Tuesday, August 10, 2010

The higher education bubble

Back at the beginning of the summer, I had a column in this space in which I predicted that higher education is in a bubble, one soon to burst with considerable consequences for students, faculty, employers, and society at large.

My reasoning was simple enough: Something that can’t go on forever, won’t. And the past decades’ history of tuition growing much faster than the rate of inflation, with students and parents making up the difference via easy credit, is something that can’t go on forever. Thus my prediction that it won’t.

But then what? Assume that I’m right, and that higher education - both undergraduate and graduate, and including professional education like the law schools in which I teach - is heading for a major correction. What will that mean? What should people do?

Well, advice number one - good for pretty much all bubbles, in fact - is this: Don’t go into debt. In bubbles, people borrow heavily because they expect the value of what they’re borrowing against to increase.

In a booming market, it makes sense to buy a house you can’t quite afford, because it will increase in value enough to make the debt seem trivial, or at least manageable - so long as the market continues to boom.

But there’s a catch. Once the boom is over, of course, all that debt is still there, but the return thereon is much diminished. And since the boom is based on expectations, things can go south with amazing speed, once those expectations start to shift.

Right now, people are still borrowing heavily to pay the steadily increasing tuitions levied by higher education. But that borrowing is based on the expectation that students will earn enough to pay off their loans with a portion of the extra income their educations generate. Once people doubt that, the bubble will burst.

So my advice to students faced with choosing colleges (and graduate schools, and law schools) this coming year is simple: Don’t go to colleges or schools that will require you to borrow a lot of money to attend. There’s a good chance you’ll find yourself deep in debt to no purpose. And maybe you should rethink college entirely.

Many people with college educations are already jumping the tracks to become skilled manual laborers: plumbers, electricians, and the like. And the Bureau of Labor Statistics predicts that seven of the ten fastest-growing jobs in the next decade will be based on on-the-job training rather than higher education. (And they’ll be hands-on jobs hard to outsource to foreigners). If this is right, a bursting of the bubble is growing likelier.

What about higher education folks? What should they (er, we?) do? Well, once again, what can’t go on forever, won’t.

For the past several decades, colleges and universities have built endowments, played moneyball-style faculty hiring games, and constructed grand new buildings, while jacking up tuitions to pay for things (and, in the case of state schools, to make up for gradually diminishing public support).

That has been made possible by an ocean of money borrowed by students -- often with the encouragement and assistance of the universities. Business plans that are based on this continuing are likely to fare poorly.

Just as I advised students not to go into debt, my advice to universities is similar: Don’t go on spending binges now that you expect to pay for with tuition revenues later. Those may not be there as expected.

Post-bubble, students are likely to be far more concerned about getting actual value for their educational dollars. Faced with straitened circumstances, colleges and universities will have to look at cutting costs.

Online education, and programs focused more on things that can help students earn more than on what faculty want to teach, will help to deliver more value for the dollar. In some areas, we may even see a move to apprenticeship models, or other approaches that provide more genuine skills upon graduation.

Meanwhile, for the states, and big donors, who fund those portions of higher education that the students don’t, a post-bubble world will bring some changes, too. Many states have been cutting aid to higher education, content to let higher tuition pick up the slack.

Some may choose to change that (if they can afford it) but regardless I expect more direct oversight of state institutions from those who fund them. Universities’ priorities will be brought closer to states’ priorities.

For private schools, government oversight is less direct -- but to an even greater extent than state schools, private institutions have been dependent on a flood of government-guaranteed credit, and they are likely to see more scrutiny as well if that is to continue.

As former British Prime Minister Margaret Thatcher famously remarked, the problem with socialism is that you eventually run out of other people’s money, and that’s likely to be the problem facing higher education, too.

Graduation rates, employment after graduation, loan default rates, and so on are likely to get a lot more attention. Institutions may even be forced to absorb some of the cost of student loan defaults, as an incentive not to encourage students to take on more debt than they can repay.

Finally, for the entrepreneurs out there, this bubble-bursting may be an opportunity. One of the underpinnings of higher education is its value as a credential to employers: A college degree demonstrates, at least, moderate intelligence - and, more importantly, the ability to show up and perform on a reasonably reliable basis, something that is of considerable interest when hiring people, a surprisingly large number of whom do neither.

But a college degree is an expensive way to get an entry-level credential. New approaches to credentialing, approaches that inform employers more reliably, while costing less than a college degree, are likely to become increasingly appealing over the coming decade.

Those who find a way to provide them will do well. So to any entrepreneurs reading this: Good luck. And after the bubble bursts, and you get rich, please do what you can for a poor law professor . . . . .


Good High School exam results no guarantee of a university place in Britain

Students with good A-levels face being rejected from university this summer amid mounting competition for degree courses, the Government has admitted. David Willetts, the Universities Minister, warned that an increase in the number of undergraduate places in 2010 would not be enough to prevent many high-achieving students missing out altogether.

Just over a week before the publication of A-level results, Mr Willetts said more sixth-formers should consider re-sitting their exams or taking an apprenticeship as an alternative to university.

The comments come amid growing concerns over the pressure on higher education places this autumn. Figures show more than 660,000 people have applied for a university place – up almost 12 per cent on last year’s record-breaking figures.

Some 68,000 more applications have been made in 2010 as growing numbers of young people attempt to get into university instead of the workplace during the economic downturn. Competition is being swelled by some 45,000 people reapplying after being rejected in 2009.

Speaking on Sunday, Mr Willetts said the Coalition had made an extra 10,000 places available this year, meaning record numbers of people would start courses. But he warned: “It is going to be tough. There are young people who sadly are not going to get a place, including perhaps some people who really have got good A-level grades, and for them there is a whole range of options.”

In a sign of the competition for traditional university courses, Mr Willetts told the Andrew Marr show on BBC1 that more sixth-formers should consider college or apprenticeships as an alternative to higher education. “I think we should get away from the mindset that there is only one option, which is at the age of 18 going away from home to university for three years,” he said.

He added: “Obviously there is the opportunity of re-sitting their exams. They may wish to reapply next year, they may want to do things that increase the strength of their CV and make them stand out more to universities.

“There are other ways of getting training. They can go into work and try to get training through apprenticeships, with 50,000 extra apprenticeship places, [and] there are more places at further education colleges. “We are absolutely doing our best to increase the number of opportunities available for young people even in tough times.”

A-level results for students in England, Wales and Northern Ireland will be published on Thursday, August 19. Academics are already predicting another record round of results, with the proportion of A grades expected to top last year’s total of 26.7 per cent.

For the first time this year, an elite A* is being introduced following claims from universities that record rises in the number of A grades makes it increasingly hard to pick out the most exceptional candidates. Students must score more than 90 per cent in the second year of A-levels to achieve an A*.

But on Sunday the introduction of the new grade was surrounded in fresh controversy after independent schools accused the official qualifications watchdog of underestimating the number of students capable of achieving it.

Ofqual is using last year’s A-level results to predict the proportion of sixth-formers expected to gain an A* in each subject. They can order exam boards to cut the number of A*s if provisional results indicate that the proportion achieving it is at least two percentage points above the targets.

But Geoff Lucas, secretary of the Headmasters’ and Headmistresses’ Conference, which represents top private schools, said the system failed to take account of the fact that pupils were “more motivated” because of the presence of the top grade this year.

“When we asked Ofqual if they had taken this extra motivation of wanting to win an A* into account, they said they had not,” he said. “We are worried that this could lead to widespread injustice.”

An Ofqual spokeswoman said: "If candidates are motivated to perform at a higher level this year than candidates were last year, then this year's candidates should get higher marks to reflect their higher achievement. "The reference points which the regulators and the awarding organisations used to help inform the awarding of the A* grade this year used modelling work based on A-level outcomes in 2009.

"However, these were no more than starting-points for discussions between the regulators and the awarding organisations to make sure that where marks were higher or lower than the reference-points, there were sound reasons for that."


Anger over lack of medical internships in Australia

What's the point of half-educating future doctors? The British Labour Party government was well-known for such bungles so it is deplorable that several Australian State Labor Party governments seem to be doing the same. Just the usual Leftist bungling, I guess

NSW medical students are demanding the federal government stop increasing university places after more than 100 graduates failed to get internships in public hospitals this week.

The crisis comes three years after the government increased university places to solve the state's crippling shortage of doctors, but failed to employ extra staff in NSW hospital to supervise interns.

About 115 international students, who each paid more than $200,000 for their degrees, were told yesterday they would have to wait until Friday for final offers but there was little chance they would be employed, forcing many of them to return home.

"The intern year is a 12-month period of postgraduate training that is required for general medical registration," the president of the Sydney University Medical Society, Jon Noonan, said. "Without it, a medical degree is not worth the paper it is printed on.

"At this point last year more than two-thirds of locally trained internationals had been offered an internship within NSW. The fact that none have been placed has come as a shock to our colleagues, who had been repeatedly reassured they would be taken care of," he said.

A spokeswoman for the Institute of Medical Education and Training, which allocates internships, said 747 positions were available this year, more than enough for the state's 685 graduates, but NSW had been swamped by applicants from other states.

Last year, when the same problem occurred, the government invoked a priority system because it did not have enough money to offer internships to all graduates wanting to work in NSW.

Under that system, international students trained in NSW are only offered positions once all Australians and New Zealanders trained in Australia and overseas-trained applicants are employed, a decision that has angered the Australian Medical Students Association.

"We have a government which provides huge incentives to get these doctors back once they have left [Australia] and it seems illogical to me to do so when we have people who've been trained here to our standards," its president, Ross Roberts-Thomson, said.

"A medical degree qualifies you for nothing but an internship. If you don't get an internship, you essentially have a piece of paper which allows you to drive a taxi - or not even that."

Mr Noonan agreed, saying it defied logic that state and federal governments would shut the door on Australian-trained international students while relying on foreign-trained doctors to fill gaps in the health workforce.

Mr Noonan said his group wanted the state government to guarantee internships to all graduates in NSW and join with other states to adopt a consistent and co-ordinated framework for intern allocations.

Two years ago, the Minister for Health, Nicola Roxon, said she was aware clinical training places were "a pressure point within the system" but the government had no plans to cut university places for medical students.

"This was a crisis that was always going to happen," the former chief executive of the Australian Medical Association, Bill Coote, said yesterday.

"There has been very rapid growth in the number of medical schools and the expansion of existing schools - and there is the parallel issue of how medical schools have been allowed to attract full-fee paying students to subsidise their activities when we can't provide all graduates with appropriate training."


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