Rowyn (rowyn) wrote,

The Education Bubble

Higher education is in a bubble.

Tuition cost has been increasing faster than general inflation for as long as the FinAid office has existed. The FinAid table puts tuition costs at twice general inflation from 1999-2005. I could not find a handy chart from the Bureau of Labor Statistics, so I looked at their year-end reports for 2006-2010:

Year General Inflation
(including eduction)
2010 1.6 4.42.75
2009 -0.4 5.3***
2008 3.8 5.81.53
2007 2.8 5.72.04
2006 3.2 6.21.94

*** Left off because the ratio of a negative number to a positive one is crazy.

The trend is not improving.

Enrollment rates are likewise up. From the National Center for Education Statistics: "Enrollment in degree-granting postsecondary institutions increased by 9 percent between 1989 and 1999. Between 1999 and 2009, enrollment increased 38 percent."

What I really want to know next is how much supply has increased -- how many seats are available for students and how much has that number risen? Are college class sizes growing overall? (Ie, is the growth in enrollment accompanied by a growth in infrastructure, or are more students being placed in the same number of classes?) My Google-fu has failed me here; I can't figure that out.

But the demand-side numbers suggest that supply is unable to keep up: prices keep rising, but that doesn't deter more people from wanting the product.

The government response to rising prices has been to increase student aid, in the form of grants and loan guarantees and low interest rates.

If rising prices are the problem, this is exactly backwards for solving it.

Making more money available more people to purchase a resource doesn't make that resource cheaper. It makes it more expensive, as the pool of people able to purchase it and the amount of money they have increases. Yes, eventually supply should increase, but it's easier to increase prices than to increase supply, so which is going to happen first?

Assuming the goal is to increase the supply of skilled labor, and that the government should play a role in doing so*, it would make more sense to increase the education supply. For example:

* Build more public universities
* Add more capacity -- classrooms and staff -- to existing public universities
* Offer incentives (subsidies or tax breaks) to private colleges for increasing their capacity
* Tie the above to performance & cost (you want to incentivize inexpensive high-quality schools, not costly low-quality ones).
* Improve career counseling to high schoolers (not everyone benefits from a 4-year degree and different majors effect your economic prospects differently)**.
* Offer incentives (subsidies or tax breaks) to businesses to do their own training instead of looking only for applicants with 4-year degrees.

I'm pretty sure we do some if not all of this already, but given the comparative lack of attention the supply-side of education gets, it feels like government efforts are badly lopsided on the subject.

* Big assumptions! I am not sure I agree with them, even.
** As a holder of an MA in English literature, I want to emphasize that there is nothing wrong with getting a degree in a field that is in low demand. But you really need to be aware that (a) your field is in low demand (b) thinking "it's so unfair it's not in high demand" is not going to change that and (c) borrowing money to get a degree in a low-demand field is not going to improve your econmic outlook significantly.
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