While college tuition payments are rising, the supply of college graduates in many fields is exceeding the demand for their skills. From The Center for American Progress, contributor JULIE MORGAN looks at America’s Education System: the value of a tuition dollar, graduate unemployment and underemployment, and at the burden of student loan defaults on financial institutions, taxpayers and the United States economy.
Photograph: Stephanie Williams
Any parent of a seventeen year old can tell you that college is very different today than it was 30 years ago. Parts of it look much the same, of course. Many parents still pack up the minivan and drop their son or daughter off at Big State University with a tearful goodbye. But that car is more likely to contain a laptop, an iPad, and an iPhone than a hot plate and a stack of college ruled notebooks. And rather than writing a check for a year's tuition to the college bursar, due to escalating costs more and more families are signing promissory notes to begin a long-term relationship with lenders like Citibank or Sallie Mae.
For another group of students, college has changed even more dramatically. A working single mom would have found it nearly impossible to squeeze in night classes at the local community college a decade ago. Now that same mom can earn a college degree without ever leaving home. Most of the changes in college over the past several decades can be summed up in one word: "more." College is simply more today than it was 30 years ago. There are more institutions. In 1989 there were about 3,700 postsecondary institutions in the U.S.; in 2009, there were 4,700. There are more degree programs, too. Occupations like medical assisting that formerly required no higher education at all increasingly expect applicants to have at least a postsecondary certificate, if not an associate degree.
The biggest “more” in higher education today, though, is more money. Between 1990 and 2009 alone, tuition and fees rose almost 275 percent. At the same time, median family income grew only modestly. Between 1979 and 2007, the median income of families with children went from $53,760 to $59,190.
To meet this enormous financial burden, families are taking on more and more debt. The average debt for bachelor degree recipients who borrow to pay for education is now $24,000. Federal and state governments are picking up a hefty tab, too. In 2011, the federal government will spend an estimated $34 billion on Pell Grants to supplement college costs for low-income students. And state governments spent a combined $186 billion on higher education in 2008.
As the individual and public investment in higher education grows, people are asking: what do we get for all that money? That's where things get really interesting. Because the answer is that it depends.
College value and the "average student"
No matter how many sensational stories you read about college graduates tending bar, working at the Gap, or cleaning toilets, you can rest assured that in general, a college degree pays off. In an excellent piece for The New Republic, Kevin Carey points out that journalists write the same "college isn't worth it anymore" article every time the job market turns bad.
In fact, Kevin dug up some of the subjects of these articles from previous economic downturns to see how they're doing today. Sally Cameron was a French and Arabic major who ended up a bartender after graduation in 1980 just to pay the bills. But thirty years later, she's a senior manager at an international development consulting company. Sounds like her college degree paid off.
There is also evidence of the value of a college degree that's not merely anecdotal. The average lifetime earnings of a college graduate are far greater than those of a high school graduate. According to College Board, college graduates tend to make about a million dollars more over their lifetimes.
In this age of $100 million lottery payouts and Real Housewives with multimillion dollar mansions, a one million dollar advantage may not sound like much. Especially when one considers that at least part of that wage premium would go toward paying back the debt a student accrued to pay for college.
But there's another way to think about the value of a family's investment in college. And that is to ask whether the returns one gets from the investment in college education are better than what they can get by investing tuition money in another way. According to the Brookings Institution, the benefit of a college degree amounts to an average return on investment of 15.2 percent per year. That’s more than any other common investment – double the average return to stock market investments and more than five times the return to corporate bonds.
No matter how you slice it, a college degree pays off - at least for the average student. But policy wonks and college access advocates need to remember that for families, the experiences of the mythical "average student" don't mean much. Especially when their son goes from proudly waving a diploma at graduation to a permanent resident of his parents' basement.
Despite the average payoff from college, there's still reason to think that students aren't getting as much value for their tuition dollars as they could. This idea is bubbling up from both the highest and lowest ends of the college degree spectrum.
Is Peter Thiel Destroying College or Envisioning its Future?
Peter Thiel, the billionaire founder of PayPal, noted libertarian, and minor character in The Social Network, is on a mission to prove that the investment in college isn't really worth it. Citing the growing reliance on debt to finance college education (student loan debt will likely top $1 trillion this year) and the fact that families tend to overestimate the value of college, Thiel claims that just like the housing market in 2007, higher education is a bubble that's about to burst.
Using the bubble analogy certainly turned heads. Americans are all too familiar with the devastation caused by the decline of the housing market, and we're loathe to see it happen again. But the higher education bubble is more a rhetorical device than an accurate analogy.
Many writers have described eloquently the flaws in the bubble theory. To summarize them here, college is a very different kind of purchase than a house. Widespread purchase of houses for inflated prices combined with a bad economy in which homeowners could not pay their mortgage debt caused the housing bubble to burst. When they could not pay, homeowners walked away from their mortgages and allowed banks to foreclose on their homes.
It's arguable that individuals are "purchasing" college degrees at inflated prices and that the depressed economy affects their ability to pay back loans, there are a few key differences. Only about 60 percent of students borrow to finance their college educations, compared to more than 70 percent for houses. The average amount borrowed is $24,000, compared to $214,000 for a house.
Perhaps most important, students cannot walk away from their student loan payments as they can a mortgage. There's no asset for the banks to foreclose and recoup their costs. And student loans are not dischargeable in bankruptcy - students who default on their federal loans will be haunted by wage, Social Security, even tax refund garnishment for years.
Peter Thiel may be a sensationalist, but he's no dummy. At the core of his argument is a valid point: Americans are blindly paying for college without considering whether they could get the same benefits for a lower cost. To prove this point, Thiel instituted the Thiel fellowship program, offering a start-up grant of $100,000 to 24 would-be college students who choose to forgo an education in order to start a small business.
One need only look at the list of Thiel fellows to realize that the success of the program will not prove that students do not need to go to college. The Thiel fellowship recipients (link) include students who began college at 14. It includes students who, at ages 19 to 21, are prepared to create affordable scientific instruments, to revolutionize human resources recruitment, or build solar panel rotating systems. These aren't just elite students. These are the smartest kids in the room, in every room they've ever been in.
The thesis of Peter Thiel's argument should not be that college isn't worth it, but that the smartest kids in the country do not need to go to college.
Let's think about what a college degree means. There are essentially four components to what students want and need from college: deep knowledge of a subject area, skills like communication, problem-solving, and the ability to analyze, socialization, and credentialing. Most students get all of these things tied up in a neat little bundle that we call the four-year college experience.
The Thiel fellows don't need all of these things. They already have deep knowledge in a subject area. And who needs a credential to show how smart you are when you can just bring the computer you built yourself into a job interview? Or better yet, when you've got a successful start-up company as a symbol of just how smart and capable you are? And a Thiel fellowship may not come with readily-packaged social opportunities, but it's more than likely that the fellows can find a way to replace this aspect of the college experience.
For these students, the value of a college degree is dubious. At a school like Harvard or Yale, they would pay $40,000 or $50,000 to get a credential that's a symbol of skills, knowledge and abilities they had before they enrolled.
Of course most students are not like the Thiel fellows. They need someone to provide them with deep knowledge, skills, socialization, and some form of credential to signal these abilities to employers and the rest of the world. But Thiel's work symbolizes an emerging questions: do students have to get all of these things from college?
The Other End of the College Spectrum: How Much Should Students Pay to Train for Low-Paying Jobs?
At the opposite end of the college spectrum from the elite universities that the Thiel fellows would have attended are the open-admissions universities. These include not only community colleges, but also institutions that have corporate sounding names like Apollo Group (owner of University of Phoenix), Education Management Corporation (owner of Argosy University and the Art Institutes colleges), to name a few. These organizations operate colleges for profit. The largest of all these for-profit colleges are public companies or are owned by private equity firms.
For-profit colleges have existed since the days of correspondence courses, but they've never been quite so big or so visible. With ads in on the subway, on billboards, and on websites - not to mention a professional football stadium and even a starring role as the sponsor of Le Bron James' "I'm taking my talents to South Beach" debacle - colleges like the University of Phoenix are highly visible. And that visibility pays off. Today, these institutions enroll an increasing number of students - around 12 percent of all college students attend a for-profit college.
The significance of for-profit colleges' market share is compounded when you consider the kind of student they attract. Students at for-profit colleges are predominantly minority and low-income. And they bring with them a pretty big chunk of federal money. A large proportion of the students at for-profits are eligible for the need-based Pell Grant program and they finance the balance of their tuition with federal student loans. Students at for-profit colleges now account for 23 percent of all federal student loans and grants.
All of this would be of little consequence if it were not for the growing concern that for-profit colleges are very high price and very low quality. The average annual tuition at a for-profit college is about $14,000. Since many of the programs offered at these colleges are also offered at local community colleges that charge around $3,000 per year, students are paying a hefty premium at for-profits. And yet their likelihood of graduating is only around 50 percent. And about 25 percent of their students default on loans after 3 years, suggesting that the services they receive from colleges are not sufficient to get them a job that pays the bills.
Students like Yasmine Issa often do not realize the low value of their for-profit degree program until it’s too late. Yasmine enrolled at Sanford-Brown Institute in White Plains, New York to pursue a program in ultrasound sonography. Fifteen thousand dollars later, she had a degree but no job. It turns out that area employers would not hire graduates of the program because it lacked the proper accreditation. With two children to support, Yasmine finds herself paying loans for an education that provided her little benefit.
The problem with for-profit colleges is not their profit motivation. It’s not even their high cost. It’s the lack of relationship between the price they charge and the benefits an education would likely bring. For-profit college students suffer from the same problem that Peter Thiel points out for elite students at elite colleges. The value of what they get out of college does not match the price they pay.
Now, contrast these stories with the idea that on average, a college degree is worth it. That elusive “average student” may be doing just fine, but we know that students at the most and least elite institutions in this country are not. And there are plenty of students in the middle who are struggling to find a college program that is actually worth their investment.
For most families, sending a child to college is a part of the fulfillment of the American Dream. Parents presume that their children will do better than they did. And children are raised with the notion that they can be anything they want to be. Both of these assumptions follow families through the college choice process. It’s only upon graduation that they find out that neither is necessarily true.
Given all of these indicators that the value of higher education is eroding, what does the future hold? The way I see it, there are two forces at work in higher education today that have the potential to help ensure that students get what they pay for when they go to college. One is information and the other is disruption.
Information: The Advantage of College Knowledge
“If only I’d known then what I know now” seems to be a common lament from college graduates these days. We hear it from students like Yasmine who attended for-profit institutions only to find that their skills are not marketable but their debt will haunt them for the next 30 years. But we also hear it from law school graduates who feel their institutions sold them on the dream of a $150,000 salary when all they got was $150,000 in student loan debt and a temp job reviewing documents.
Better information may not improve the value of college degrees generally, but it could give families the knowledge they need to choose degrees that offer a lot of value for a lower price. It can also give students better expectations about their post-college salaries, which may encourage them to seek out smarter ways to pay for college.
There are some key pieces of information that could really help families make better decisions about whether and how to attend college. Awareness of extremely low graduation rates might tip students off to the risk of attending a low-ranked institution. And information about what students learn in college or how they fare in the job market can help students gauge whether it’s worth it to pay high tuition prices.
Social scientists Richard Arum and Josipa Roksa released a book earlier this year that showed that many students do not in fact learn very much in college. Their book, Academically Adrift, uses surveys, interviews, and the results of an examination called the Collegiate Learning Assessment to show that 45 percent of students did not demonstrate any significant gains in learning over four years. The book also shows that students do not read, write, or study very much in college, either.
Now, imagine if we had college rankings based on how much students learn, how much they study, how much they read and write. That would be a powerful way to get families thinking about how they spend their tuition dollars.
Colleges will not give up this kind of information willingly. They will have to be required to do so, either by the government, their accrediting bodies, or perhaps even the media. The past decade brought a push toward better information for college-bound students and families, and these efforts have really been picking up speed over the last year. The federal government greatly expanded its College Navigator database to include more information about colleges, and it will require institutions to post net price calculators on their websites.
But there are two significant obstacles to getting families better information. The first is that some data is just hard to collect. For instance, it’s very difficult to come up with a standard way for colleges to collect information on their student’s employment outcomes and average salaries. Right now, institutions rely on surveys of recent graduates that have extremely low response rates. And when it comes to learning assessments, the research community is not even close to agreement as to what should be measured or how it should be done.
The second obstacle is that the federal government simply does not do a good job of getting information out to the public. As the parent of a high school student, where would you go for information about college? If you said anything reasonable, like “my daughter’s guidance counselor” or “I’d call the college,” you’re missing out. You would not see the rich data that the government collects. Unfortunately, the federal government approaches improvements to college choice by making data available in an indiscriminate way through postings on federal websites and limited disclosures on college marketing materials. And there is very little evidence that students and families even look at this information, let alone integrate it into their choices.
Disruption: Is Higher Education Changing As We Speak?
The information approach to restoring the value of college degrees is an appealingly straightforward concept. But given its challenges, it’s nice to know there’s a Plan B. The theory of disruptive innovation posits that higher education is changing, almost without us realizing it. These changes have the potential to force colleges to reimagine what they do in a way that makes them cheaper and more student-centered.
Clayton Christensen, a Harvard Business School professor, posits that there is a regular, predictable pattern of change that happens across all industries called "disruptive innovation In their paper “Disrupting College,” Clayton Christensen, Michael Horn, Louis Soares, and Louis Caldera explain that disruptive innovation is happening in higher education, beginning with just a few colleges and proceeding on an inexorable path to changing the entire system.
Disruptive innovation has three key characteristics. The first is that disruptive innovators target their service or product to the needs of a new group of customers. Rather than competing with the companies that are well established, the innovators look for new customers who want a simpler, more affordable product. They are able to do this because the more established companies would prefer to build ever more complex, more expensive products rather than simpler, cheaper ones.
The second characteristic is that disruptive innovation is enabled by a technological improvement that simplifies or routinizes the way a company does business, such that its costs are less.
The third and final characteristic is that a truly disruptive innovation eventually gives way to a new business model—a new way to organize the people, technology, and processes to deliver a service at a lower cost. The new business model allows disruptive innovators to beat their incumbent competitors who are unable to respond because they are locked into an old, clunky business model.
Disruptive innovation has changed lots of industries over the years. Companies like IBM and Apple changed the computing industry by offering ever more affordable, simpler products that forced computing companies to move from a focus on giant, mainframe computers with large amounts of memory that were used only by universities to desktop computers, laptops, and eventually smartphones. And along the way, they redefined quality. Now, we look for computing devices that are smaller, lighter, and faster, rather than ones that have the maximal amount of memory.
Similarly, in the auto industry, incumbent companies like General Motors built ever more cushy, expensive automobiles aimed at their traditional customer base. But upstart companies like Toyota and Honda targeted another group of customers with their cheap sub-compact cars. Along the way, they changed our definition of quality from big machines with leather seats to include considerations of fuel efficiency.
These days, some colleges are using the technology of online education to offer a less expensive college education. These programs target nontraditional students – a group not served by the Harvards and Yales of the world - whose work and life circumstances require flexible ways to get their education. The disruptive colleges certainly do not offer the wide variety of programs or services that traditional colleges do. But their students do not want those things.
Incumbent universities like Harvard or Wesleyan serve a small, wealthier segment of the population. Their services are expensive, and they improve by becoming more ornate (a newer science center, a bigger football stadium) and even more unaffordable. But other institutions like Western Governors University, an online-only not-for-profit college, are using online education to provide an educational experience that does a different job for a different consumer than what Harvard does—and at a substantially lower cost.
Offering a cheaper, more limited education to a small segment of the student population hardly seems disruptive. But the true test will be whether colleges like WGU begin to give traditional colleges a run for their money. The success of for-profit colleges with online educational models suggest that there are enough students out there looking for a more flexible form of college to make traditional institutions a little nervous.
If higher education becomes fully disrupted, we will begin to see changes in how colleges - from the community college all the way up to the Ivies - do business. And our notions of college quality will be redefined. Right now, quality is largely based on reputation (a major factor in the US News rankings, I might add) and amenities. But we could see a future where flexibility, successful integration of technology, a focus on undergraduate teaching, and low cost/high value become our touchstones for college quality.
When we start seeing Yale advertising that it is doing less, not more, we will know that higher education has truly been disrupted. Until then, policy wonks like me continue to cheer on colleges like WGU that put the needs of students first and strive to offer higher education at a low price.
If you reached the end of this piece and thought to yourself, "None of this - from Thiel, to the for-profit colleges, to Western Governors is real college. This is the Brave New World version of college," let me sympathize. I attended a small, liberal arts college on a delightfully landscaped campus, too. But for many students, the colleges we attended are simply too expensive or too competitive now. Their experiences will be different from ours no matter where they go.
Even for the most traditional institutions, the reality that the sky is not, in fact, the limit on tuition prices is setting in. Times, they are a-changing. Here's hoping those changes happen fast, and that they not only reduce prices but also enrich learning.
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