Pop!

Is there a higher education bubble?

I've read several commentaries recently asserting that we're in one. The bill of particulars usually includes some mix of the following:

-- Enrollments in colleges and universities are the highest they've ever been.

-- Tuition is the highest it has ever been, even after inflation, and it's increasing much faster than inflation.

-- In the Great Recession, many new graduates are simply unable to pay back their impressively high student loans

-- Private lenders rushed into the student loan market a few years ago, covering the gap between what the government would lend and what colleges charged. As with the housing market, you can't multiply leverage forever.

-- The payoff to college degrees declines as degrees become more commonplace. Some people respond to that by going for ever-higher levels of degrees, in a sort of credentialist arms race.

Rebuttals usually include some of the following:

-- Recessions don't last forever. A temporary blip does not a long-term change make.

-- The net payoff, in salary terms, for a college degree is still strongly positive.

-- Some of the tuition increases are the result of public disinvestment (or "cost-shifting"), rather than out-of-control spending.

-- In an information-based economy, some increased demand for education is rational.

There's merit in both sets of arguments, but they strike me as answering the wrong question. For what it's worth, I'd suggest that the error is in treating "higher education" as if it's one thing. It's actually a series of different things, some sustainable and some not.

At a really basic level, I'd divide degree-granting colleges into four groups: high-cost high-prestige, high-cost low-prestige, low-cost high-prestige, and low-cost low-prestige. The high-cost high-prestige places -- think Harvard and Yale -- will be fine. They have more money than God, and they sell exclusivity.

Low-cost high-prestige places -- the public Ivies, say -- will be fine if they can keep up their perceived quality. There's always a market for a good deal.

Low-cost low-prestige places -- community colleges leap to mind -- will be fine if they can shift the ground of conversation from prestige to outcomes. A community college that does a good job at the first two years of a degree (or a two-year occupational degree) is a great deal; students who graduate from locally-respected programs in Nursing or criminal justice can find good jobs (in normal times) at minimal cost. And if the cc does general education well, it can become the first half of a low-cost high-prestige program. For a kid who's basically talented but still unfocused, doing the first two years at a cc before transferring to someplace good can make a world of sense, and can greatly reduce student loan burdens. (Conversely, a community college that does a lousy job at the first two years has no compelling reason to exist.)

But then there's that pesky high-cost low-prestige sector. Not to put too fine a point on it, but these places are in very deep trouble. This is where the 'bubble' argument has real merit.

As a parent, I can see the argument for spending 50 grand a year to go to Princeton. I don't see the argument to spend 50 grand a year on St. Nobody College, or on Proprietary U.

The rising number of 18-year-olds, years of cheap credit, and then the Great Recession, combined to temporarily mask some of the issues in that sector. But as the recession recedes and the number of high school grads starts to drop again, these colleges will be exposed.

In the long run, this is probably a good thing. The model of high-cost low-return doesn't make a hell of a lot of sense, and this sector will be less able to weather storms than others. The tuition-driven non-profits don't have much cushion against bad times, and watering down their quality simply leaves them even less able to compete with the public sector. The for-profits are built on growth to an even greater degree than traditional higher ed is. When they're turning massive profits, they can grow at an astonishing rate. But when the profits slip, there's nothing left to hold them up. I saw this in my own time at Proprietary U in the late 90's and early 00's. In the late 90's, it grew at a breathtaking rate; in the early 2000's, it took a series of body blows. Since the for-profits are typically more specialized and run on a quarterly-return basis, they're subject to vertiginous swings of fortune. (Of course, one could always try to go upscale with a for-profit. I'm still waiting for this to be done right.) They're quick to build, and quick to dismantle. You heard it here first.

In the meantime, though, things could get ugly. Like the lions in winter I mentioned yesterday, these institutions won't go quietly into the good night. They'll go down swinging. And when they start swinging wildly, they'll do real damage.

In the best case, they'll latch onto other institutions to survive. I wouldn't be at all surprised to see more private colleges form two-plus-two partnerships with local community colleges in attempts to tap into the pipeline of cc grads. This is constructive, as far as it goes, and I'm happy to help it happen.

On the downside, though, I expect to see increasing liberties taken in the name of economic survival. Standards will be lowered, financial aid guidelines will be stretched, faculties will be adjuncted-out, students will be overtly catered to and covertly fleeced. All of which is terrible for the students, of course, but which will also exert downward pressure on competing institutions. It won't last forever -- death spirals don't -- but the process won't be pretty.

If we're smart, we could reduce the future damage by putting some solid controls on the current situation. The for-profits will do pretty much whatever they can get away with; if you want to limit the possible damage they could inflict, you need to improve (and enforce!) regulation. Among the nonprofits, moving away from unsustainable conceits like tenure and the credit hour and towards meaningful measures of actual learning is obviously necessary over the long term. There, too, I'd expect the process to be ugly, but necessity is a mother.

Or we could curse the sun for rising, hold our collective breath until we turn blue, and wait for the pop. Maybe this time will be different.

That's where bubbles come from.