The popping of the college bubble.

There isn’t a product, a business, or a service in the entire world that the laws of Supply and Demand don’t apply to.  Just like everything else, College is not the exception.

In the past, the purpose of College was that it was a place to learn specific technical skills.  These skills were so technical in nature that they couldn’t be learned on the job, and specific enough that it wouldn’t be taught in High School.  Take for example, Structural Engineering.  Before a student ever learns how to design a structure, they need to learn the higher order of mathematics and calculus that aren’t taught in High School.  Before a student learns to be a Doctor, they need to learn complex anatomy and chemistry.  College does have a place and use.

But its place and use is not as the default second stop after High School.  Treating it as such has many consequences.  The first consequence is that it devalues High School.  If everyone “should” go to college, and is basically given the money to do so, High School loses its value as the place where a child learns the skills necessary to be a good adult.  As College takes over that role, High School transfers into it’s new role as Older Child Daycare.  And with every kid being “Entitled” to an education, even the worst deviants can’t be kicked out of Older Child Daycare.

The second consequence is that it also devalues College.  In the laws of Supply and Demand scarcity creates value.  Gold is valuable not only because of its use as a trade currency, use in jewelry, and use in electronics.  Gold is valuable because of all of those things, and that it is rare.  If everyone had a pile of gold nuggets in their living room, gold wouldn’t be valuable.  The same thing applies to College Degrees.  When they were rare before, they were valuable.  When everyone has one, they lose all value.  The college degree becomes not worth the paper it is printed on, despite the student paying tens of thousands of dollars per year.

The third consequence is that while it devalues College, the costs skyrocket.  The average cost of college, adjusted for inflation is up 140% over 30 years (up 531% unadjusted).  The average cost of public college is up 144% over 30 years (524% unadjusted), and private college is up 128% (483% unadjusted).  With the rising costs comes rising student loan debt.  Two thirds of graduates leave with debt, but the total average debt is over $25,000.  None of this helps during the worst depression since the Great Depression.  Adults holding Bachelor’s Degrees are struggling to find any job, much less a job in their field.  And it’s projected to get worse.  By 2020, half of all college graduates won’t be able to find any job at all.

The fourth consequence is that with the value of Colleges and High Schools decreasing, the quality of graduates decreases significantly.  If High School is nothing more than a conveyor belt of life on the way to College, don’t be surprised when you start graduating illiterate morons.  It is not a coincidence that it was recently announced that the vast majority of High School Graduates in New York City could not read at a Middle School level.  And as the quality of high school diploma’s decreases, so does the quality of college applicants.  But since College attendance is still rising, that means more of the morons are attending College.  I wish I was exaggerating when I say that I’ve personally witnessed a couple of functionally illiterate Americans attending college with me.

The last consequence that I will list is that by flooding the market with “Free” (at the time) Government Money to go to college, it divests the consumer from making a reasonable decision about how to invest his own money.  It is exactly like the Sub-Prime Mortgage crash.  Freddi Mac and Fannie Mae flooded the market with no-money-down mortgages where the customer didn’t actually have to put a single cent of their own money into the house purchase.  By giving students and families tons of money that they only have to pay back much later it removes their incentive to wisely choose a college based off of price and quality (value).  Furthermore, the influx of “Free” money and the lack of customer competition lets the Colleges increase their prices with little or no repercussions.  If McDonald’s suddenly made a Big-Mac cost $20 tomorrow, no one would buy a Big-Mac.  If NYU doubled the tuition overnight, very little will change because people aren’t putting money down for college out of their own pocket.

The system can be saved before the pop.  It’ll be painful, but not half as painful as letting the college bubble burst.  The first thing to do is to cease all Student Grants, and all Federal Student Loans.  Since only about 15% of student loans are through private sources, taking away the Federal Grants and Loans will lead to a big crash.  But it is necessary to fix the problem.

Overnight the enrollment at college could drop up to 80%, but this will mostly be sticker shock and will self adjust later.  With the gigantic drop in attendance, some colleges will go out of business, while other universities will need to make drastic changes to survive.  These changes would include firing many teachers and professors, increasing their workload, and cutting overhead and administration to reasonable levels.  This would bring down the price to levels seen 30 years ago (adjusted for inflation).

Next this will bring the student’s own wallets back into the picture.  Any college that wants the student to spend his or her own money will need to figure out how to provide a better service for cheaper.  Suddenly the colleges are competing with each other and are not in collusion anymore.  I.E. Capitalism.  Any college that stagnates with quality or content taught will suffer as they lose enrollees and transfers to other colleges.

The last thing to do, and is probably the most important, is to fix the High School and Public Education system.  But I will cover this further with a post in the next day or two.

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1 Response to The popping of the college bubble.

  1. Pingback: Making K-12 Education Right. | Danneskjold Repossessions

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