Economic Reality Comes to College Campuses

Finally, colleges get schooled in Economics 101.

Sweet Briar College (1901-2015?)
Sweet Briar College (1901-2015?)

For a long time, “market forces” didn’t really apply to institutions of higher learning — at least not in the classic sense.

In a social environment where nearly everyone buys into the notion that more education is good, government and educators fostered policies where no one need be prevented from getting a college education because of lack of funding.

Accordingly, in the past several decades, loans and grants became easier to obtain than ever.

Unfortunately, one of the consequences of easy money in education was that tuitions rose at a faster rate than the economy as a whole.  After all, the third-party money spigot seemed never-ending.

For a good while tuition spikes weren’t a particular concern, because it still seemed as though a college-level education was a great way to earn substantially more money in one’s career — even if racking up student loans at the outset.

But in recent years, we no longer see an automatic positive correlation between a higher education degree and the ability to earn increased income.

In the sluggish economy of the 2000s, a college diploma in the right field may well be a good investment.  But with many college majors, oftentimes it isn’t.

The situation is even dicier for the many students who attend community colleges or four-year institutions but who never graduate.  The chasm between their educational loans and their earning power is even more deep.

Corinthian Colleges
Corinthian Colleges (1995-2015)

And for those students unlucky enough to attend for-profit institutions like those run by Corinthian Colleges, Inc., which is in the process of closing the last two dozen of its schools across the country, the situation is even worse.

Saddled with student debt, stuck with degrees or half-completed courses of study of dubious value, and with school credits unlikely to be transferred to other schools in order to finish their education, the situation for those  unlucky students can only be described as dire.

How did we get to this place?

One big reason is that over the years, many colleges got into the habit of simply expecting sufficient numbers of students to enroll in their institutions regardless of the sticker price to attend.  If anything, high tuition “list prices” were a badge of honor.

At the same time, substantial grants (essentially discounts off of the published tuition rates), together with irresistible financial aid packages, continued to attract students to private as well as public institutions of all stripes.

Running in parallel with this were lavish, ongoing projects involving the construction of fancy new dorms, state-of-the-art athletic facilities, and all sorts of other creature-comfort-like amenities to lure students to campus.

And let’s not forget another not-so-welcome outcome of this fantasyland of higher education economics – call it “degree inflation.”  With so many students obtaining undergraduate degrees, their “worth” became devalued.

In this high-stakes derby, a BS degree in business is no longer enough – it has to be an MBA.  A BS degree in engineering isn’t nearly as prestigious as a Master’s degree or a PhD.  There’s really no end to it.

The convergence of these sobering economic and social trend lines makes it pretty clear that the “old” business model is no longer working for colleges and universities.  With the economic realities of today, college administrators are discovering that, sooner or later, market forces work.  And the resulting picture isn’t very pretty.

So now we’re witnessing the lowest percentage increases in tuition sticker prices we’ve seen in years, across private institutions and even some public ones as well.  Bloated administrative staffs  — their numbers dwarfing the number of teachers at some colleges — have finally plateaued or even begun to decline.

Being the parent of two children who graduated from college within the past five years, naturally I’ve been quite interested in these trends – and I’ve viewed them pretty close-up.

What I’ve determined is that for years, administrators at many colleges and universities didn’t see themselves as working within a market system — having to compete where market forces were at work.  The often-unappealing business of being disciplined by market forces didn’t pertain to them — or so they thought.

That’s certainly not the case anymore.

And there’s another huge factor looming on the horizon:  Distance learning.  I’ll be here big-time before we know it … and it promises to upend the college education business model as never before.

What are your thoughts on this topic?  Please share them with other readers here.

3 thoughts on “Economic Reality Comes to College Campuses

  1. I also have two children who graduated in the past two years. I think a lot depends on the degree field, the college chosen and the amount of real-world work experience the graduates have gotten along the way.

    My children graduated from a state school (reasonable tuition) with BS in mechanical engineering and 2-3 summer internships under their belts. They both landed great jobs with their junior-year internship companies. I couldn’t be happier with the investment.

    • Well-stated, Sue. In our case, one child “followed the recipe” in the same way and ended up with a similar positive result. The other, not so much. Significantly, it was our younger daughter who followed the internship route. Doubtless she was paying attention to the overall “job atmospherics,” but also factoring in the experience of Daughter #1 …

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