The Higher Education Bubble

Glenn Reynolds at Insatpundit has been writing about the “higher education bubble” for a while now.  Basically, the bubble refers to too much money being spent for too little value in higher education. 

Today’s NYT has a piece from Mark Taylor echoing the theme:

For decades, admissions offices have marketed themselves by promising a significant return on the investment in the form of higher lifetime income. But with the cost of an undergraduate degree well into the hundreds of thousands of dollars, this argument is no longer persuasive. Students and their parents are carrying unsustainable levels of debt, which is likely to lead to a crisis that will mirror the collapse of the subprime mortgage market.

Indeed. 

My wife and I borrowed substantially only for law school, and it took us over ten years to pay off those student loans.  We  finally paid the loans off using the equity in our respective homes when we combined households, meaning we had to heavily leverage our current house.   The investment in law school was probably worth it from a purely financial perspective, but not by much, particularly after adding three years of opportunity costs to the debt burden.

One problem is that higher education is in large part protected from market forces.  Professors with tenure cannot be fired, and notwithstanding substantial costs to students, much of the expense is publicly subsidized.  As a society, we have also elevated having a college degree to guild-like status — without membership in the university guild, you are barred from a huge swath of jobs.

Here in Colorado, we are perennially informed of the desperate plight of higher education and the need for more funding for our public university system.  The other day, I was curious about the finances of the system, and took a quick look at the University of Colorado at Boulder’s office of Planning, Budget, and Analysis website. 

There, I found these charts regarding salaries and benefits for employees of CU Boulder:

Chart 2 — Total salary expenses ($ in millions)

salary expense

Chart 1 — Total fringe benefit expenses ($ in millions)

fringe benefit rates

Note the slopes of the lines (sorry for the squished formatting — the link has them in a better format).  While private employment and salaries have been flatlined, it does not look like employees in higher education have felt the same pinch. 

Higher education institutions would be wise to start bringing their finances in line with private enterprises before the bubble starts to burst.  But they won’t.  They will expect to keep charging more (or obtaining more subsidies) for a product that is already over-priced.

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Published in: on August 16, 2010 at 3:50 pm  Leave a Comment  

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