Higher Ed Bubble: Coming Soon?

For the last couple of months, I've been working on blog posts for the local chapter of the Penn State Alumni Association. The post below was included in last month's newsletter, and was a topic I selected. The subject has been discussed all around the Internet, so I wanted to add my own thoughts, especially as it might impact PSU. Here's the post:

Over the last 15 or so years, we’ve become used to hearing terms like the “dot-com bubble” and the “real estate bubble.” You can find detailed definitions of these “bubbles” at Wikipedia, among other resources. At the core (and for the purposes of this post), a bubble exists where the price of X increases rapidly, to the point where that price cannot be sustained relative to other economic elements (think income).

Our question for today: are we in the midst of a Higher Education Bubble?

It’s a question being asked with increasing frequency. An internet search for “Higher Education Bubble” yields dozens of articles in places like the Wall Street Journal, the Chronicle of Higher Education, Forbes.com, and the Boston Herald. And after our experiences with the most recent bubble (real estate), we ought to learn the issues before the bubble bursts.

When Penn State sets its budget every summer, we’re always hearing about the amount of funding provided by the Commonwealth, along with its impact on the increase in tuition and fees. In effect, Pennsylvania is shielding the true cost of a Penn state education by providing a subsidy. The federal government, to this point, has also made student loan guarantees a relatively simple process. Again, this could be considered something akin to a subsidy. Of course, student loans carry their own issues; Penn State’s For the Future campaign states that upon graduation, a student will have an average loan debt amount in excess of $28,000. An estimated 74% of Penn state students receive financial assistance, mostly in the form of loans. (Source: For the Future, Summer 2010, pages 10-11). Are the state subsidies and federal loan guarantees driving demand to levels that the market would not naturally reach?

The increases in tuition and fees are undeniable. According to the College Board, “Published tuition and fees at public four-year colleges and universities rose at an average annual rate of 4.9% per year beyond general inflation from 1999-2000 to 2009-2010”. (Source: Trends in Higher Education Series, 2009). Over that same time period, the general inflation rate was under 3%. Has the price of a college education increased rapidly, compared to other economic elements? Have American household incomes increased at that same rate, over that same time?

Has the value of an undergraduate degree held up over time? Let’s consider that we’ve lost more than 8 million jobs during the current recession (Source: NASDAQ.com), and Vice President Biden recently stated that many of those jobs are not coming back. At the same time, schools like Penn State continue to graduate large numbers of students. So there’s a large number of people meeting the minimum requirements for most jobs (a Bachelor’s degree), and they’re competing for a shrinking number of open positions. Our experiences in the current recession suggest that, very often, the value of a degree has not help up.

Certainly, there are a lot of entities (like Penn State) and people (like us) who have a vested interest in there not being a burst bubble. Similar interests didn’t prevent previous bubbles from bursting.

Since this is supposed to be a simple blog post, I won’t delve into issues like what might happen if college becomes compulsory, or any of the political issues behind the changes to the student loan programs, or any of the reforms that a modern university might consider. Do you think that we are experiencing a bubble in higher education, and, if so, how can we help Penn State thrive through a period of uncertainty?