Deflating the higher education bubble | The Triangle

Deflating the higher education bubble

As society becomes increasingly globalized and technologically advanced, higher education seems necessary in order to succeed in the real world. It provides additional advantages, such as making new friends, networking, expanding knowledge and pursuing suitable postgraduate careers.
Evidently, the demand for higher education is strong. World Bank data indicates that the global tertiary enrollment ratio, which is a fraction of student-age population pursuing higher education, increased from 14 percent to 32 percent from 1990 to 2012. In this time, American tertiary enrollment ratio soared from 71 percent to 94 percent.

A recent article from The Economist presents two broad methods to address the strong demand. The first approach is the continental European model, whereby most universities have equal resources and status thanks to state funding. The second is the American model, in which mixed public-private funding leads to stratified higher education.
Observing the research ingenuity of American universities, the world is gradually adopting the American model. Of course, more research is always beneficial, especially during an era of technological sophistication. Yet, higher education is becoming costly. The United States spends about 2.7 percent of its gross domestic product in higher education.

Increased expenditures in post-secondary education don’t always correspond to better academic performance. The Economist reports that 45 percent of American students did not improve in their first two years of university. Concurrently, tuition doubled in over two decades, after accounting for inflation, while student debt costs rose to a whopping $1.2 trillion.

Lackluster academic performance is largely due to differentiated universities. The elite private universities (e.g. the Ivy League) enjoy ample amounts of research funding and benefit from their extensive alumni networks. Public universities are funded by state governments and private funding.

Both university systems attract adroit professors, whose admirable teaching skills foster intellectual students. Public universities are usually inexpensive for in-state residents thanks to government subsidies. Despite their daunting sticker prices, elite universities typically offer generous financial aid, especially considering the rigorous screening process employed to select optimal students.

Unfortunately, the non-elite (or ordinary) private universities lack the large amounts of financial support that are treasured by elite and public universities. Poor financial incentive repels stellar professors, so educational quality suffers. Limited resources and scattered networking discourage current students, yielding low retention rates.

Ordinary private universities can entice strong professors by offering faster tenure track supplemented with exclusive benefits. Students and families are stimulated by excellent campus facilities, such as revamped student housing, diverse recreation centers and comprehensive libraries. Some universities can form various deals with companies, such that students can garner internship opportunities.

Although these approaches clearly benefit students and professors, universities incur a significant amount of costs. To compensate, universities may increase their acceptance rates in order to extract additional revenue from growing classes. Yet, selectivity is important, so universities should protect their reputation and avoid accepting too many applicants.

Selectivity considerations result in moderate acceptance rates ranging from 40 percent-60 percent. With an artificial quota imposed to deter excess enrollment, universities have little choice but to increase tuition to cover the excess costs. Since educational output isn’t clearly measured, price serves as a proxy for quality.

Prices generally refer to the cost of attendance, which depends on tuition and fees, room and board, transportation, textbooks and supplies and personal expenses. Analyzing the cost of attendance is essential when comparing financial aid awards, so the prospective student selects the most affordable university.

Upon matriculating, the cost of attendance typically reduces to tuition and fees, since the rest of the factors are readily managed by the student. In the continental European model, universities are subsidized by governments, so students only pay minimal or no tuition. American private universities charge four times more tuition than public universities.

A recent Wall Street Journal article indicates that tuition at public universities strongly depends on public funding. Between 2002 and 2006, state funding had dropped by average of about 5 percent, while tuition rose by average of about 4 percent. Since 1992, tuition and state funding trends have traveled in opposite directions.

Critics often blame high tuition on faculty salaries. Such a claim is flawed considering that faculty salaries have either remained constant or declined. Rather, the underlying problem is an overarching administration with sizable salaries, which makes universities indistinguishable from businesses. In fact, university presidents behave like CEOs and enjoy handsome payments accordingly.

Irrationally attributing the rising costs on tenured professors, administrators decide to exploit the large supply of cheaper adjunct instructors. Since 2011, more than 70 percent of college professors are adjuncts and full-time nontenure-track faculty. Sadly, adjuncts often lack adequate time to prepare for class and don’t have regular office hours.
The mistreatment of adjuncts has sparked fierce unionization to demand higher salaries and long-term contracts. Students and parents are outraged, since they are struggling with high tuition only to receive education from traveling faculty. Administrators warn that wage increases will exacerbate the tuition burden.

Salary raises are hardly problematic. Adjuncts complement theoretical knowledge with practical experience, which are useful skills in strengthening academic performance. Improving financial benefits will ensure stability and longevity of the teaching faculty, while allowing the tenured faculty to focus on their research and teach few specialized courses.

Misallocation of resources is another factor responsible for driving high tuition. Many universities seek to decorate their campuses by investing in impressive dining halls and luxurious dorms. Some universities engage in tight competition to recruit students and gather endowments by constructing marvelous buildings that aren’t necessarily academic centers.

Overwhelmed by crippling tuition, students defer the costs by taking advantage of student loans and federal financial aid. William Bennett, the Secretary of Education under the Reagan administration, argued that the readily available loans allow universities to skyrocket tuition, since easy deferral is essentially subsidizing higher education.
In a Wall Street Journal op-ed that appeared Jan. 27, Mitch Daniels, the former Indiana governor and president of Purdue University, pinpointed that 70 percent of graduates in the class of 2014 (or 40 million people) are borrowers, with an average debt of $33,000. Naturally, the macroeconomic consequences are significant.

Daniels highlighted that the higher education bubble forces college graduates to delay marriage and childbearing. Around 25 percent-40 percent of graduates are suspending major purchases like cars and homes, while half fear risk of defaulting on other bills. Student debt also discourages college graduates from pursuing professional schools.
Luckily, the higher education bubble can be safely deflated by enacting tuition and debt controls. Daniels has enacted a three-year tuition freeze and reduced the costs of supplementary materials, resulting in a significant reduction in Purdue’s total cost of attendance since 2013.

Furthermore, he illustrated that aggressive student counseling against the hazards of incessant loan deferrals has sharply reduced total Purdue borrowings by 18 percent since 2012. He proudly claimed that Purdue graduates have saved roughly $40 million to pursue their goals.

Daniels’ success in bubble deflation at Purdue University serves as a key foundation for all universities to follow. As mentioned previously, elite universities already offer substantial discounts for their students, while public universities are cheap under continued state funding. If the bubble were to burst, these universities and their students would remain largely unaffected.

The danger lies in ordinary private universities that don’t enjoy these financial luxuries. Although campus enhancement is necessary to strengthen university’s image, exorbitant tuitions and debt burden will harm the students and sully the academic reputation. Universities must be cognizant of financial pressures or risk being wiped out by the bubble burst.