Is Higher Ed Going the Way of Newspapers?
How do you know when a sector of the economy is in a "bubble"? Well, one of the signs is when everyone starts talking about it being a bubble. With higher education, everyone knows that some kind of correction is coming, they just don't know how big or how soon.
College tuition has been increasing at an unsustainable rate, going up roughly 10% per year for the last ten years, far outstripping inflation. College debt is also unsustainable. Student loans are already bigger than credit card debt and are expected to exceed $1 trillion this year.
One of the great lessons drawn from the housing bubble is: if something can't go on forever, it won't. And the higher-education bubble has a lot in common with the housing bubble. Both products are legitimately valuable and have traditionally been an important investment that helps individuals rise into the middle class and build wealth. In both cases, the government decided these products were so worthwhile that they should be promoted with subsidies, tax breaks, favorable regulations, and—most potently—government-guaranteed loans.
The purpose of government involvement in education, even more so than in housing, has been to detach higher education from any consideration of its economic value.
With housing, the consequence was that home loans were increasingly extended to those who had no credible way of repaying them; the huge extra amounts of money poured into the sector by all of the subsidized loans drove up the price of housing, which in turn drove up the amount of money people had to borrow to buy a home, in a vicious cycle; all of that extra money encouraged a huge increase in spending on luxury items, such as imported glass tiles and fancy multi-jet shower systems; but at the same time it also supported marginal producers, who, in a frenzied market, did not have to produce a quality product in order to find customers.
We can see all of the same consequences in higher education. We hear reports of students borrowing $100,000 to get degrees in sociology, putting them underwater on their student loans in the same way that other people are underwater on their mortgages. The huge sums of money designed to make college more affordable have actually made it less affordable by supporting massive year-over-year increases in tuition. The extra money flowing into the universities has gone to build expensive new athletic centers but has not increased the quality of the instruction. Instead, it has gone to support massive bureaucracies and a whole generation of ideologically corrupt "tenured radicals."
As with housing, the crash back to reality is coming, and it is only a question of how big and how soon.
But there is one respect in which the higher-education bubble may not be like the housing bubble. We can be assured that housing will eventually recover, because people will always need a place to live. People will always need education, too, but it does not follow that they will always need universities. That is why higher education may follow a different course. Its bubble has been like the bubble for housing—but its collapse may be like the collapse of the newspapers.
The newspapers have been collapsing because of a technological advance that makes them obsolete. The Internet has lowered the cost and increased the speed of communication, causing both to converge toward zero. By contrast, paper has become the slow and expensive medium for the transmission of ideas. Printed publications are becoming a luxury item, like fountain pens, to be enjoyed for the nostalgic charm of feeling the texture of the pages under one's fingertips, but not to be purchased for everyday use.
This has hit newspapers the hardest, because they made money by packaging information with other services that had enormous economic value: the old-fashioned "classified ads." When I was a kid, if you were looking for a job, you picked up the newspaper and looked at the want ads. More to the point, if you were an employer, you paid to place those ads. The same goes for grocery stores offering coupons, for someone looking to sell a used car, for small entrepreneurs trying to sell their services, for singles looking for a date.
Today, where do you go for those same purposes? All of them are done online. All. The newspapers have been disconnected from an enormous stream of commerce on which they used to rely. That's why they won't recover. All they have left to offer is their content, and even then they are at a disadvantage compared to Internet publications, which can deliver the same thing faster and cheaper. And better, given the persistent ideological bias of the "mainstream media."
Universities face the same underlying economic problem. They, too, bundled their core product, education, with other services that had enormous economic value and which could seemingly only be obtained by going through the universities. The universities served as a system for credentialing and for social networking. A student emerged from a university with a network of social contacts—other students, alumni, professors—on which he could draw in looking for work. And his degree certified a certain level of expertise (if it is in a specific technical field) or at least certified his ability to engage in a sustained course of study over a period of years. But this kind of credentialing is just another form of social networking.
If one of the main products of the universities is social networking—well, hasn't that also been taken over by the Internet? Isn't that what Facebook is for? Or more to the point, isn't that why LinkedIn, which focuses on professional networking and recommendations from former employers, colleagues, and customers, just had an $8 billion IPO? If the universities are a system of credentialing and social networking, it is clear that there is less and less need to pay tens of thousands of dollars a year in tuition to obtain those values.
And as for the core product of the universities, we are beginning to see the day when the Internet can deliver it faster and cheaper than the universities—and better. Traditional "place-based learning" (the equivalent, for higher education, of the phrase "legacy media") means that students do not get the most knowledgeable experts or best teachers in their field. They get whoever their institution has managed to bring to campus. From my own experience (and this was at an elite institution) this means three or four really outstanding professors, perhaps a half-dozen adequate ones, and a majority whose classroom instruction is a waste of time that would better be spent reading and studying on one's own. But of course, you pay for all of them. The Internet opens the prospect that everyone will be able to learn from the very best minds, not just those who happen to be nearby.
With universities, we see in the early phases all of the ingredients of the newspaper collapse: a product that is becoming unmoored from its crucial economic foundations and which delivers an ideologically biased product through a means that is becoming too slow and expensive to compete with more technologically advanced alternatives.
And people are beginning to line up to deliver the fatal blow. The latest is 19-year-old Dale Stephens, who proclaims that "College Is a Waste of Time." He is the recipient of a grant from Paypal co-founder Peter Thiel, who has been on a crusade to burst the higher-education bubble by giving grants to bright young entrepreneurs on the condition that they drop out of college. Stephens notes that online social media is beginning to replace the credentialing function of the universities—and he's using his grant to start a company that will help do that. And if he doesn't succeed, you can bet that someone else will.
Stephens hints at a much deeper reason why the university system is ripe to be knocked down: it emphasizes "theory rather than application." The "ivory tower" is called the ivory tower because it imprisons the abstract theoretician up in a tower, walled off from the real world down below, which is considered beneath his notice.
In attempting to sever abstractions from concretes, the ivory tower has set out specifically to sever education from work. The whole point of the university system is that young people are artificially kept out of the working world for four years or more, so that an entrenched establishment can hand down to them all of the important concepts and methods they are supposed to use in life, shaping their minds before they have an opportunity to test these ideas in the real world. No wonder 18-to-24-year-olds trend so far left and end up getting taken in by vague slogans about "hope and change."
But in doing so, the universities are producing students who have not acquired in school the skills they need in the world of work. That is how the universities have undermined their own economic foundation. If higher education is no longer an effective certification that students have the knowledge necessary for productive work, or even that they have the basic skills and habits necessary to succeed—if both students and employers catch on to the fact that workers acquire their most valuable skills on the job, after they graduate—then prospective students will see no reason to spend four years of their lives and a hundred thousand borrowed dollars on college.
I don't know exactly what shape higher education will take after the bubble bursts. But I suspect that the most important reform will be the integration of education and work, of learning and doing. On a practical level, young people will start making money sooner, even as they find that the skills they gain by working help them go farther, faster. On a cultural level, productive work, rather than libraries or frat parties, will once again be the defining experience of a young person's entry into adulthood.
Just as the mainstream media has lost its monopoly as the gatekeeper of the news, the bursting of the higher-education bubble will end the university system's monopoly as the gatekeeper for talent in the business world.