Expert: Higher Education Bubble Is Coming and States Better Prepare
Richard Vedder: 'The big losers in this are poor people'
LANSING — In the next decade, potentially hundreds of colleges will go out of business as their prices push families away from traditional universities, said an expert on higher education.
American higher education is in a bubble, said Richard Vedder, an economist at Ohio University and the president of the Center for College Affordability and Productivity, who spoke Tuesday at an “Issues & Ideas” event sponsored by the Mackinac Center for Public Policy.
Vedder, who also is on the Mackinac Center's board of scholars, said the government subsidizing college has increased demand but also pushed prices higher and out of reach for many students. At the same time, the worth of a college degree has gone down.
While state appropriations have gone down in recent years, federal subsidies in Michigan and nationally have skyrocketed to the point where the government spends $175 billion annually on assorted higher education programs.
Today, there are twice as many administrators per student as in 1970 and costs for athletics and "superstar" professors have skyrocketed.
"Universities spend all that money because they can," Vedder said. "And we are funding a growing bureaucracy."
He listed 10 facts about higher education that suggests it is a bubble:
- According to the Bureau of Labor Statistics, 48 percent of workers with a bachelor's degree or higher are employed in jobs that don't require degrees.
- Nationwide, 40 percent of students do not graduate from college in four years or less. That number has skyrocketed over the past few decades.
- On a variety of tests, the average university senior has only marginally better skills than freshmen.
- Studies show that the typical student spends less than 30 percent of their time in college on education.
- Forty million Americans have more than $1 trillion in college loans with a default rate now at 13 percent, which is the highest ever.
- The empirical evidence shows no correlation between spending state money on universities and economic growth.
- As the proportion of students attending college has increased, schools have been incentivized to "dumb down" their requirements. That's why adult literacy of college graduates has declined.
- Subsidizing college has not lead to a decrease in income inequality. The percentage of college graduates from families in the lowest 25 percent of wage earners has declined from 12 percent in 1970 to 7 percent today, despite more subsidies.
- The rise in costs and overall students attending college suggest that any suggested future gains from a degree will be smaller than the past.
- There is a growing gap from parents and students in the perceived gains of a college degree and the actual gains.
Tuition has risen at twice the rate of inflation and schools are not doing much to change that. Vedder had five suggestions for what can be done:
- Radically reform and restrict federal subsidies. The amount has been growing exponentially and it has not helped the original goal, which was to help low-income students.
- Give money to students, not colleges or universities. This can be done with a progressive voucher system that gives more money for low-income students and less or none for those who are well off. Bonuses could be paid to students who excel, such as those who graduate early.
- Find alternative ways of certifying competency. The system is distorted now, with college acting simply as an expensive "screening device" for employers. Perhaps design a college equivalency exam that students could take at any age or education level.
- Package learning differently and more efficiently. State and federal subsidies discourage students from attending different schools at the same time or taking courses online.
- Reform or abolish accreditation. It holds little value and is fraught with conflicts of interest and no transparency.
"The big losers in the current system are poor people," Vedder said, noting that requiring more and more paperwork and adding regulations disproportionally harms students from low-income families.
He also noted that there are five state universities serving the Detroit metropolitan area. Of those five schools, four of them – Oakland University, Eastern Michigan, the University of Michigan–Dearborn and Wayne State – have less than half of their students graduating within six years.
“Is that not a crime? Isn’t that a sin? Isn’t there something wrong? Isn’t there something morally wrong with that?" Vedder asked. "Adults taking kids down the path to despair.”
Vedder concluded by noting the types of schools that are in “deep, deep trouble.”
"The small liberal arts schools, the large schools with small endowments, and the lower-quality state universities,” he said. "That's who will be hit hard by the higher education bubble.”
The full talk from Vedder:
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.