Tuesday, May 31, 2011

The Education Bubble: The High Cost of Higher Education

This has come up a lot recently, so I think its worth discussing in some depth. There is a notion that the next big economic bubble to burst will be in higher education.

To adequately discuss the issue, I think its important to first talk delineate the difference between the common conceptions of what higher education is and what it does and the reality on the ground. For the purposes of this post I'll try to define everything operationally. When I talk about "success" and "outcomes" I'm talking principally in financial terms. The picture is obviously much more complicated than just finances, but its much more difficult to quantify quality of life than dollars.

1. Skewed Perceptions

There is some new data about the median salary of graduates with different bachelor's degrees and recent census data on average salaries of people with different levels of education. This data shows a lot of obvious trends. A B.S. in petroleum engineering is associated with an average salary higher than a B.A. in counseling psychology and a Ph.D or professional degree is, on average, associated with a higher salary than a bachelor's degree. There is probably some research on salaries of individuals with terminal degrees in different fields, but I haven't come across it.1

Orthogonal to all this is the perception of what higher education is worth. In general, a college degree, will result in a higher salary than no degree (though most of the data I've seen on this excludes trades and fields with formal licensing requirements). Even without looking at empirical data, I don't think its too much of a jump to say that this is reflected in the general perception of the worth of higher education. The general sentiment seems to be that the more education you have, and the more prestigious your degree, the higher your salary. Though there are doubtless some exceptions, at least in my experience, this view is widely prevalent even amongst academics.2

The major thing thats left out of this view is a quantifiable amount of what a specific degree is actually worth.  I think people generally have a notion that engineering and economics degrees will lead to higher salaries than silly psychology or sociology degree (and this is backed up by actual statistics), but is a degree from Harvard University worth more than a degree from Stony Brook University?  I think most people would agree to without much thought.  But what if I phrased it a different way.  All other factors (including major) being equal, is a degree from Harvard worth $150,000 more than a degree from Stony Brook?3,4

2.  Harsh Realities

One thing that seems to escape the attention of many people (aside from anyone who has every paid a tuition bill) is that colleges and universities are, probably without exception, designed to be money-making institutions.  This is especially true of for-profit universities such as University of Phoenix, but even state run universities are, in some sense, out to make money.  

Though most public universities aren't technically for profit, they still need to raise sufficient funds to keep the lights on, pay the faculty, and compete for students.  State Universities tend to be funded mostly through grants from the state and federal government, while private universities rely on funds from tuition and alumni donations5

However, as state and federal budgets have tightened, grants to state universities have grown smaller and smaller.  In order to survive and remain competitive, many public universities have had to cut services and raise tuition. In academic terms this means that more students are being admitted to pay more money to attend classes that are increasingly being taught by adjust professors and/or graduate students.  The general economic climate being what it is, even private universities have been affected.

3.  Cause and Effect

This problem is actually much deeper than just classes taught by grad students and tuition hikes.  One of the ways universities typically raise money is through admitting students.  Thus as budgets are cut, more and more students tend to be admitted.  However, in order to admit more students many universities have had to lower (or change) their admittance criteria.  Not only does this result in larger classes, but often it results in weaker students being admitted.  Not to say that students with weak academic backgrounds can't flourish in college, but a disconnect between the attitudes and abilities of the student body and expectations about said attitudes and abilities held by the faculty can cause major problems6.

Admitting more students also results in more people with degrees graduating into the workforce every year.  In practical terms this means that there are  more people qualified for each available position out in the workforce.  More jobs aren't exactly being created, which causes increased competition.  Thus, students are paying more for a potentially decreased education that is increasingly ineffective in helping them get employed.  To get around this, students are turning to alternative education settings and graduate programs to boost their credentials.  Though, as I'll outline in coming posts, these are not without their own problems.

NEXT WEEK: The Grad School Crunch


1.  At least not in a 10 minute Google Scholar search.

2.  I have no idea about the accuracy of this, but I've repeatedly heard that a M.S. in computer science will get you a higher paying job than a Ph.D.  Academics, of course, should be the last people to believe this kind of thing.

3.  This figure applies only to undergraduate degrees.  Estimated total costs for a single year at Harvard are on the order of $50,723.  The same figure for Stony Brook is something like $11,421.73.  Neither figure factors in financial aid, though both include room and board.  Look for more on financial and in the next post.

4.  Incidentally, Harvard doesn't have the highest tuition in the U.S. and Stony Brook doesn't have the lowest.  Stony Brook's tuition is less than average, even for a state university.  For the 2010-2011 academic year, Harvard's tuition isn't even in the among 100 highest.

5.  This is one of the reasons why tuition is so much lower at state universities.

6.  I've seen this firsthand in the context of the newly minted one year M.A. program offered by the psychology department at Stony Brook.  In the first year of the program, it was very clear that many of the admitted students were not prepared for graduate level coursework and that some faculty had very little interest in accommodating them.

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