How The College Bubble Will Pop

Tyler Durden's picture

In 1970, when 11% of adult Americans had bachelor's degrees or more, degree holders were viewed as the nation's best and brightest. Today, with over 30% with degrees, as the WSJ notes, a significant portion of college graduates are similar to the average American - not demonstrably smarter or more disciplined. Furthermore, declining academic standards and grade inflation add to employers' perceptions that college degrees say little about job readiness. As we noted recently, change is coming as more and more realize college may not be worth it. Educational entrepreneurship offers hope that creative destruction is coming to higher education. The cleansing would be good for a higher education system still tied to its medieval origins - and for the students it's robbing.

 

Authored by Richard Vedder (of the American Enterprise Institute) and Christopher Denhart (Ohio University), originally posted at WSJ,

The American political class has long held that higher education is vital to individual and national success. The Obama administration has dubbed college "the ticket to the middle class," and political leaders from Education Secretary Arne Duncan to Federal Reserve Chairman Ben Bernanke have hailed higher education as the best way to improve economic opportunity. Parents and high-school guidance counselors tend to agree.

 

Yet despite such exhortations, total college enrollment has fallen by 1.5% since 2012. What's causing the decline? While changing demographics—specifically, a birth dearth in the mid-1990s—accounts for some of the shift, robust foreign enrollment offsets that lack. The answer is simple: The benefits of a degree are declining while costs rise.

 

A key measure of the benefits of a degree is the college graduate's earning potential—and on this score, their advantage over high-school graduates is deteriorating. Since 2006, the gap between what the median college graduate earned compared with the median high-school graduate has narrowed by $1,387 for men over 25 working full time, a 5% fall. Women in the same category have fared worse, losing 7% of their income advantage ($1,496).

 

A college degree's declining value is even more pronounced for younger Americans. According to data collected by the College Board, for those in the 25-34 age range the differential between college graduate and high school graduate earnings fell 11% for men, to $18,303 from $20,623. The decline for women was an extraordinary 19.7%, to $14,868 from $18,525.

 

Meanwhile, the cost of college has increased 16.5% in 2012 dollars since 2006, according to the Bureau of Labor Statistics' higher education tuition-fee index. Aggressive tuition discounting from universities has mitigated the hike, but not enough to offset the clear inflation-adjusted increase. Even worse, the lousy economy has caused household income levels to fall, limiting a family's ability to finance a degree.

 

This phenomenon leads to underemployment. A study I conducted with my colleague Jonathan Robe, the 2013 Center for College Affordability and Productivity report, found explosive growth in the number of college graduates taking relatively unskilled jobs. We now have more college graduates working in retail than soldiers in the U.S. Army, and more janitors with bachelor's degrees than chemists. In 1970, less than 1% of taxi drivers had college degrees. Four decades later, more than 15% do.

 

This is only partly the result of the Great Recession and botched public policies that have failed to produce employment growth. It's also the result of an academic arms race in which universities have spent exorbitant sums on luxury dormitories, climbing walls, athletic subsidies and bureaucratic bloat. More significantly, it's the result of sending more high-school graduates to college than professional fields can accommodate.

 

In 1970, when 11% of adult Americans had bachelor's degrees or more, degree holders were viewed as the nation's best and brightest. Today, with over 30% with degrees, a significant portion of college graduates are similar to the average American—not demonstrably smarter or more disciplined. Declining academic standards and grade inflation add to employers' perceptions that college degrees say little about job readiness.

 

There are exceptions. Applications to top universities are booming, as employers recognize these graduates will become our society's future innovators and leaders. The earnings differential between bachelor's and master's degree holders has grown in recent years, as those holding graduate degrees are perceived to be sharper and more responsible.

 

But unless colleges plan to offer master's degrees in janitorial studies, they will have to change. They currently have little incentive to do so, as they are often strangled by tenure rules, spoiled by subsides from government and rich alumni, and more interested in trivial things—second-rate research by third-rate scholars; ball-throwing contests—than imparting knowledge. Yet dire financial straits from falling demand for their product will force two types of changes within the next five years.

 

First, colleges will have to constrain costs. Traditional residential college education will not die because the collegiate years are fun and offer an easy transition from adolescence to adulthood. But institutions must take a haircut. Excessive spending on administrative staffs, professorial tenure, and other expensive accouterments must be put on the chopping block.

 

Second, colleges must bow to new benchmarks assessing their worth. With the advent of electronic learning—including low-cost computer courses and online courses that can reach thousands of students around the world—there is more market competition than ever. New tests are being devised to assure employers that individual students are vocationally prepared, helping recruiters discern which institutions deliver superior academic training. Purdue University, for example, has joined with the Gallup Organization to create an index to survey alumni, providing universities and employers with detailed information, including earnings data.

 

This educational entrepreneurship offers hope that creative destruction is coming to higher education. Many poorly endowed and undistinguished schools may bite the dust, but America flourished when buggy manufacturers went bankrupt thanks to the automobile. The cleansing would be good for a higher education system still tied to its medieval origins—and for the students it's robbing.

Which fits with what we previously noted:

real income of college grads has fallen just as fast as high school grads since 2007...

 

...though over a longer period - an extended academic career has paid off (so more college and more debt is better?)...

 

which means the money flows to best ranked schools - which incentivizes raising fees in a 'Prisoner's dilemma' world... (dominant strategy is to raise tuition - as indicated by the green arrows)

 

 

Which Matt Taibbi so eloquently pointed out:

"The dirty secret of American higher education is that student-loan interest rates are almost irrelevant. It’s not the cost of the loan that’s the problem, it’s the principal - the appallingly high tuition costs that have been soaring at two to three times the rate of inflation, an irrational upward trajectory eerily reminiscent of skyrocketing housing prices in the years before 2008."

 

As Democracy Now notes, during the following interview with Taibbi, "...throw off the mystery and what you’ll uncover is a shameful and oppressive outrage that for years now has been systematically perpetrated against a generation of young adults." The federal government is poised to make $185 billion over the next 10 years on student loans, with no way out for the young borrowers: "Even gamblers can declare bankruptcy, but kids who enter into student loans will never, ever be able to get out of this debt."

As Taibbi concludes,

"something has to be done to sort of check this availability of credit and force colleges to make more rational decisions about pricing and about - and force kids to understand better the consequences of what they’re getting into when they sign up for these loans."

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Temporalist's picture

I got my degree in Community Organizing so I can be President some day.

CH1's picture

They have the magic piece of paper, and the suckers will pay anything to get it.

The poor 18 year old kid has been trained all his life that the magic piece of paper will be the most important thing in his life.

The system will bleed him dry, and probably his family with him.

LawsofPhysics's picture

It's a club, always has been, always will be...

TeamDepends's picture

Seven years of college down the drain...

Xibalba's picture

and they're still calling you for more money

BKbroiler's picture

If I would have spent the same 5 years (double major) in my current occupation, which requires no degree, instead of going college,  I would have another house by now.  I did enjoy the hell out of it though, and that's worth something.  5 years of drugs and sex.  That should be the slogan, more people would take out student loans.

HardAssets's picture

Just think of how much more drugs and sex you could have had if you didn't pay for books and tuition

Spanky's picture

Books and tutition are the co-ed tariff...

Or, as a friend once wrote, "getting more ass than the toilet seat". Convinced me. Esp. since, in my line of work at the time, there were no women and we were gone -- isolated -- for long periods of time...

insanelysane's picture

Computer programmer, ay?

economics9698's picture

When I was in the military I was the only one going to night school and the only one getting laid on a regular basis.  Worth every penny.

SafelyGraze's picture

"tenure-track faculty" = "vanishing middle class"

http://blogs.lse.ac.uk/impactofsocialsciences/2013/12/11/how-academia-re...

low-wage part-time and non-tenure-track instructors (on annual contract) and grad student wage slaves comprise 2/3 of teaching positions

administrators outnumber faculty

http://www.whatamimissinghere.com/archives/55488

http://gabriellahoffman.files.wordpress.com/2011/08/funding1.png

adminstrators' salaries outpace faculty salaries

http://www.washingtonmonthly.com/college_guide/blog/more_information_abo...

http://ts1.mm.bing.net/th?id=H.4836787224969615&pid=1.9&m=&w=300&h=300&p=0

before a college collapses, it will first become a place where

- students go deeply in debt and don't graduate within 5 years

- the college and/or state goes deeply in debt for new construction on campus

- a few superstar professors bring in millions of dollars of external funding to pay phd students from foreign countries to do research

- a zillion part-time instructors are paid minimum wage to teach undergrads and are replaced each year 

- more and more high-paid administrators supervise regulations about sensitivity to different thought memes

when it begins to collapse, the college's office of legal counsel will attempt to sue its alumni

during the collapse process, many of the alumni will be in jail, will be in debt, will be unable to donate to the endowment

the beautiful campus and buildings will be turned over to state government as a state park and tourism destination

 

 

Rafferty's picture

This article is correct and it brings joy to my weary heart.  And I say that as a former Professor.  Universities have become indoctrination centers for White guilt, specifically White male guilt, PC gulags where Thought Police reign supreme, infested with dumb unqualified NAMs to whom you have to give a passing grade or risk getting hauled before a Diversity Kapo.  Standards have plummeted and courses are infested with 'Studies' of various kinds, Women's, Black, Reparations etc.

I've ordered my beer and am settling back to enjoy.

 

 

tarsubil's picture

It truly is something to see the construction on college campuses. Especially, when living as a wage slave to erratic professors for a long time. I don't know how you can't see them as simply money producing fiefs for those in power disguised as educational institutions.

Dark_Horse's picture

Want to know if you aren't getting the value of your college education?

1) If you can't find a job, no value to college.

2) If you get a job and no one that you work with has a degree, no value to college.

Dark_Horse

darteaus's picture

That's getting old, but still a +

fonestar's picture

I didn't understand this article.

Dinero D. Profit's picture

 

If I had a daughter I would send her off to a sorority at a fancy college so that she could find her first husband, if I was a rich man.

Groundhog Day's picture

My alma mater in manhattan now advertises a weekend MBA without have to study for the GMAT's. More then one way to dilute paper

Spanky's picture

That's about all an MBA is actually worth... IMO.

[Edit] Unless you count networking at the Ivys.

max2205's picture

Congratulations USSA...you have diluted the value of undergrad degrees as much as the dollar.....I see a trend

RafterManFMJ's picture

I attended collage from the security and comfort of my basements where I completed duel majored in Human Resources and Gender Studies with only 89K in debt; I advise your company on Diverse hire, spot tranny at 100 yards - same day!

As always, I thanks you very much Univercity of Phoenix!

malikai's picture

Any gap opened by broke American kids unable to pay for their robbing will promptly be filled by Asian kids using pop's money.

Freddie's picture

One of the biggest jokes is watching college football games.  I don't watch O-TV but you will see 80,000 white kids plus 20,000 more alumni cheering black players who are getting a free ride on tuition, food and everything. 

The white kids will become lifetime debt slaves because they are getting screwed by the lib unionzed professors and admin with golden pensions.  They are paying for the school books, sports teams, new school buildings and other crap. Just about every scam is going on at most universities with textbooks, housing, unions, research and the list goes on.

The graduates will have no job when they graduate, a life time of debt and they are screaming and cheering for this.

How stupid and sad.

LawsofPhysics's picture

last time I checked the vast majority of professor have 401ks, no tenure, and an increasing workload with stagnant wages.  Now, the administrators on the other hand...

TeMpTeK's picture

Organized Sports = The Dumbification of the American Male

Freddie's picture

Well the in between commercials during ball games show endless corporate advertisers showing their product and service with a stupid, corrupt or idiot white male.  Just full on propaganda and brainwashing.  

This is all Madison Ave and Operation Mockingbird.  Hollywood does the same shit.  White guys = evil, corrupt, stupid, blood thirsty and the list goes on.  I don't watch there crap and have not watched for years.

Colleges have become a 4 year baby sitting service where the kids are returned to the parents couch or basement after 4 years because there are no jobs.

NIHILIST CIPHER's picture

Freddie     I have not had tv for four years now  MOSTLY because of the point you just made. WHY is the white guy always a bumbling idiot moron half-wit in almost every commercial? Also tv is geared for the low-intel segment of society. Commercials make me want to seriously hurt somebody. Notice they vote on what commercial was the BEST after the Stuperbowl every year...fucking morons!

Rafferty's picture

Why are Whites always portrayed as dumb and useless?

Because the Joos despise and want to destroy us.

Deacon Frost's picture

'Francis Sawyer' is back under a new name 

Rafferty's picture

Were it only the case.....

As Orwell said, in a time of universal deceit - telling the truth is a revolutionary act.

On the subject to hand, here's a really good suggestion.  'However, what you can do, if you are Jewish and if you are actually sincere, is work within the Jewish community to call off the dogs. You can work with them in a way that we can’t. Next time you are tempted to chastise the goyim, chastise your own instead. Persuade THEM, those who are doing harm, as opposed to US, who are simply pointing out the reality of the situation in a bid to salvage what we can out of the increasing wreckage of our own tribe'  http://irishsavant.blogspot.ie/2013/10/a-message-to-my-friend-josh.html

TN Jed's picture

Sports are racist!  The lack of white NBA players is disturbing.  It's as if they give jobs to the most qualified.

shepherd's picture

At least they are good at SOMETHING.

OceanX's picture

Yes, I'm not seeing to0 many off whites on the sailing, surfing, mountaineering or ski/snowboarding circuit ...except for the Sherpas.

TPTB love to see the masses fight over superficial differences, it deflects the heat.  During thre labor wars, the hungarians were brought in to break the striking Italinas, then the blacks were brought in to break the Italian strikers.  Meanwhile, the bankers and elites stacks kept growing... 

Humans are 99.9% identical, there is virtually no difference between us, we all bleed red.  In fact, there is only a 2% difference in the DNA of all life on the planet.  (Yes, I went to college and received a valuable, non-diluted education.)

Dr. Destructo's picture

I despise college football and the NFL. That money could be used for something useful such as funding scientific research or done away with so that tuition would be cheaper, but nooo people want to see a bunch of guys in pads crashing into each other so they can possess a brown ball AND PAY EXTRA TUITION TO SEE IT ALL HAPPEN.

Look, we already have the NFL, and that robs the people of their tax dollars, then these companies have the balls to say "If you don't buy enough tickets we're blacking out the game" or "Buy us a new stadium with your tax money or we move to another city". All the college students need to do is pick their shitty team, buy a shitty jersey, buy a shitty ticket, and cheer their tax dollars away. If the school wants to invest in athletics buy a gym and fill it with treadmills and dead weights, or assign the students more books and have them climb a rope to get to their classes.

Flying Aardvark's picture

Memorabilia, apparel and ticket sales are a huge revenue stream for the schools.

HardAssets's picture

A lot of people are trapped in robotic thinking. Last June I went to quite a few high school graduation ceremonies. I talked to the kids and I talk to their parents and many kids were heading to college. Most of them had no idea what they wanted to do. What a waste of a six-figure pile of money. But that's what upper-middle-class professional families do - what's expected. The worst are the straight A students who never had an original thought in their entire lives.

Spanky's picture

But the players get a shot at fame and riches. So it evens out.

FredFlintstone's picture

"80,000 white kids plus 20,000 more alumni cheering"...more like 20,000 white kids and 80,000 fat, middle age to elderly white people.

Jannn's picture

 

Guest Post: #Gold Pricing And The Flows Of #Gold Metal 

 

http://t.co/h9BTZApTmF

SAT 800's picture

If you apply for a job in Europe, when you tell the interviewer you have a four year degree from a US College; he writes down "highschool"; for real.

doctor10's picture

The origins of the oligarchy lie in the college scam. From SATs, to federal student loans, to the common app. The goal has been to create monolithic thought and conduct that finally has run out of minds and ideas.

"creativity" has become a game of how to bait and trap the next group of their fellowman they have targeted

 

Four chan's picture

i put my back into my living.

papaswamp's picture

I'm sorry what did you say? I was staring at your front...

BidnessMan's picture

I make my living on my back - fixed it for ya

jomama's picture

i have my PhD in life.

Acidtest Dummy's picture

I'm working at a degree of common sense.