It’s a mantra burned into students’ craniums since their elementary-school days: if you want to make something of your life, go to college. And if you really want to make something of your life, make it an Ivy League school.
Given recent developments in higher education specifically, and the economy generally, those suggestions sound like economists’ hyped predictions before the demise of the dot-com and housing bubbles. In both instances, conventional wisdom held that investing in tech stocks or real estate would be a ticket to easy street.
Peddlers of higher education make similar claims today about the value of a university degree. As with tech stocks and real estate prior to their respective busts, a measure of justification exists for that optimism. Holders of bachelor’s college degrees do earn more over a lifetime than their non-college educated counterparts, though the exact figure is disputed.
But that reality is changing fast. As a practical economic necessity, a postsecondary education isn’t what it used to be. Even more, as the federal government continues to intervene through student-aide subsidies, grants, and guaranteed student loans, higher education is heading for a bust after booming for decades.
A stark illustration: the hordes of young adults in the Occupy movement who accepted the shackles of student-loan debt in exchange for worthless humanities degrees. Total student-loan debt in the United States now stands at $1 trillion, surpassing credit-card debt, and twentysomethings hold much of it.
Not a rosy picture. An analysis from the United Kingdom in 2008 found that female graduates could expect to spend 16 years paying off their student loans, and men 11 years. Precious few college students pay as they go. Student loans are the norm.
The problem, as with investors in tech stocks and real estate, is that students are paying an over-valued price for an under-valued product. They’re going deeply into debt to do so, and most of the time that’s made possible by Uncle Sam.
There are several other trends that add to higher education’s difficulties. One is the high number of college graduates. Generation Y is the most college-educated cohort in American history. Because the market is flooded with holders of bachelor’s degrees, the value of those degrees is diluted.
To make matters worse, graduates with four-year degrees frequently re-enter college and pursue an advanced degree in response to job-market frustrations. It’s possible that a master’s degree could soon become the bachelor’s degree of past years — the bare minimum necessary to distinguish an applicant for a job.
Another problem is the rapid-fire increase in the cost of a higher education. According to the College Board, during the noughties tuition and fees at public four-year colleges and universities jumped an average of 5.6 percent per year beyond the rate of inflation. Those costs have surged almost 130 percent over the last two decades.
Still another difficulty is the objective value of a college degree. Students aren’t learning much, and employers know it. Universities want to keep their paying customers (colloquially known as students), so grade inflation has increased. Today, a high GPA doesn’t mean what it once did. (Yes, it’s a cold reality: “Higher education is a business that does not necessarily have [students’] best interests at heart,” writes Thomas Benton in The Chronicle of Higher Education.)
As the Associated Press reported in January, a study of over 2,000 undergraduates “found 45 percent of students show no significant improvement in the key measures of critical thinking, complex reasoning and writing by the end of their sophomore years.” Those skills — reasoning and writing — are critical to just about any career.
These factors suggest that the economic cost of a degree is swiftly outpacing its economic benefit in the real world. Even so, the federal government continues to bolster the industry with subsidies. The most recent example is President Obama’s initiative to put taxpayers on the hook for students’ college debt. It’s akin to governmental policies that paved the way for homeowners to secure mortgages they couldn’t afford to begin with.
Obama’s plan creates yet another moral hazard. If students know that part of their student loans will be forgiven, there is less incentive to keep costs down. Once more, it transfers obligation from those who act irresponsibly to those who act responsibly.
It remains to be seen how the higher-education catastrophe will play out, but one development is certain. If the government continues to bail out students who graduate with all but worthless degrees, a bust is coming.
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