As student loan debt surpasses credit-card debt as the leading liability for Americans, the reality of a “higher-ed bubble” is becoming increasingly obvious. Yet it isn’t just the students that are going broke; a new report from the Economist suggests that the same fate is befalling everyone connected to higher education, including the universities themselves:
Federal support for higher education remains at historically high levels, but states have cut back. To make matters worse, endowments (and their returns) have shrunk, money from philanthropy has dried up and those universities that provide need-based aid have suddenly found their students are needier.
All this suggests that colleges have good cause to worry about their debts. Unlike grades, they cannot be inflated away. Even Harvard, Yale, Cornell and Georgetown have been on an unsustainable path in recent years, says Bain, though all have big endowments to cushion themselves.
Glenn Reynolds, the author of “The Higher Education Bubble”, predicts that the bubble will burst “messily”. People have long believed that “whatever the cost, a college education is a necessary ticket to future prosperity.” Easy credit has allowed them to pay ever more, and colleges have raised fees to absorb the extra cash. However, this cannot go on forever, says Mr Reynolds, especially when people start asking whether a degree in religious and women’s studies is worth the $100,000 debt incurred to pay for it.
As universities start to face budget crises of their own, some serious fat trimming is in order. Fortunately, at many universities, there is plenty of fat to be cut. Students can live with out state-of-the-art gymnasiums and student centers, and faculties will still be able to conduct research without that extra library wing. These shiny amenities may look nice on an admissions brochure, but they do little to help educate students.
At some schools, however, this likely won’t be enough to plug the gap. These schools will have to start looking more seriously at ways to educate students more efficiently while cutting costs. Nobody yet knows what this will look like, but it will likely involve a combination of cuts to administration and staff and adoption of new education technology.
This won’t be a painless process, but on the bright side, the schools which do this successfully will be among the first to pioneer a model for higher-ed that is better suited for the 21st century.