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Will Student Loan Debt Drive Higher Ed Reform?

Is the higher education bubble about to pop? The answer is a resounding yes, according to Martin Hutchinson (h/t Instapundit). Hutchinson, himself a graduate of Cambridge and Harvard, has decades of experience as a market analyst. He sees all the signs of an industry that has peaked: costs are soaring, returns are plummeting, and legitimate challengers to the established model are proliferating.

So who does benefit from the current model? Certainly not the students, says Hutchinson:

Within the colleges themselves the ranks of college administrators have exploded (as is also the case in the medical profession, equally insulated from market forces). So have their earnings – according to the New York Times, in the decade between the 1999-2000 and 2009-10 college years, the average college president’s pay at the 50 wealthiest universities increased by 75%, to $876,792, while average professorial pay increased by only 14%, to $179,970. (Average college tuition costs increased by 65% and consumer prices by 31% during that decade.)

The only way most students have been able to afford these extortionate increases in tuition is through bank loans and government support. With total student debt now above the $1 trillion mark, Hutchinson sees change right around the corner:

Provided policymakers have the sense to stop subsidizing student loans with state guarantees and special provisions to survive bankruptcy, the banks will become much less willing to encourage the young and feckless to over-extend themselves in this way. Students will once again exert pressure on colleges to reduce their fees, and will choose cheaper state schools and programs that allow them to work their way through college.

Nobody knows what the future of higher education will look like, but it is clear that the current model is horrendously inefficient. The pressure for reform will only increase as technological innovation combines with financial necessity to encourage greater experimentation. While the rest of the world is trying to copy the old American academic model, the United States is moving on to create a new and better approach.

Read the whole thing.

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  • James Brown

    The point you finish off with is correct – from the foreign perspective, the grass is greener on the other side of the fence. They’re too focused on their own problems & systemic weaknesses to notice, or understand, the problems in the US. I’ve told many persons who work in the higher education institutions of their countries in S.America, Europe & Asia that the American university model & system is in dire straits. Often they just stare back with a curious gaze and point out that US universities still dominate the Shanghai rankings.

  • Eurydice

    Very interesting. The article itself brings up a more basic issue than just the salaries of university presidents – the issue is what does society expect from education? Do we just deposit a child into an educational system and expect all of its needs as a citizen and a human to be met? Is the education system expected manage the child’s health, hygiene, nutrition, socialization, self-esteem as well as reading, writing and arithmetic? And at the other end of the system, are college students supposed to be provided with absolutely everything they need to step into a job as a ready-made CEO? Are college credentials supposed to replace on-the-job-training, learning how to work with others, developing a network, climbing the ladder, and figuring out which fork to use at the corporate banquet?

    I think we’ve acknowledged that parents can’t turn over all responsibility to the schools, but it seems like employers should take some responsibility, too. If we expect the education system to do everything, it’s no wonder that it expects us to pay everything.

  • Eurydice

    And, of course, I should add that the students themselves need to take responsibility.

  • Anthony

    “Yet millions of students continue to graduate with degrees that have no obvious real-world benefits” – the author directly underscores themes in your various essays exploring 21st century change and need for (or development of) disintermediation. So, the question becomes what will an educated citizen look like in 2050 as we move to create a better approach.

  • a nissen

    Thinking way back to the days when a college education was truly available to all who persevered (in those good old days that WRM now claims were “unsustainable”), the only hurdles I had to overcome were the stigma of being a commuter living at home and the myth of being swallowed alive by a mega-university. If I were told that I needed a mega bank loan when neither my parents nor I had even a checking account, my life would have been far, far different. What a lucky star it is that has been watching over me!

  • Brett

    I would accept the end of federal and state support for student loans . . . provided that students are allowed to declare bankruptcy on them again. Right now, students can’t declare bankruptcy and wipe out their government-backed student loans unless they fit a few conditions.

    But if we’re in a fully private market for student loans, then let the lender beware, and take the full risk for their investments.

  • Mrs. Davis

    The student loan problem could be solved in an instant if they colleges were required to be co-signers on the notes.

  • JKB

    Brett, no problem, we’ll let them discharge the debt upon surrender of the credential. They can keep the knowledge, such as they might retain, but they can’t’ trade on the diploma or transcripts.

  • JKB

    The true university of these days is a collection of books.
    –Thomas Carlyle

    Now, you don’t even need that large building, just occasional access to the internet.

    But as far as forcing reform, the continued hostility to men on campus is creating a market for new delivery methods.

  • Jim.

    @7 – Great idea!

    @8 – That would work too.

    The extra money in the system produced too many incentives for colleges to entice students with expensive luxuries, instead of a solid and useful education.

    What will the education of the future look like? The education of the past, only more computerized. That’s not that hard to see.

  • Walter Sobchak

    #8 JKB. You are going to have a very large pile of only slightly used degrees in Women’s Studies.

    #9 JKB. OTOH, the shortage of men on campus has lead to a Surf City Situation that the true hound finds impossible to stay away from.

  • Ed Jones

    As has been noted in other articles, not only is the debt crushing in absolute terms, but paying those off will take away from buying cars, homes, and other items by new graduates.

  • a nissen

    Here is a fine example of desperation legislation in effect and being promoted in the newsletter of a very progressive Washington state mayor:

    “Guaranteed tuition for qualifying college-bound 8th grade students
    Did you know that the State of Washington will guarantee tuition to a Washington public college or university to any student on the federal free and reduced lunch program — if that student maintains a 2.0 grade point average and does not commit a felony during their entire high school career?

    It’s true. But they have to enroll in the scholarship program by the 8th grade. And the deadline is almost here.

    It’s called the College Bound Scholarship Program, and our goal is … 100 percent of eligible 8th graders….”

    So how long into the future does a family have to qualify for a reduced lunch program to receive four years of free tuition beginning four years into the future? Is a resulting application from a C student sans felony an offer any Wa public institution can not refuse? What impact would the selective offering have on A and B students whose family incomes, modest though they be, do not qualify them for reduced lunches? Would this encourage these families to fudge? What webs we weave…

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