Higher Ed is Headed for a Crash

I’ve twice written before about ways that I think Higher Ed must be reformed, but only recently have I been forming an idea of how these flaws and the lack of reform will manifest in the future. See those articles here:



The simplest explanation of the Higher Ed system at present is that the the Mortgage crisis/crash of 2005–2006 is parallel with the present Education bubble. Education is truly in “a bubble,” given that demand is artificially inflated by subsidies and incentive structures and has hollowed out alternatives (although trades and alternate options like “Praxis” are re-emerging). Attendance at colleges is partially driven by this false demand and many students do not belong there. This is primarily true of community colleges or universities with lower admission requirements, but too many students go to college for culture and connections, and it’s one hell of an expensive social club. This only applies to prestigious institutions as well, meaning community college is basically a cheaper version of a 4-year college without all of that. This is both a benefit and a detriment for community colleges, given that if you legitimately just want to learn calculus, you’ll pay less for the same product. But you also might not rub elbows with that professor who has ties to someone needing entry level actuaries or who can pull strings to get you into a really good internship. This sort of connection-based job placement isn’t necessarily wrong — it’s a function of trust, and trust is more important than having bleeding-edge skills. If that faculty member trusts you as a potentially competent, high value employee, placing you somewhere you will succeed usually has value for them in their own ways. Both of you benefit. This is the main benefit you get from academia — connections.

However, many go to college because “that’s just what you do,” and because that option has been heavily subsidized by the state. Subsidies not only cost money, but they also crowd-out alternatives in a marketplace. This is in parallel to 2005–2006; homeowners were buying houses with no money down and with terrible financial histories because “that’s just what you do,” rather than briefly living with parents or relatives to pay down debt, build a down payment, acquire career skills, etc. Fraud and plagiarism are rampant in Higher Ed, as they were in that time period for mortgages. Mostly, only the brazen cheaters are caught.

Many of those who signed mortgages in the leadup to 2006 were not qualified. Regulations were heavy but honeycombed with loopholes (as is typically the case when regulations are enforced poorly and made overcomplex), and lenders knew that they had institutional backstops such that offering these loans was not a risk to them. Securitization, overwrought regulatory structures expected to do more than is possible, and Government Sponsored Enterprises told everyone the parents were out of town, and low interest rates provided the booze. People who had no business buying a home, or a second home for rental income, or a third home to flip in their financial situation did so, sometimes with “liar” loans and with the common wisdom of “homes never decline in value.” Around 1/3–1/2 of those in community colleges at present do not belong there academically — they will either fail out early with debt, or be prodded along while barely performing to get a degree that will not benefit them that much while decreasing the value of bachelor’s degrees for all but those who attend the best institutions.

A common refrain among upper division instructors is that most students who reach upper division have terrible writing and comprehension skills and worse study habits. These instructors were curious, and noted that most of these types of students received C’s in their freshman composition/literature courses. Some got B’s, yet are incapable of competently writing an essay. They were passed along while performing below standards because frequently Faculty are blamed for high fail rates or poor evaluations from students. None of these things are the case at *every* institution, of course — but they are prevalent at many.

Remember that it only took the subprime collapse and concomitant speculation to collapse the mortgage industry. Having even a 70% healthy mortgage market (regionally differentiated) does not ensure that a major collapse could not happen. In fact, it’s a very nice way of gaslighting people into thinking everything is fine.

False demand inspired by subsidy and catalyzed by other incentive structures and culture drove housing prices up in most places, creating an echo chamber of “irrational exuberance,” and realtors happily pushed sales on the basis of “Buy as soon as you can, prices will be higher next year!” Well meaning-folks were hardest hit — the worst cases took out ARMs whose rates skyrocketed as home values fell and their principal amounts put them manyfold underwater, giving them no incentive to do anything but walk away from the mortgage.

As tuition continues to skyrocket, many still trumpet the virtues of Higher Ed, using statistics like “You will earn this much more if you get a degree than if you don’t,” which is almost always based on extremely old data or heavily favors 4-year institutions which select for more qualified students in the first place. If the Community Colleges fail, that crack-up will eat away at the 4-year institutions as well.

Educational institutions have even less skin in the game than most mortgage companies did (since securitization and outsourcing risk was the epicenter of the problem in that case), since if a student fails out or incurs a large student loan debt without marketable skills or credentials, it’s usually blamed on the student. Shared risk in these cases is key, since it encourages both sides to ensure a successful endeavor. At least mortages can be bankrupted and liquidated and homes foreclosed upon; student loans cannot be defaulted and follow you unless you happen to serve your master, the federal government, for as much time as needed in certain student loan debt liquidation programs. It is true that enrollment has a strong impact on Educational Institution budgets and declining enrollment means hiring freezes, layoffs, and closing programs, but this is not that much risk when these institutions are typically so heavily subsidized by state and federal money.

In the mortgage crisis, you had people pushing home sales who bore none of the risk. Now, you have the old hands of Higher Ed and your 60 year old high school guidance counselor telling you that you should always go to college based on notions of higher ed’s profitability that are decades old. It’s only a matter of time before common wisdom catches up, and once demand dries up and Higher Ed starts its deflationary spiral, it will be gruesome.

Hopefully, we will have people at the helm who will not do what we did in 2008 and bail out the insurance and banking companies; in Education, people are still getting bachelor’s degrees in fields where such a degree is only a stepping stone to a higher degree or a generic entry-level job outside their area of study. The faculty and administrators of those programs will ultimately be bailed out if we say “Hell with it, free college!”

Financial aid rules, decades old, only recently have begun to be enforced. It is the only discipline imposed on the system from above in some time. Many institutions have implemented or are implementing programs designed to “keep students on track.” The old “students need to wander and take a lot of different courses to find themselves” idea that many faculty members still have is stale and invalid.

It is a disservice to the students for the current system to be propped up. It needs radical change if we truly want to help those who need it, and the solution is not lowering standards or thinking that if half the students fail a course, “the teacher doesn’t teach.” Maybe they’re the only instructor forcing those students to swim or sink.

Students should also be allowed to fail out and find other options, or pick different degree paths that aren’t the traditional 4-year pathway. But that’s the rub; once a student starts on the higher ed hamster wheel, they now likely have student loan debts. So just quitting is not an option. Importantly, student life is incredibly fun, and the opportunity of Higher Ed has crowded alternatives out of the marketplace. The ease of life in college makes the world outside higher ed appear barren (unless you have the right degree and have the right connections).

The risk of attempting college is very high for those having to pay their own way and the cost of quitting is high, and that risk is not understood by those who will likely fail out before earning a higher degree. Currently, students shoulder nearly the entire risk; universities and colleges are usually not judged by how many students they place with employers in their field. That, too, is a luxury of high-end professional schools or academics, and the data provided by institutions in this regard is usually of very low quality.

What students deserve is instructors who are holding them to high standards such that they aren’t whisked along, skating by with “C” grades, despite having learned little and being completely unprepared for their last two years of coursework toward a Bachelor’s degree. They likely will not get good jobs, and will not reflect well on college grads or their alma mater in general.

Instructors deserve to be treated on the basis of the quality of their instruction, even if they fail a large portion of students or are particularly hard on them (this can affect enrollment and therefore the budget), and students can poorly rate the professor, possibly leading to losing their job. Educational institutions are fully incentivized to allow students to progress without learning what they need for the next level.

Institutions are usually evaluated at the state level by retention (students stick around) and completion (students finish a program) statistics or relative GPA scores that incentivize lowering standards to paint a more rosy picture than the reality. This laxity is not present at better Universities and Colleges, and thus is a particularly bad system to place upon those with no direction, harder life circumstances, and often lower general intelligence — those who typically don’t make it into Research I institutions or the Ivy League.

It is a disservice to all involved to impose debt slavery on students as the only way to get ahead. The system needs to be deconstructed and radically changed, and that doesn’t mean simply bankrolling the current system. Doing so entrenches the present incentives and guarantees they will never be changed. Radical steps are needed.

Luckily, we live in radical times.