26 Responses

  1. Jeff W says:

    Thanks for sharing this, Mark! I just bookmarked it on my Digg account. I mean, that’s certainly a compelling chart, after all. I guess the big questions that remain are when does the bubble burst and what are the implications? In the interim, I guess we just try to grapple with the costs and look for technological software solutions to make higher education more accessible…

  2. samer says:

    please also add healthcare cost to that curve.

  3. robin4est says:

    Impressive.
    The cost of health care has certainly gone up, but the product is clearly superior to what it once was.
    Can the education industry say the same?

  4. anon prof says:

    This plot is misleading. According to the Goldwater Report on Administrative Bloat, per capita spending by universities increased 34.5% or about 2%/yr over inflation. So the cost of college has increased relative to the CPI, but not nearly as much as is implied by the plot of tuition. What has changed is the distribution of who pays that cost. In the state I live in, the state offers merit and need based lottery scholarships worth up to $10,000. Direct state funding has dwindled to less than 10% of our budget, and “tuition” is now about $12,000/yr (in effect a shell game – state money is taken away with one hand and given back with the other). Of course, according to our president the average amount students actually pay is about $3000/yr. Effectively, these state scholarships are vouchers, but it makes little sense to suggest that the switch from a direct support model to a voucher model is a sign of a higher-ed bubble.

    I suspect that something similar is going on at private universities – they move up in the rankings for offering lots of financial aid, so they artificially inflate tuition, then discount it for almost everyone (thus earning financial aid points).

    Now perhaps the increase in spending of 2%/yr above the CPI is unwarranted. But before getting too worked up about the growth in cost, I would be very curious to know how it compares to other high-skilled service oriented sectors (veterinary care, financial planning, legal representation, etc…). Also, this 2%/yr was from 1993-2007. How much of that 2%/yr was from increased philanthropic support fueled by the subsequent tech and housing bubbles?

    • Brian R says:

      The author’s chart says he’s using the BLS numbers. The BLS talks about that calculation here. A quick skim seems to indicate that they’re measuring actual out-of-pocket costs as reported by students. This leads me to believe that the chart is not as misleading as you think it is. But like I said, this is based on a quick skim, so I’m hardly an expert.

      Relevant quotes from the BLS site:

      The base period weight for each CPI item group is the out-of-pocket expenditures households incurred for that item.

      In addition, there are other students who pay a very small fee to the college since the majority of their tuition and fixed fees are covered by scholarships. When these situations are priced by BLS Field Staff, normal increases in tuition/fees and minor declines in scholarship awards can provide extremely large changes for entry in the CPI index. For some of these same quotes, minor tuition declines or minor scholarship award increases can actually result in negative prices, which make the quotes ineligible for use in the CPI.

  5. WG says:

    Given what we know about the severity of the housing bubble, this chart is nothing less than shocking. How long can it be before the whole higher education establishment begins to collapse in on itself?

    As Michael Barone pointed out, almost all of the growth has been in administration, but when the bubble bursts it will take everyone with it, including the faculty.

    If you can see the writing on the wall, you know that is not the best time to count on a career in academe, which is just one more reason not to invest years of your life in graduate school. On that note, here are 100 reasons NOT to go to grad school: http://100rsns.blogspot.com/

  6. freeman says:

    Too bad the chart is not expressed as cost / value ratio. It would have to be a log scale chart.

  7. Douglass Holmes says:

    Part of the problem with the whole culture of personal debt that marked the turn of the millennium was the assumption that our major capital assets (our houses) would continue to appreciate and that our paychecks would continue to grow. Neither of these are good assumptions, and they credit crisis happened when years of bad policy under accumulated enough bad debt and toxic assets that couldn’t be ignored. Now, we have an administration that wants to continue the culture of debt, but this time it’s public debt. The higher education bubble is growing under the grow-light of a few more bad assumptions: education always pays off, students will be able to pay the loans back, and removing the profit hungry bankers from the process (i.e. turning all student loans over to the federal government) will get rid of that evil profit motive. In today’s rapidly changing world, it is not safe to assume that you will be able to pay back your student loans just as it is not safe to assume that you will always be able to afford that mortgage or that you will always have the same job.
    In fact, I think the safest assumption is that you will NOT have the same job five years from now. The education you borrow for may turn out to be a liability, not an asset.

  8. Marty says:

    Good post, except I don’t for a minute buy that it was “good intentions.” Maybe among members of the public who weren’t/aren’t paying attention, but the pols who actually vote for these programs know darn well what they’re voting for, and who will benefit, and who will pay.

    To think otherwise is to believe our politicians are stupid; they may be many things, some of them not attractive, but “stupid” is not one of them.

  9. Lucky says:

    I wonder how the author computed university tuition costs. The “university catalog” published cost is not what most students pay. The cost is “means tested” (see FASFA). If your parents have saved and are working these cost are as high as published. Few save. Few parents are upper income. Few pay the price listed. Most students get a large subsidy from the few that can pay the list price.

  10. There are three components to this bubble – parents who think their children will benefit by college and will have less of a life without it, government that provides subsidies which is basically massive “education welfare” and a transfer of wealth to the education industry, and business which continue to prefer the college-educated despite the fact that “everyone knows” you mostly don’t learn anything useful in college.

    Because two of these components are mostly driven by false perception, the bubble will only burst when that illusion is destroyed. In other words, when parents see that it’s better for their children to maybe start at a low-end job and work their way up rather than learn bad habits and incur massive debt at a college, and when businesses start preferring those with experience as opposed to those with a diploma.

    That piece of paper is taking a high toll on society, government entitlement, and our national character, that we just can’t afford anymore .

  11. polistra says:

    Wow! I knew it was bad, but didn’t realize just how bad it was!

    Observations: 1980 was roughly when tenure became universal and mandatory at all colleges. Before that, it had been mainly an Ivy League thing. Also, around 1980 a corporate style began to take over in college administrations, with “turnaround men” and “headhunters” ruling the roost.

  12. Audrey says:

    I’m finishing grad school now in the sciences. WG says that when the bubble bursts, it will “take everyone with it, including faculty.”

    I really wonder what it will look like when the bubble bursts. I’m not going into academia, for a myriad of reasons, but it does seem like new professors will not have it as “cushy” as I perceive older professors have had it (my prof started in the early 80s – nice run for him).

    • beallmd says:

      I agree with Audrey and her question: What will it look like when the bubble bursts? This is the essential question and I don’t know, or I can’t imagine what the answer is.

  13. Lucas says:

    In some ways, yes, the services provided in traditional four-year schools has increased dramatically. In 1993, for example, when I started college, the school was not paying for broadband Internet service all its students. The rooms were a lot smaller and had less amenities than what students demand now. Also, if this chart does not take into account the discount rate (which is growing at most institutions), then it is misleading. What the discount rate means, essentially is that the rich are paying more actual dollars for school, and the middle class and poor are paying more too, but not quite as much. The discount rates for most private schools I am familiar with are between 20 and 40 percent.

  14. Tim G says:

    The Western Interstate Commission for Higher Education (WICHE) has published data on the ratio of tuition and fees for public institutions to median household income. This is perhaps more meaningful because it shows the growing gap between tuition and what people an actually pay. This data is for 15 Western states, but I suspect the rest of the US varies little from it.

    Between 2000 and 2010 the ratio increased from 6.0% to 10.9% at universities offering 4-yr offering undergraduate and master’s degrees.
    Between 2000 and 2010 the ratio increased from 7.1% to 13.3% at universities offering doctoral degrees.
    Between 2000 and 2010 the ratio increased from 4.9% to 5.6% at universities offering 2-yr associate’s degrees.

    The cost of an education at State U is rapidly outstripping the ability of many to pay with the exception of the community colleges.

  15. SamH says:

    I’d be interested in hearing Mark Perry’s response to the points made by “Lucky” and “anon prof.”

    I’d also be interested in knowing how much of that college tuition increase is due to states cutting back on spending on state universities, which causes the universities to raise tuition.

    I don’t doubt there’s a lot of money spent at colleges on needless administrators and amenities that have nothing to do with education. (For example: I went to college in the 90s…not that long ago. There were three of us in one dorm room and we shared a bathroom with 15 other guys, there was one common area with cable TV for the entire dorm. Students living in the new dorms being built on campus all have private bedrooms with a common room and bathroom shared by three other students. This is more like a luxury hotel than a dorm.) But we need to get our facts straight if we’re going to find a use for a chart like this. There are some details missing.

  16. Lonald says:

    The subsidies cited by anon prof aided and abetted and hid the growing bubble in higher education. The Goldwater report, as noted in the above post, does indicate that cost per student increased significantly above inflation (in the 1993-2007 time frame), but the consumer was shielded by the cost for many years. With governmental support more difficult to increase or maintain, more of the the load is now falling on the direct consumers. It is likely that the costs (not the tuition) in the 1978 to 1993 time period was quite high, but hidden through governmental subsidies and endowment funds (which have tanked since 2008).

  17. Ed Sodaro says:

    This is a classic economic bubble in the pre-collapse mode. The collapse will occur with a colossal failure to repay vast amounts of student loans in an economy with no jobs.

  18. G.T.E. says:

    There are more administrators than teachers at the Cal ST Univ. system. Union jobs never go away, they are always promoted. Bring in a private organization and watch how the costs come down. Cut all university administration employees and bid it out to a private firm. I bet 50% savings overall. Public employees are inefficient and too expensive.

  19. PattyMor says:

    College is still a good value for the sciences, computers, accounting, math, doctors, and lawyers. But without massive amounts of federal money, would we have women studies, black studies, latino studies? And, all those administrators chasing ever more federal grants and study money. My oh my, those communist/marxists ensconsed at the unversities sure love the federal sugar.

  20. Tex says:

    Easy money in the form of student loans is what is causing the cost of college to skyrocket and the quality/value of a college degree to plummet.

    We are literally turning our kids (and many of their parents) into indentured servants of the government. They are indebted to the gov’t for 100s of billions of dollars in student loans… all in order to finance the liberal elite’s lifestyles.

    How messed-up is that!?!

    We now owe more student loan debt than credit card debt.

    That’s right! Americans owe almost $1 trillion in student loan debt… and it’s almost impossible to get out of paying student loans back. Bankruptcy is usually NOT an option (no, I don’t have any student loans that I’d like to discharge in BK).

    Not that anyone should be able to walk away from their student loan debt obligations, but they should be well-aware of what they are getting into before signing on the dotted line. And that goes for the co-signor on student loans too! They are treated the same when it comes to repayment.

    Defaulted federal student loans can haunt you forever.

    Buyer beware.

  21. Charles Smith says:

    Hi,

    I just wanted to share an infographic about the higher education bubble in America and I think that it would be a great follow-up post to this article. Anyways, you can find it at http://www.savingsaccount.org/frugal-saver/higher-education-bubble-in-america/.

    Thanks and great stuff you have here!!

    Charles

  22. CollegeGirl says:

    Tuition needs to stop rising at a higher inflation than that of the average. It is killing us students and causing way too much student loan debt and/or dropping out all together and going into default. Stop raising tuition!

  23. Dave says:

    I wonder if the result will be similar to the housing situation, with a big overhang in capacity resulting in lower prices (costs to attend college dropping and a bunch of previous students that are underwater–paid too much for an education or part of an education and owe too much in student loans).

    If so, that group will take longer to begin building wealth and spend more of their lifetimes working to pay off early debt.

    We’ll see

  24. Running wild says:

    The bubble has already hit our university here in the Midwest. On-campus enrollment has dropped 25% in the last 15 years, from 13,000 to 9,500. Yes, there are fewer high school graduates in our state, but the main reason for the drop is cost. I always thought we were a “cheap” state school until one of my students showed me his bill for last year: $22,000! That was the total for room, board, tuition, fees, books and supplies for two semesters. As a result, we’re seeing a LOT more students going to community college for two years and then coming to us. In the last five years, we’ve closed two major residence halls (rooms for 900 students) because we just don’t have the numbers anymore.

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