News Story

As ‘Higher Education Bubble’ Accelerates, Alternatives Emerge

At a time when some experts are predicting a "higher education bubble" and many companies are placing less of an emphasis on college degrees, new organizations are working to connect potential workers with employers while avoiding the traditional university model.

As tuition continues to increase well beyond the rate of inflation, a debate is taking place over how to deal with the cost of higher education.

In the past decade, amidst perpetual budget crises, Michigan significantly cut appropriations to universities. In the two decades prior, the state funded its universities among the highest in the nation on a per-capita personal income basis. At the same time, the federal government has significantly increased funding for higher education — including a doubling of Pell Grants and tripling overall spending.

Some argue for more spending for colleges and universities. In Michigan, the group, Business Leaders for Michigan, has called for an additional $1 billion in funding. Other groups and state columnists have also joined the chorus. The state budget for this year includes a slight increase for public universities and state legislators are working to subsidize more spending and debt in a variety of other areas, like campus construction.

Meanwhile, some are predicting a bubble in higher education. Significant in this stream of thought are University of Tennessee law professor Glenn Reynolds (who wrote the book “The Higher Education Bubble”), Ohio University economist Richard Vedder and writer Nathan Harden. This group sees problems in traditional higher education centered on the number of students, the costs, the degrees students are choosing and the educational outcomes. This is driven both by society and subsidies coming from government sources.

"The higher education bubble is the dramatic increase in the price of a college over the past several decades," said Antony Davies, an economics professor at Duquesne University. "It is fueled by a combination of government imposed financial incentives, public school evaluation metrics, and the decline in the value of a high school diploma. The government subsidizes students who attend college via grants, low-interest loans, and preferred tax treatment. As with any other good, government subsidization increases demand for the good. As demand for the good rises, so too does the price of the good."

But some organizations are establishing higher education alternatives, working to teach real skills at a much lower cost.

Isaac Morehouse is the founder of a new organization called Praxis. The group is aimed primarily at those 18-25 who take a 10-month, mostly online, course while at the same time working for businesses and entrepreneurs across the nation.

“The students work 30-40 hours per week with a business … doing substantial work while doing about 10 hours of classes per week online,” Morehouse said. “At the same time, there are projects — say building a website or a business plan. Something tangible that you have to show at the end of the program."

Morehouse, who previously was director of the campus leadership program at the Mackinac Center for Public Policy, said Praxis is designed and administered by college professors and business professionals who made the education modules and rigorous curriculum. The program meets at the beginning and end of the 10 months and includes weekly discussion topics and monthly oral exams via video conference with a college professor.

"There is a huge demand from business, particularly smaller firms, for people who have skills and can be valuable [and they] may not have time to go out and run job fairs and find (qualified) people," Morehouse said. "Then there are students who have a degree that costs a lot but isn't really helping them, or students in the midst of college, or those who did not attend."

He said Praxis helps link these two groups together.

"The wave of the future is individualized education," said Davies, who is affiliated with the project. "The one-size-fits-all model is collapsing under the weight of bureaucracy, subsidization and irrelevance. In its place will come a suite of educational solutions that teach the student what the student wants to learn rather than what others believe the student should want to learn."

Another group working to advance this future is Treehouse, an online school focused on teaching technology. Students can take courses in general business and marketing and basic HTML as well as more in-depth education on how to build and design websites, create iPhone and Android applications, or learn how to make other web applications for sites like Facebook or Twitter.

"Our mission is to bring affordable technology education to people everywhere, in order to help them achieve their dreams and change the world," said Ryan Carson, the founder and CEO of the company. "We want to allow someone to become job-ready in the technology sector, for as little as $150 and six months of their time, versus the $100,000+ and four years it takes to go through university."

The site was founded in 2011 and has about 25,000 students.

Carson said higher education is "absolutely" a bubble. While Treehouse isn't for everyone, he said he thinks many colleges are simply a "rip off." The company can teach the skills to get a great job much more quickly than traditional colleges and works to place students with businesses.

"Praxis is here because college isn't enough." Morehouse wrote on his website. "Praxis is here because a growing number of smart, driven young people want more than the factory schooling approach. They want more than internships where they do menial tasks. They want more than debt. They want to build human capital, gain confidence, knowledge, experience, and a network. They want to discover what they want to do by trying it out. They don't want to pay for a bunch of frills they don't need. They want to take ownership of their education and life."

It's too early to tell whether this type of new education will be the norm or just exist on the peripheral, but organizations are starting to pop up to fill the educational void.

The Khan Academy has a massive video library which has delivered several hundred million lessons. Coursera works with colleges and universities to provide courses online for free. And Harvard and MIT have teamed up to create edX, an open online course with lots of free classes and certificates of completion.

And major companies are responding to this devloping market.

The foundation of PayPal co-founder and venture capitalist Peter Thiel has a fellowship program that funds people under the age of 20, offering them "a no-strings-attached grant of $100,000 to skip college and focus on their work, their research, and their self-education."

And Google's senior vice-president for people operations, Laszlo Bock, recently said that the company has found college GPAs and transcripts "almost worthless." Bock told the New York Times that the company has teams where up to 14 percent of the people have never gone to college.

As student loans skyrocket, many students are searching for alternatives.

"One benefit of rising tuition is that entrepreneurs are being attracted to higher education — and they are finding ways to do it better than traditional universities," Davies said.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.