The education crisis spreads to the professions. Watch the universities crack.

Summary: Posts on this website have long forecast massive structural change in America. In 2013 this process slowly becomes visible.   Today we look at the first signs of collapse in the business model of America’s universities. The For More Information section has a wealth of information about the crisis in education (and links to posts about the crisis in journalism).

Structural Change

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Contents

  1. More education as a solution for America
  2. The universities act like vampires, bleeding their students
  3. The law of supply and demand strikes back
  4. Articles about the collapse of universities
  5. For More Information

(1)  More education as a solution for America

Decades of falling real wages has sparked a frantic scramble by youth (and increasing numbers of older people) for undergraduate and advanced degrees. In July 2009 I wrote that this made sense for an individual — but could not work for a nation, and would not end well.

For a generation or two college costs have risen faster than both US household incomes AND governments’ tuition support. The effect of rising costs was muted by increased borrowing by parents and students.

… A college diploma has value unconnected to anything actually learned by the student, as it became the key component of American’s social allocation system — by which a new generation was steered into the job market.  Colleges charged excess tuition to skim off as much of this as possible, expanded their costs to the maximum extent the market would bear. This is classic rent-seeking by colleges, described by Wikipedia.

Now that structure has crashed.  People are less willing to borrow for college; lenders are less willing to lend to parents and students.  Students and parents know a liberal arts education is seldom worth the cost either financially or intellectually. Now they increasingly wonder if the diploma is worth the cost.

Colleges are left with broken business models:  large  inflexible cost structures, and disenchanted clients.  Much like newspapers and airlines.  And like them, those working in colleges only slowly realize the grim outlook.  Their first response is to hope the good times return.

(2) The universities act like vampires, bleeding their students

People crowded into professional degree programs, seeking to rise above the falling-wage rat race. Universities responded by what economists call “rent-seeking”. They increased tuition to capture a larger share of the value-added by their degrees. For example, law schools are one of the major profit centers of US universities. Look at the increases in median annual tuition at ABA-accredited schools (in 2011 dollars):

  • 1985:  $15,438
  • 2011:  $39,915

That’s a lot of money. Fortunately we have public universities. Unfortunately, their tuitions have increased even faster (per Paul Campos):

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  • 1985:  $3,746
  • 2011:  $20,076

Paul Campos puts these numbers in context:

To get a better sense of what these numbers mean in regard to how expensive American legal education has become for the average American family, let us return for a moment to the University of Michigan Law School. Recall that in 1971 annual resident tuition [at Michigan] was $4,443 in 2011 dollars. In that year, median household income in America was $49,709 in 2011 dollars. One year’s resident tuition at what was then and remains now one of the nation’s pre-eminent law schools cost almost exactly a month’s (pre-tax) income for the average American household.

In 2011, median household income in America was $49,909, i.e., almost exactly what it was 40 years earlier. But now the average American household would need to spend slightly less than an entire year’s worth of pre-tax income to pay for a year’s resident tuition at Michigan Law School.

(3) The law of supply and demand strikes back

As always, the laws of supply and demand have their inexorable effect. A larger supply of lawyers has decreased the wage premium of these degrees. Technology has reduced the demand for their credentials. And now the last act: students see the unfavorable math, and fewer seek these degrees. All but the elite universities must respond by cutting tuition (including more aid, a form of discounting), reducing enrollment, and cutting costs.

Let’s look at just one of these dimensions: volume.

The ABA has just released first year enrollment figures for the fall of 2013 at the nation’s 202 ABA-approved law schools. 39,675 students enrolled this fall, marking the third straight year that has featured a steep decline, after enrollment reached an all-time high of 52,488 in 2010. You have to go back to 1975 to find a smaller first year class.

… What’s particularly striking about these numbers is that first year enrollment is down by 24.4% even though admissions standards have been slashed all across legal academia (Yale, Harvard and Stanford are the only elite schools that haven’t dropped admissions standards, and many non-elite schools have cut median LSAT scores for admits by ten percentage points or more).

— Paul Campos, Lawyers, Guns, and Money, 17 December 2013

The same dynamics have begun to affect other advanced degree programs. These are the cash cows of most universities; their decline will crash their finances.

Ahead lies the far larger challenge of online education programs. Primitive today, like the Internet in 1990. Like the Internet, their great future is visible — and coming fast.

The effect of these changes will reshape the higher education system, destroying those universities unable to successfully adapt.  No matter what the result, it will be bad news for their employees. Today universities provide an oasis of high paying jobs (albeit not for the growing ranks of adjunct teachers; see the next section). The new system will be a harsher one: less job security, fewer jobs, lower wages for most employees.

WSJ: the MBA glut

(4)  Articles about the collapse of universities

(a)  Articles about the crisis of MBA programs:

(b)  Articles about the crisis in law schools:

  1. Recommended source: The Law School Tuition Bubble
  2. Is Law School a Losing Game?“, David Segal, New York Times, 8 January 2011
  3. Served“, Paul Campos, The New Republic, 25 April 2011 — About unemployment among law school grads
  4. Why Law Schools Are So Bad at Creating Lawyers (and How to Fix It)“, Jordan Weissmann, The Atlantic, 22 November 2011
  5. The Crisis of the American Law School“, Paul Campos, January 2012
  6. The Wrong People Have Stopped Applying to Law School“, Jordan Weissmann, The Atlantic, 10 April 2012
  7. 80% to 85% of ABA law schools are currently losing money“, Paul Campos, Lawyers, Guns, and Money, 12 November 2013
  8. More on law schools losing money“, Paul Campos,  Lawyers, Guns, and Money,  14 November 2013

(c)  The Wall Street Journal series Price of Admission looks at the rising costs of higher education in the US:

(d)  Student Loans

Education crisis
(5)  For More Information

(a)  Posts about the crisis in journalism:

(b)  Posts about America’s education system:

  1. College education in America, another broken business model, 3 July 2009
  2. The secret about our universities (seldom even whispered among Professors), 5 July 2009
  3. Women dominating the ranks of college graduates – What’s the effect on America?, 7 July 2009
  4. A better answer to “why women outperform men in college?”, 8 July 2009
  5. Is a college education worth a million dollars?, 10 July 2009

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34 thoughts on “The education crisis spreads to the professions. Watch the universities crack.

    • Bryan,

      See the graph below that paragraph, from the Wall Street Journal.

      It’s a broad problem. US universities are producing more advanced degrees in many fields than the job market can support. The crashing salaries for adjunct professors is tangible evidence, as the excess supply crashes the price people with these degrees can obtain.

      Like

    • Bryan,

      I too would like more data. But lack of data is distinguishing characteristic of early stages in problem resolution. No matter how obvious, little research done until the problem gains widespread recognition.

      Those who publish at the right time — as society’s eyes open — become famous.

      Also– crisis of humanities PH.Ds is obvious. But also look in hard sciences. Years of near-poverty in doctorate and post-doc programs — followed by modest middle class wages. Often with little job security.

      Another field with insane overcapacity: journalism. Their business has massive over-capacity.

      Ditto in masters graduates in engineering, often in boom-bust cycles. Same joke, different decade. Aerospace engineers in 1970s, geotechnical in 1980s: “What do you cal a XXX. Waiter!” Gallows humor for the well-educated.

      Like

  • Yes, journalism has been clobbered for longer thn law.
    I remember some of those science jokes (I’m a long-time University of Michigan alum).

    So what’s driving this crisis at a broad level, if we don’t have finely grained data?
    Oversupply of grad students is one cause, especially as universities depend so strongly on turning them into adjuncts.
    Another cause could be the general labor force stagnation/decline, which you’ve charted so well.

    Like

    • Bryan,

      “Yes, journalism has been clobbered for longer thn law.”

      The decrease in the journalist workforce has just begun. It will have run its course when events no longer have hordes of reporters — all filing almost identical stories.

      “So what’s driving this crisis at a broad level, if we don’t have finely grained data? Oversupply of grad students is one cause, especially as universities depend so strongly on turning them into adjuncts.”

      Producing grad students generates many benefits for the university. Tuition and cheap labor, most important — at no cost. So they produce too many of them. The problem has been building for years, perhaps decades.

      Like

  • And what about r NCAAF? the biggest cash cow for many, if not most, “Academic” institutions is College Football (both publick and private) can Afford to pay for these programs..through all the Publick and Private academic student loans….interesting what is funded by this breaking process…while ESPN and BCS have to negotiate for smaller market share if less folks enroll and receive loans for college?

    Maybe they (i.e. ESPN, BCS, and NCAAF) could actually be taxed or even back taxed for their access to College Athletes and their indirect stipends from the Student Loan Programs over decades? Sorry to touch the holy grail of the College Cost Opportunity Growth System (e.g. College Football) that even impacts the high school and below systems (i.e. the major programs have a hierarchical structure that uses plays, processes, and procedures that begin below middle school on fields mostly supported by mil-tax or donations of a local municipality. Kdog sends

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  • The supermajority of college sports don’t make money. Only a very few do, usually those with lucrative tv contracts.
    Your best source for this is Bowen and Schulman’s excellent _Game of Life_.

    Like

  • Sayin most college sport don’t make money…is like saying big oil does not make a profit….sure after they pay their Academic Coaching Staff their salaries and buy outs for failure [wish I got similar settlement for poor performance as Coaches and Top Tier Exec…funny and we struggle to extend unemployment but a Coach /Exec gets paid to move on….yes after the new stadium backed by the Publick [blackmail] bond initiative the “supermajority of college sports don’t make money”…after the state of the art “Athelete Centers” in the middle of the college campuses…after the one on one Tutors for academic exellence…”supermajority of college sports don’t make money”….the books are cooked and the only Publick Institution we have faith in is NCAAF;( we can not let that go Private..its too big to fail..just look at Penn State Football OODA loop for example;( some body makes money while the tuition system goes UP.

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    • Kdog,

      We were referring to a very specific question: do the big sports programs (e.g. football) make money for the university after sports-related costs? . How much is spent on the programs — intelligently or foolishly — is a separate question.

      It is relevant if these programs could be radically reconfigured to increase their contributions to the university. We can only guess at that.

      Like

  • Excellent post. FM here addresses one facet of the mindless pubulum getting dished out by our best & brightest about how to address America’s stubbornly high unemployment and skyrocketing economic inequality. The vacuous non-solutions purveyed by well-meaning but foolish people like Barack Obama are: “more education” and “retraining.”

    As FM points, more education is a treadmill that ends with the people racing to keep their place until they drop dead from debt.

    But an even more devastating fact about getting “more education” in America in 2013 was made by Richard Vedder:

    “With the help of a small army of researchers and associates (most importantly, Chris Matgouranis, Jonathan Robe, and Chris Denhart) and starting with help from Douglas Himes of the Bureau of Labor Statistics (BLS), the Center for College Affordability and Productivity (CCAP) has unearthed what I think is the single most scandalous statistic in higher education. It reveals many current problems and ones that will grow enormously as policymakers mindlessly push enrollment expansion amidst what must become greater public-sector resource limits.

    “Here it is: approximately 60 percent of the increase in the number of college graduates from 1992 to 2008 worked in jobs that the BLS considers relatively low skilled—occupations where many participants have only high school diplomas and often even less.

    Source: “The Great College-Degree Scam,” Richard Vedder, The Chronicle of Higher Education, 9 December 2010,

    A particularly brutal description of the process of trying to force the 73% of the American population which is not suited by temperament or background through the college meatgrinder comes from a professor writing for The Atlantic magazine:

    “My students take English 101 and English 102 not because they want to but because they must. Both colleges I teach at require that all students, no matter what their majors or career objectives, pass these two courses. For many of my students, this is difficult. Some of the young guys, the police-officers-to-be, have wonderfully open faces across which play their every passing emotion, and when we start reading “Araby” or “Barn Burning,” their boredom quickly becomes apparent. They fidget; they prop their heads on their arms; they yawn and sometimes appear to grimace in pain, as though they had been tasered. Their eyes implore: How could you do this to me?

    “The goal of English 101 is to instruct students in the sort of expository writing that theoretically will be required across the curriculum. My students must venture the compare-and-contrast paper, the argument paper, the process-analysis paper (which explains how some action is performed—as a lab report might), and the dreaded research paper, complete with parenthetical citations and a listing of works cited, all in Modern Language Association format. In 102, we read short stories, poetry, and Hamlet, and we take several stabs at the only writing more dreaded than the research paper: the absolutely despised Writing About Literature.

    “Class time passes in a flash—for me, anyway, if not always for my students. I love trying to convey to a class my passion for literature, or the immense satisfaction a writer can feel when he or she nails a point. When I am at my best, and the students are in an attentive mood—generally, early in the semester—the room crackles with positive energy. Even the cops-to-be feel driven to succeed in the class, to read and love the great books, to explore potent themes, to write well.

    “The bursting of our collective bubble comes quickly. A few weeks into the semester, the students must start actually writing papers, and I must start grading them. Despite my enthusiasm, despite their thoughtful nods of agreement and what I have interpreted as moments of clarity, it turns out that in many cases it has all come to naught.

    “Remarkably few of my students can do well in these classes. Students routinely fail; some fail multiple times, and some will never pass, because they cannot write a coherent sentence.”

    Source: “In the Basement of the Ivory Tower,” Professor X, The Atlantic magazine, 1 June 2008.

    Meanwhile:

    ” A new report from the American Association of University Professors finds that more than 40% of college instructors are part-time, often driving from campus to campus to cobble together enough classes to enable them to pay rent. These types of employees far outnumber tenured and tenure-track faculty, who make up less than a quarter.”

    Source: “Professors join the Precariat,” Lisa Wade, sociological images website, 18 June 2013. The graph accompanying the article proves particularly gobsmacking.

    As for retraining, the obvious failure of retraining after the destruction of the rust-belt industries in the 1980s and 1990s requires no comment. Precious few of the laid-off auto assembly line workers and small farmers thrown out of work in those decades made the transition to programming the robots that replaced them. That’s being done by cheap sweatshop workers with masters and doctorates in the IT industries of China and India, by and large.

    It seems clear at this point that the two nostrums beloved of economists and politicians (“more education” and “retraining”) are canards. They don’t work.

    What’s less clear is why our leaders continue to spout this junkthink even though it has been comprehensively debunked.

    President Obama on Friday visited the innovative Brooklyn high school he praised in his State of the Union address this year, to deliver a message about the urgency of education reform in the global economy.

    Source: “Obama, at Brooklyn school, pushes education agenda,” The New York Times, 25 October 2013.

    Like

  • It would be good to get precise numbers on technology spending for higher education. Many campuses have spent $10s of millions on ERP systems and so forth (in the case of one large system of 20+ public universities, $100s of millions), which have the usual problems, 80% project failure rates have been documented in the IT industry for decades. Huge IT support departments and related budgets are part of the “administrative and compliance bloat” that has come about in higher ed.

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    • Eric — the interesting fact about campus spending is that most of it isn’t going for technology. The vast majority of the billions spent by universities today are going to build new infrastructure like campus sports centers, lounges, amphitheaters, and so on, and on a vastly bloated layer of administrators.

      “Some call it the Edifice Complex. Others have named it the Law of More, or the Taj Mahal syndrome.

      “A decade-long spending binge to build academic buildings, dormitories and recreational facilities — some of them inordinately lavish to attract students — has left colleges and universities saddled with large amounts of debt. Oftentimes, students are stuck picking up the bill.”

      Source: “Building a Showcase Campus, Using an I.O.U.,” The New York Times, 12 December 2012.

      At the same time:

      “Between 1975 and 2005, total spending by American higher educational institutions, stated in constant dollars, tripled, to more than $325 billion per year. Over the same period, the faculty-to-student ratio has remained fairly constant, at approximately fifteen or sixteen students per instructor. One thing that has changed, dramatically, is the administrator-per-student ratio. In 1975, colleges employed one administrator for every eighty-four students and one professional staffer—admissions officers, information technology specialists, and the like—for every fifty students. By 2005, the administrator-to-student ratio had dropped to one administrator for every sixty-eight students while the ratio of professional staffers had dropped to one for every twenty-one students.

      “Apparently, as colleges and universities have had more money to spend, they have not chosen to spend it on expanding their instructional resources—that is, on paying faculty. They have chosen, instead, to enhance their administrative and staff resources. A comprehensive study published by the Delta Cost Project in 2010 reported that between 1998 and 2008, America’s private colleges increased spending on instruction by 22 percent while increasing spending on administration and staff support by 36 percent. “

      Source: “Administrators Ate My Tuition,” Washington Monthly, September 2011.

      Like

  • The administrative bloat is a tricky thing, Thomas.
    First, note that “admin” as a category includes a lot of support staff. Said support staff sometimes fulfill new demands, from IT to federal mandates.
    Second, while the # of “administrators” has grown, the number of instructional staff hasn’t gone down. Indeed, compensating profs and adjuncts is the primary cost for many campuses.

    Like

    • Bryan Alexander claims that “compensating profs and adjuncts is the primary cost for many campuses.”

      The qualifier “many” betrays the shakiness of this claim. It’s not remotely factual.

      In reality, the major expense for the Ivy League colleges and Universities remains the cost of their hedge fund managers:

      “The numbers tell the story. Each September, Harvard’s 6,600 undergraduates begin their classes at the Ivy-covered walls of its traditional Cambridge campus owing annual tuition of around $37,000 for the privilege, up from just $13,000 in 1990. Thus, over the last two decades, total tuition income (in current dollars) has increased from about $150 million to almost $250 million, with a substantial fraction of this list-price amount being discounted in the form of the university’s own financial aid to the families of its less wealthy students.

      “Meanwhile, during most of these years, Harvard’s own endowment has annually grown by five or ten or even twenty times that figure, rendering net tuition from those thousands of students a mere financial bagatelle, having almost no impact on the university’s cash-flow or balance-sheet position. If all the students disappeared tomorrow—or were forced to pay double their current tuition—the impact would be negligible compared to the crucial fluctuations in the mortgage-derivatives market or the international cost-of-funds index.

      “A very similar conclusion may be drawn by examining the expense side of the university’s financial statement. Harvard’s Division of Arts and Sciences—the central core of academic activity—contains approximately 450 full professors, whose annual salaries tend to average the highest at any university in America. Each year, these hundreds of great scholars and teachers receive aggregate total pay of around $85 million. But in fiscal 2004, just the five top managers of the Harvard endowment fund shared total compensation of $78 million, an amount which was also roughly 100 times the salary of Harvard’s own president. These figures clearly demonstrate the relative importance accorded to the financial and academic sides of Harvard’s activities.”

      Source: “Paying Tuition to a Giant Hedge Fund,” The American Conservative, 2 December 2012.

      Of course Bryan Alexander will immediately screech that he’s not talking about the Ivies, but about the average American college. The fact remains that the Ivies have set the trend for spending among all lower-rank universities. Examine Figure 7 on page 15 of the delta cost project’s report “Trends in College Spending 1998-2008” and you find the following breakdown of costs:

      Research + student services + public service + institutional support + operations & maintenance come to an average per capita cost per American college of $13,400 per capita. The cost of instruction + academic support came to $12,507 per capita.

      As you can see, the cost of the capital improvements and building construction and administrative staff that comes under the bland headings of “student services” and “public service” and “institutional support” and “operations & maintenance” significantly exceed the cost of faculty and adjunct salaries.

      You can examine the report yourself, pdf here. Pay special attention to pages 15-17.

      Like

    • Thank you for the pointer to the Delta resource, Thomas More. That’s a very useful and underappreciated one.

      However, I must disagree with your cost model, and for several reasons.

      1) Harvard is one university out of approximately 4,500 in the United States. It is one of the richest, and a private one. Very, very few institutions have that level of endowment requiring (apparently) such stellar fund management compensation packages. A supermajority of institutions is nowhere near that level. I can only imagine a couple where total compensation is in the 10s of millions, if any at all. Moreover, most don’t have statistically significant endowments, and depend instead on student tuition. Most are public, rather than private, and even though state support has declined, those schools have not managed to build up endowments to make up the gap.

      2) I’m not sure we’re looking at the same tables, Thomas. When I look to p. 18 I see that, as I averred above, instructional costs are the single leading item across the board. Only total research costs come close, and that only for research-intensive institutions.
      Moreover…

      3) You ask us to pay attention to these categories, rightly: ““student services” and “public service” and “institutional support” and “operations & maintenance” significantly exceed the cost of faculty and adjunct salaries.” However, please note that much of that cost is aimed at the student experience. Student services, for example, covers student life, dorms, etc. While you might not think this relates to learning, it is part and parcel of how America has been doing undergraduate education for decades.
      Similarly, the “capital improvements and building construction” you also correctly identify as cost issues are also bound up with the residential experience. You may know these phrase: Edifice Complex, the amenities arms race. Many, many campuses have been spending a lot of money to make their physical face as attractive as possible. And it seems to work, at least in terms of getting students to enroll.
      Those are very different from “administrative staff”, but please note that that phrase covers a multitude. It includes, for example, librarians and IT staff. It also covers officers installed to comply with a body of post-1980 federal laws (diversity, Title IX, ADA). It’s very hard to cut these people for all kinds of reasons, starting from popular revolt if IT services degraded, to obeying the law/avoiding lawsuits.
      My overall point: these auxiliary costs are not related to the Haavaad-style endowment fund management. They are, in fact, part of the way of American higher ed.

      Thanks for reading this far.

      Like

    • Bryan,

      “Harvard is one university out of approximately 4,500 in the United States”

      I agree. Harvard and other top universities are different animals from the vast majority of schools. There are 15 with endowments over $5 billion. The top 4 have almost $90 billion.

      Like

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