Tuesday, September 02, 2014

Looking for a College Bubble Leading Indicator

The education racket keeps running although the bubble looks like it could pop any day now. A rather ominous sign for colleges is that enrollment declined by 500,000 last year. The other secondary effect is that students are eschewing private schools to go to cheaper public universities. This is also in the face of an incredibly tough job market. The media is doing a great job of talking about student loan debt while mostly avoiding the cause of it, runaway tuition increases. When will we know the great college dismantling or decimation has begun? Small, private universities start closing or drastically reducing size.

Public schools, while increasing in cost, are a cheaper alternative. The cache of private universities is gone unless one goes to an Ivy, a sister Ivy or a little Ivy. Very few universities fall into that group, so what still draws kids to Wesleyan University and force 200K out of their parents' pockets over four years? The Brahmin-SWPL crowd has fewer babies each year, so educational status as a good or virtue will have a smaller crowd. If the universities expect the surge in Hispanics to pick up the slack, well they better improve financial aid packages. That is the rub though. As easy money goes away or students stop taking out a mortgage to go to a small, private liberal arts school, the universities lose students who were from families not deemed able to pay for college, subsidizing the needier kids. Rich Arab girls come from families that pay in cash and donate to the university.

An even more dangerous competitor is the world of online schools. While this is a boiler room atmosphere for juicing enrollments, there are many Americans who use it for a cheaper path to a degree. These degrees are accepted by Human Resources departments as legit, accredited bachelor of arts degrees. When all that matters is having the piece of paper, it matters less how you got it and where you went. Yes, people make connections in university but think of the millions of graduates out there. Add in the millions wanting the stamp of approval for white collar jobs and lives. Along those lines, do not count out the unplugging of men from the university life and into trades as white collar work becomes the next realm of jobs off-shored or automated out of existence. Most Americans (most humans) take the path of least resistance. These numbers are not small, and have a big effect on universities.


How many students on the margin will it take to hurt one private university? What is the footprint of a small, private university like the College of Wooster in Ohio or Hanover College in Indiana? Both are "good" universities, but I doubt the number of New Englanders, Southerners or kids out west who know of them is large. The small law schools tightening up shop or closing outright will be great candidates. Some prescient lawyers have warned about the glut. What small, private universities have made major upgrades or fixed cost investments to compete for students in recent years, counting on growing enrollment or being able to hike tuition year after year. This could go on because besides endowments, schools have grants, and schools have alumni fundraising drives. maybe this can go on forever. Institutions are reluctant to change at all. There would be one more way to keep the party going and not change behavior. Borrow! Some schools already have started to borrow but the best have held out. Old, private universities sitting on great real estate with giant buildings as collateral would make great profiles for borrowing immense sums of money. 

11 comments:

Anonymous said...

online education is not a solution for these issues, it is part of the problem. the cost for online degrees is ruinous compared to offline degrees, and they are financed with loans just like real universities. there is a reason that the online schools are public companies that have had some phenomenal streaks of performance. the online degree is no solution as currently constituted - if you're going to spend anywhere close to the money of a real degree, you should get the real thing.

Mike said...

Isn't this also an effect of hollowing out the middle class in this country, not just the economy? A college degree becomes another unaffordable luxury like a family vacation or a 2nd car, items which were pretty common of a middle class life a generation or two ago.

I happened to be traveling for work and had some time to check out my alma mater a couple weeks ago, a fairly large state school in the NE. Since I started as a freshman a dozen years ago, the school has built four new dormitories. When I attended, I stayed at the newest dorm at that time, which was built around 1985. The rooms were a bit larger than the older dorms on campus, only 2 rooms shared a bathroom rather than the entire floor, and there was a modest study room on each floor.

The amenities in the new dorms make the one I stayed in look like a prison by comparison. No more triples or cinder block walls, only two at most to a room, rec rooms on each floor, coffee kiosks, etc. I remember thinking these kids live in better accommodations now than they will for their first 5+ years out of school.

Once the subsidies stop, higher Ed will shrink fast.

ichbinmusik said...

Reading the Futurist's blog I see.

Son of Brock Landers said...

Futurepundit is a guy i read. I dont think he's said small private schools are the ones most at risk. Small privates jacked prices like Harvard did while not being Harvard and then spent $ on amenities. Some will be screwed.

Portlander said...

I've never been sure what the college bubble meme is supposed to mean when I see people refer to it.

A bubble is something that pops. What is supposed to pop?

The existing debt is secured by the US Govt, so even if students en mass stop paying, nothing in the economy goes pop.

Attendance? Since debt is more than available for anyone that wants it. We'd need a buyer's strike. I don't see that happening. Too easy for colleges to entice defectors with preferential pricing. Outside a few percent of the blogosphere no one cares. Marx was close, Consumer Electronics is the opiate of the masses. The irony of the Occupy folks was while they complain about The 1%, they themselves are 1%. Here's a question: which is a greater number of people: Occupy and Tea Party protestors or folks making >$250k/yr in the FIRE segment of the economy? I'd bet on the FIRE economy. One last thing, compared to 2007, what in the big 5 for the US: housing costs, college costs, medical costs, immigration, and public sector financial sustainability has changed?

Hey, no doubt the salad days are over for colleges, but that's true of the whole economy. The parasites have taken over the host and they are going to keep it just healthy enough to extract their rent.

Son of Brock Landers said...

Ichbinmusik - just did google search. I grok your comment. Honestly did not see it as this bubble is on many minds.

eah said...

that enrollment declined by 500,000 last year

How could that be? The US general population is growing by approx 1% per year. Maybe importing all those dumb Hispanics was not such a good idea after all.

sykes.1 said...

The great public universities of the Big Ten and Pac 12 are extraordinary buys today. Most of them are every bit as good academically as the Ivys, and some of them are better than any Ivy. One thinks Berkeley and Michigan, both Harvard's peers in every area and dominant in areas Harvard doesn't enter, like engineering. A number of southern public universities are in the same category: Texas, Georgia Tech, U Florida, for example.

Of course, they are only cheap to state residents, an out-of-state student might still spend over $40,000 per year.

The one thing the Ivys have that cannot be duplicated is that they are the networking agents for the Ruling Class' next generation. That is their chief function, and it has always been their chief function

peterike said...

I think above-average schools with a technical focus will continue to grow enrollment because they are being massively boosted by Asians who continue to flood into America unchecked. Of course the Hispanics aren't going to be sending too many kids to college. Some here and there as the outliers peel off, but not many.

The Liberal arts and business focused colleges will suffer the most. How many Chinese kids want to become accountants or English teachers? Well, not the immigrant ones anyway. Though first and second generation Asians really SWPL-ize and more and more you see them showing up in classic SWPL Liberal arts type jobs. Asians are the new Jews, for sure, even politically, but it takes a few generations to be Cathedralized. The first waves of them (20-somethings graduating American Leftist indoctrination camps) are really starting to hit.

E. Rekshun said...

"The other secondary effect is that students are eschewing private schools to go to cheaper public universities."

Right, almost all FL resident students at the University of FL (40,000 undergrads) attend on 100% or 75% "Bright Futures" 4-year tuition scholarships (funded by the FL lottery). And UF is a very competitive and selective university. Heck, in the late '90s, UF awarded my a 50% academic merit scholarship toward my MBA. I did the full-time two-year program for just $4K total tuition out-of-pocket!

Also, when reading news about super high school loans, remember about half that debt was used to pay living expenses (which must be paid whether or not one is a student).

And, let's not forget, one can always get their tuition paid by joining the active or reserve military or working for almost any large employers.

Joseph Moroco said...

Spent part of the week at a large state flagship U campus. Met a lot of the kids. Biggest function of the school is daycare.