Advisory Committee on Student Financial Assistance reports that the percentage of students who were fully qualified to attend public four-year higher education and actually did so declined between 1976 and 2004 – and that was before the impact of today’s recession.

• Admissions officers have reported the recession is stimulating migration of many students from private to public institutions, from four year publics to community colleges, and to for-profits that offer efficiency, consistency of outcomes, and linkages to employment.

• William Baumol, in his classic article, “Why College Costs so Much?” in Planning for Higher Education in 1995, suggested that both education and health care, the “laying on of hands” professions, had not utilized technology-enabled reinvention to reduce their relative costs – unlike other goods and services in the economy. Unless this changed, Baumol projected education and health care would together account for over 50% of GDP in 2040 – an outcome that obviously was and is unsupportable. Baumol’s formulations did not receive the attention they deserved over the past 14 years.

• In Transforming Higher Education: A Vision for Learning in the 21st Century, also published in 1995 Michael Dolence and Donald Norris stipulated that higher education across the globe would need to realign, redesign, redefine, and reengineer its practices in order to educate the tidal wave of students clammering for learning. The current economic realities have placed exclamation points on this message.

Future conditions will exacerbate the competition for students – demographic decline in the Northeast and Midwest, disruptive competition from for-profit institutions and other new competitors, and fresh approaches to developing, demonstrating, and certifying competences. The processes of realigning, resigning, redefining, and reengineering higher education have shifted into a higher gear.

In tomorrow’s blog, we will discuss existing and projected innovations and transformations that are reducing the cost of tuition, the total cost of education, and the fundamental mechanisms for perpetually acquiring competences.