Tuesday, May 22, 2012

The Coming Meltdown in College Education

Billionaire business man, Mark Cuban, writes about the coming collapse of college education.  I know this is nothing new.  Many people are seeing the writing on the wall.  As I think about training future leaders for the church I am more and more convinced that staying out of huge seminary debt and doing a local church training program like Porterbrook is probably the way to go for most people.
Remember the housing meltdown ? Tough to forget isn’t it. The formula for the housing boom and bust was simple. A lot of easy money being lent to buyers who couldn’t afford the money they were borrowing. That money was then spent on homes with the expectation that the price of the home would go up and it could easily be flipped or refinanced at a profit. Who cares if you couldn’t afford the loan. As long as prices kept on going up, everyone was happy. And prices kept on going up. And as long as pricing kept on going up real estate agents kept on selling homes and finding money for buyers.

Until the easy money stopped. When easy money stopped, buyers couldn’t sell. They couldn’t refinance. First sales slowed, then prices started falling and then the housing bubble burst. Housing prices crashed. We know the rest of the story. We are still mired in the consequences.

Can someone please explain to me how what is happening in higher education is any different?
Read the rest.


Andrew Faris said...

There was a great NPR Planet Money podcast last week about the actual price of college. I won't argue that the enormous amount of student loans people come out with is good, but I will argue that there is one fundamentally wrong idea in Cuban's post, which is that the price of college is significantly rising.

What the Planet Money podcast gets at is that while the "sticker price" of college has raised significantly, the "actual price" hasn't. So a school may say it costs $50,000/yr, but 60% of its students won't pay that much to go there, and the other 40% are usually the ones who can afford it. It ends up being similar to a car's sticker price: almost no one actually pays the sticker price of a car.

Colleges offer a sticker price for a couple reasons. First, the higher the price of the school, the more valuable to the school looks. This college costs 50k/yr when the other one I'm considering costs 30k/yr? Well then, the 50k school must be a better school! Second, the college can then give what looks to be a huge discount to the students it wants to give that discount to through scholarships. So as a 4.0 valedictorian high school senior, I'm getting 30k off of college. That looks like a huge number, even when it's the case that relatively few will pay the sticker price anyway, plus that person still pays a large amount for school but feels like s/he is not. Some of this is all akin to the idea of "price anchoring", which is where you go to your local grocery store and well over half of the store is "on sale" if you have a club card. Of course, nothing is ever sold at the original price anyway, but the original price is there just to make the sale price look lower, and to give the consumer the impression that s/he's getting a deal.

Again, according to Planet Money (or at least to some university prof who studies this sort of thing), the "actual" price of college has basically stayed consistent with inflation over the last 10 years, even while the sticker price has soared. And, also again, the people who are paying sticker price are people who can afford at least part of it, and typically are the students whose academics are less valuable to the university, but whose ability to pay the full price allows for the 4.0 student to pay less (and universities really want the 4.0 student).

The point is this: college prices have not risen nearly as much as people say. They just look like they have.


Andrew Faris said...
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