Is Education the Next Bubble to Burst?

Today, a great friend and colleague of mine sent me an interesting article titled "Will Higher Education Be the Next Bubble to Burst?"

The authors point out the escalating costs of higher education, but don't get into the depth of the economics of the business.

Some points to consider:

1. Privatizing education and making it for profit - is a model that is designed to lower quality for mass affordability, just as in other areas. The U. of Phoenix model has been used by other schools- the writers do not talk about the quality of the education received.
2. Online courses - there are various versions of this model, but most involve postings on a web site. Some involve video presentations by professors. This mode might be appropriate for some areas, but not for others.
3. A suggestion that "University presidents' salaries include incentives to contain and reduce costs, to make "affordability" a goal..... state policy makers conduct cost-benefit studies to see what the universities that receive state support are actually accomplishing." The first statement assumes that without incentives the Presidents are not concerned about costs. This shows an ignorance of the business. Secondly, the cost benefit analysis sounds great in theory- the key issue is defining the "benefits."

Some of my thoughts follow...

The crux of the issue is that Americans, like most people, want College Education for their children that has

• High Quality - small class sizes, personal attention, comfortable hostels, lots of amenities, good professors
• Lots of extra and co-curricular activities- sports, field visits, etc.
• Free parking for their children, etc.

But then

• Most (perhaps more than 75%) Americans want to pay less taxes- even Obama has backed away from raising taxes on the wealthy, to a level that existed before GWB gave his handout to the wealthy.
• Probably less than 1% would even consider paying higher taxes
• Taxing the wealthy to support others is seen as socialist, even by the middle class (it is a bad word here..) This is the primary reason why the U.S. government runs massive deficits- tax revenue is a bad word in the American Lexicon.

For their part, schools have tried to help by a) relying more on endowment, b) have faculty do more research and get more grants that support more students. The interesting fact is that for many schools, net tuition revenues do not even cover standard operating expenses..we have a hard time convincing parents of that. Supporting athletic teams, providing all the amenities for students including high speed Internet, computers and so on all cost real money.

Gopal's Predictions:

1. Consolidation will happen in this sector, slowly. Currently there is a lot of duplication. Every school need not have a program in every area. Creating economies of scale is essential for effective and efficient operations. Perhaps students can go to one school to take economics courses and to another to take science courses. Not every school needs to have its own physics or chemistry labs.
2. Many extra-curricular activities will go away- not every school will have a football team and a football stadium.
3. Tuition will not come down much but faculty would be asked to shoulder much greater loads - the summer off for vacation will be off....