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).
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Contents
- More education as a solution for America
- The universities act like vampires, bleeding their students
- The law of supply and demand strikes back
- Articles about the collapse of universities
- 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.
(4) Articles about the collapse of universities
(a) Articles about the crisis of MBA programs:
- “MBA costs soar. Salaries? Not so much.“, Fortune, 18 November 2011
- “For Newly Minted M.B.A.s, a Smaller Paycheck Awaits“, Wall Street Journal, 6 January 2013
- “There Are Officially Too Many MBAs“, Jordan Weissmann, The Atlantic, 7 January 2013
- “Is an MBA Bubble Popping?“, Jordan Weissmann, The Atlantic, 19 December 2013 — “Surveys show declining pay and shrinking job opportunities for business grads, even as the rest of the job market keeps healing.”
(b) Articles about the crisis in law schools:
- Recommended source: The Law School Tuition Bubble
- “Is Law School a Losing Game?“, David Segal, New York Times, 8 January 2011
- “Served“, Paul Campos, The New Republic, 25 April 2011 — About unemployment among law school grads
- “Why Law Schools Are So Bad at Creating Lawyers (and How to Fix It)“, Jordan Weissmann, The Atlantic, 22 November 2011
- “The Crisis of the American Law School“, Paul Campos, January 2012
- “The Wrong People Have Stopped Applying to Law School“, Jordan Weissmann, The Atlantic, 10 April 2012
- “80% to 85% of ABA law schools are currently losing money“, Paul Campos, Lawyers, Guns, and Money, 12 November 2013
- “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:
- Pressure to Rein In Tuition Squeezes Colleges
- Colleges’ Bureacracy Expands Costs
- Shift to Merit Scholarships Stirs Debate
- Who Can Still Afford State U?
- Federal Lending Push Swells Student Debt
- Dropping Out: Millions Struggle WIth High College Debt and No Degree
- New Peril for Parents: Their Kids’ Student Loans
- College Debt Hits Well-Off
- Full Coverage: Price of Admission
- Also: “We Pretend to Teach, They Pretend to Learn“, op-ed by Geoffrey L. Collier — “At colleges today, all parties are strongly incentivized to maintain low standards”
(d) Student Loans
- “How Students Are Forced to Prop Up the Education Bubble“, Malcolm Harris, Boston Review, 19 November 2012
- “Determinants of student debt“, Paul Campos, Lawyers, Guns, and Money, 5 December 2013
- Graphs of student loans vs consumer debt: outstanding totals and defaults over time, Sober Look, 31 December 2013
- “How College Pricing Is Like Holiday Retail Sales“, Marian Wang, ProPublica, 2 January 2014
(5) For More Information
(a) Posts about the crisis in journalism:
- Journalists reporting the end of journalism as a profession, 19 March 2013
- The next step of computer evolution: becoming bloggers, 20 March 2013
(b) Posts about America’s education system:
- College education in America, another broken business model, 3 July 2009
- The secret about our universities (seldom even whispered among Professors), 5 July 2009
- Women dominating the ranks of college graduates – What’s the effect on America?, 7 July 2009
- A better answer to “why women outperform men in college?”, 8 July 2009
- Is a college education worth a million dollars?, 10 July 2009
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“The same dynamics have begun to affect other advanced degree programs.” Which others? I’ve seen some signals from the MBA world.
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.
I saw that graph, but was hoping it could be broken out by field.
Obviously grad school in the humanities is suffering…
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.
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.
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.
Re:journalism, do you think we’ll see a major shake-out of news services? Perhaps they’ll reduce down to a smaller number, each likely to focus on a niche.
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
Kroger,
I know little about college sports, other than they often brutally exploit the players. How many colleges turn a profit after costs on their teams, other than the top teams?
Those programs are expensive to run.
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_.
Bryan,
Thanks for the info! Just another cog in our dysfunctional — soon to crash — university system, as its financial foundations slowly wash away.
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.
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.
To quote that great Texas philosopher Dr Dandy Don Merridith “Turn out the Lights the party’s over.”
Paga,
For the current structure of the university, certainly.
Universities have gone through many changes since U of Bologna was founded in 1088, and Oxford in 1167. Now they must change again, and not for the last time.
If yous guys are so smart, then why ain’t you in debt?
The Ivy League’s New Dream Job: Not Wall Street, But Waiting Tables
http://www.zerohedge.com/news/2014-01-02/ivy-leagues-new-dream-job-not-wall-street-waiting-tables
We’re ok with this, at least so far. 20-somethings just aren’t on America’s radar.
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the following article seems to identify the core problem: abandonment of commitment to truth and justice by corrupt, self-serving educational, legal and political bureaucrats.
Excerpts from Sometimes There is No Other Side: Chicanos and the Myth of Equality by Rodolfo F. Acuna (see his Wikipedia bio), University of Notre Dame Press, 1998.
A related article: “We Pretend to Teach, They Pretend to Learn“, Geoffrey L. Collier, op-ed in the Wall Street Journal, 26 December 2013 — “At colleges today, all parties are strongly incentivized to maintain low standards”
Winston,
Great article! Thanks for posting it.
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:
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:
Source: “In the Basement of the Ivory Tower,” Professor X, The Atlantic magazine, 1 June 2008.
Meanwhile:
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.
Source: “Obama, at Brooklyn school, pushes education agenda,” The New York Times, 25 October 2013.
Thomas,
Thank you for this information! I had not seen it, and I agree that it is shocking.
Thomas, did you read _Academically Adrift_? It’s more recent than Vedder, and unpolitical (unlike some discussions). It really clobbers the ability of undergraduate institutions to teach critical thinking.
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.
Eric, the Campus Computing Survey might be the best place for that info.
Bryan,
These are helpful references. Thank you for posting them!
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.
Source: “Building a Showcase Campus, Using an I.O.U.,” The New York Times, 12 December 2012.
At the same time:
Source: “Administrators Ate My Tuition,” Washington Monthly, September 2011.
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.
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:
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.
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.
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.