How we can deal with the university tuition bubble
Economic Bubbles
Many of us in the United States who are not economists, gained first-hand knowledge and had a front-row seat into the concept of an economic bubble with the housing price crash that started in late 2006. My wife and I were one of millions of homeowners who suddenly found ourselves “under water” with a mortgage greater than the greatly depreciated value of our modest three-bedroom, two-bath home in north Florida.
It’s well documented that the cause of the bubble was due to unscrupulous lending practices and irresponsible borrowing by consumers who often took advantage of variable-interest loans to purchase homes they could no longer afford within a few short years due to rising interest rates.
What those of us who are not economists learned from this recent example is that whenever the price of goods or services trends significantly higher than the rate of increase of wages (or inflation) for an extended period of time, we have an economic bubble. It’s only a matter of time before that bubble will burst and a correction will occur. Viewing economic forces such as these over the years as someone trained as a physicist, I consider economics to be as close to a natural law as anything created by man.
Man can turn certain economic levers to try and delay the law, but eventually the law of economics will have its way. In this way, I liken the law of economics to what we are seeing occur or not occur with respect to climate change. Denial or small cosmetic changes to address the causes of climate change will not have much of an impact on the inevitable. Mother nature will have her way.
Tuition Bubble
Consider the following graph, shared by medium.com author Noa Maltzman in an article about the rising cost of higher education.
This graph clearly illustrates that beginning in the mid 1980s, the cost of higher education began to climb significantly higher than the inflation rate. As a direct result of this tuition bubble, there is a growing student loan crisis in the United States. Indeed, per Bloomberg, federal student loans are the only consumer debt segment with continuous cumulative growth since the Great Recession.
More and more university graduates are saddled with student loan debt equal to that of a mortgage and in many cases, as the above referenced Bloomberg article argues, that debt will never be repaid.
No lending institution, including that of the United States government, can continue indefinitely to loan money without a sufficiently high rate of repayment.
It stands to reason that with an increasing rate of default of student loans, both public and private lenders will increasingly look for the parents of university students to guarantee the loans. However, this is not a viable solution for several reasons.
Many students receive no financial assistance from parents who are themselves living paycheck to paycheck and cannot contribute to their children’s university education. Even if these parents were willing to guarantee the loans, many would be at an equal or higher risk of defaulting on the loans as their children, as they enter their retirement years.
For those parents who choose to and are able to contribute to their children’s university education, they are increasingly making financial sacrifices to provide that assistance. This is true even for upper middle-class families. Consider a family with a gross annual income of $225,000 per year and a take-home pay of about $12,000 per month. The average monthly cost of tuition and living expenses at some public universities is around $3000 per month, or 25% of that family’s take-home pay. Most of us, regardless of our income level, are not able to save 25% of our net earnings. So, even for this example of an upper middle-class family, there will be sacrifices made to support even one student’s university education. If they have more than one child, it will be even more difficult.
Now fast forward a few years with this example as tuition continues to out-pace inflation. This family would likely need to take out student loans to cover the cost of their student’s education. However, they are unlikely to be willing to do so as they are already making significant financial sacrifices.
Let’s contrast this with my personal experience as an undergraduate student. My father worked as a pneumatic-tools mechanic in a refinery and my mother worked as a legal secretary, in Southern California. So, I had blue-collar parents with a very modest family income.
My parents were able to pay for undergraduate tuition and living expenses, as well as that of my brother who was three years ahead of me in school. We both attended community college for two years, then we transferred to University of California campuses to complete our undergraduate degrees.
With a very modest income, my parents were able to fully pay for the undergraduate education of their two children without taking out any loans.
How the times they are a changin’.
Alternatives to a University Education
There are many factors that have led to the rising cost of tuition, particularly at public universities. The purpose of this article is not to explore these costs. Instead, I’d like to explore alternatives to traditional university education. Because, even though tuition is an economic bubble, I don’t believe it’s going to burst any time soon. That’s because humans are involved. And, when there is money to be made, humans will do everything they can to kick the can down the road instead of letting economics take its course in a more natural time frame.
Before exploring alternatives to traditional university education, it’s worth noting that more and more states are offering tuition assistance at the community college level for qualifying students. This is a good start. However, states need to do more. Especially those states that have or will soon have significant new revenue sources from legalization of marijuana. These new revenue sources should be able to subsidize or completely cover the cost of undergraduate tuition at public universities. Unfortunately, we’re once again dealing with humans. And politicians, as humans, will put their own special interests ahead of the greater good more times than not.
Alternatives to traditional university education already exist. I have personal experience with one of these so I can speak to it firsthand.
Many code schools have emerged that provide the necessary skills to successfully gain an entry-level position as a software developer in about six months. My company has hired about a dozen of these code school graduates with very good results. I’ve had the opportunity to work directly with two of these graduates and I have been very impressed with their ability to quickly contribute and to grow their skills continuously.
In the spirit of full disclosure, these two code school graduates had four-year university degrees and had been in the work place for several years before enrolling in the code school. One of them had an engineering degree and had been a practicing engineer. The other had worked as a middle school teacher for several years.
As it turns out, a fairly high percentage of code school graduates fit this demographic of university graduates who turn to code school for a change of career. However, this is not a prerequisite for success. The child of a colleague of mine recently attended and successfully completed this same code school. He did not have any college education and yet he was able to successfully gain entry-level employment as a software developer and is doing well in that position.
The readers who spent four or more years learning computer science principles and leveraged their traditional education to become leads of software teams or even software architects may take exception to the idea of code schools. Indeed, we still need you! However, I’ve seen firsthand how folks like you with your deep expertise can quickly help elevate the skill levels of code school graduates to build overall, very effective and productive software development teams.
It’s easy to extrapolate the example of code schools to other professions. One of my favorite examples is accounting. If it’s possible to produce an entry-level software developer in six months, I argue it is also possible to produce an entry-level accountant in the same time frame. The same goes for many other professions that currently require a basic degree in business administration. Some other professions that I believe would lend themselves well to a six-month intensive school include technical writing, budgeting, human resources recruiter, sales associate, and many careers within information technology.
I predict that within five years we will see many more of these specialty schools springing up with programs for a range of different disciplines.
It’s important to distinguish these brick-and-mortar specialty schools from online education providers that offer accelerated degrees or certificates. For example, Capella University purports to offer an online education-based “business degree” that can be completed in 12 months. They also offer an “undergraduate certificate in accounting.”
Online schools may be a good option for some working adults who are working full time and wish to pursue a degree or certificate in their spare time. However, these schools are not always upfront about the success rate of their graduates and based on reviews, the quality of the education from these schools varies greatly. Contrast this with the transparency of Galvanize, the code school for which I have firsthand experience working with their graduates. For each program, they have an outcomes page with the stats on their graduates.
There is another important difference between online education providers and the specialty schools. The core courses for these specialty schools are fully immersive and require students to be on-site five days a week for the entire 24–26 week program. With this immersion comes the opportunity for students to work together on projects and in teams. This way of working much more closely simulates the way most people work in corporate America than an online educator can offer. Furthermore, with the growing adoption of agile in areas outside of software development (e.g. Agile Marketing and Agile HR), exposing students to collaborative, self-organizing practices sets them up for success as they enter the workforce.
Corporate Universities & Academies
Many of the most successful, large corporations have recognized the need to supplement university education by establishing their own internal corporate universities or academies. By and large, the primary purpose of these internal institutions is to provide continuing education and specialized training opportunities to their employees.
However, the potential for expanding the educational opportunities in larger corporations is huge. The reason is quite simple. Big corporations have a large talent pool to draw upon across many different disciplines for delivering courses. In geographies and specialties where there are shortages of available talent, why wouldn’t a corporation offer its own compressed curriculum to candidates who display the right aptitude, drive, and culture fit?
Corporations could offer their own version of the specialty schools, tailored to provide exposure to the exact technologies, processes, and fundamentals that an entry-level employee would require to be successful within their specific company culture. Additionally, there could be more advanced course offerings to successful on-boarded candidates. (Think of the example of the software lead or architect discussed earlier.)
So how would it work? A prospective employee would apply to the corporation’s campus for a program within a specific specialty area. Upon acceptance, the student-employee would need to successfully complete the program with some specific score or overall grade. Doing so would guarantee the student-employee full employee status in one of a set of agreed upon positions. The employee would be required to remain employed at the corporation for some agreed upon period of time. One way to make this work would be to withhold some small percentage of the employee’s salary (e.g. 10%) for the agreed-upon time period. Upon successfully completing employment during this time period, the employee would receive this withheld salary as a “bonus” payout. If the employee leaves the company before the end of the time period, the company keeps the withheld salary.
In the next decade, look for many corporations to offer internal universities or academies as an alternative to university education or other external specialty schools.
How Universities Can Evolve
The tuition bubble and the emerging alternatives to traditional university education will require universities to evolve. Compounding these factors is the question of whether a university education still prepares people for jobs. As this Harvard Business Review article by Chamorro-Premuzic and Frankiewicz asks,
“When employers attach value to university qualifications, it’s often because they see them as a reliable indicator of a candidate’s intellectual competence. If that is their focus, why not just use psychological assessments instead, which are much more predictive of future job performance, and less confounded with socioeconomic status and demographic variables?”
Considering all of these factors, what can universities do to remain relevant and viable by the midpoint of this century? As with most difficult questions, there is not one single, simple one-size-fits-all answer. So, let’s break it down.
First, we need to distinguish between two categories of universities. There are research universities whose primary mission (whether they will admit it or not) is research, not teaching. And then there are teaching universities whose primary mission is teaching, and secondary mission is research. This isn’t to say that either category of university doesn’t value their secondary mission, it’s just that they value their primary mission more.
Most of my focus here will be on public universities because it’s much more concerning to see these universities become unaffordable when they were created by states for the dual purpose of researching to feed innovation and new business development within the state and teaching to educate the state’s population.
That said, there will always be a small percentage of the population that can afford to attend expensive, private universities and I have no issue with private universities charging whatever exorbitant tuition they wish to that segment of the population.
Let’s further focus on research universities, which by and large are the bigger, more expensive public universities to attend.
Research comes first at these universities so why not acknowledge this explicitly?
What do I mean by this? Let the professors focus most of their time and energy on research and limit their teaching loads to graduate courses and seminars. Additionally, limit their administrative responsibilities. (Since you’re wondering, I’ll get to how the slack can be picked up shortly.)
The benefit of increased focus on research should be obvious. More tangible outcomes from research that can be monetized. Within this new model, universities should partner more closely with private industry to provide direct feeds of research results to partner companies. Incubators for startups should be created or expanded to encourage an environment with a higher probability of success to encourage more venture capital funding.
With these types of partnerships, universities can and should increase the percentage of the revenue to which they are entitled that is generated based on inventions and technologies their research groups produce. There are multiple ways to do this. For example, a university could gain a percentage ownership in a company using its research results. Or, the research results could be outright purchased by a company. This latter way is more likely for established companies with the financial resources to do so.
If professors are doing little or no teaching of undergraduate courses, and are relieved of a significant administrative burden, how can universities pick up this slack? This comes from an idea I had over twenty-five years ago when I was teaching adjunct.
Hire talented teachers who love to teach to carry out much of the undergraduate teaching and administrative work.
Sound radical? Let me give just one example from own personal experience. After I completed my PhD, I accepted a postdoc at the University of California, Berkeley (UCB) in the Electrical Engineering Department. I joined a research group led by several professors. One of these professors was particularly interested in my extensive teaching background. He was slated to teach his primary upper division course, i.e., the one for which he had written the textbook widely in use by many universities, and that fall semester he would be missing nearly half of the lectures due to travel commitments.
So, I joined the research group and ended up teaching his course. As someone with extensive background in teaching, who had once left UCB after completing a master’s degree to pursue teaching at a community college, I put my heart and soul into teaching that class. And guess what? My ratings for teaching that course were significantly higher than that of the professor who wrote the book. Sure, he could talk more than I could to the students about how the latest research was changing the field. But these undergraduate students needed to gain a deep grasp of the fundamentals, and I provided that because my primary passion was teaching, not research.
Would I have jumped at the chance to take a full-time teaching position, with administrative responsibilities, at UCB or other research university, if it had been offered to me? You bet I would have! I loved the academic environment and I’m certain there are many others with a passion for teaching like myself who would feel the same about such an opportunity.
Back to the research focus, I’ll acknowledge that the opportunities to generate revenue from research outcomes is weighted heavily toward the sciences and engineering. So, what about the other academic areas? Some departments may need to evolve into playing more of a supporting role to the sciences and engineering. Take the humanities. Students who continue to pursue a four-year undergraduate degree in the sciences or engineering will still need to gain some breadth and they should be required to take some humanities courses. However, these courses can be taught by professional teachers, not professors. This may mean that humanities and related departments will need to shrink.
I’m not suggesting all non-revenue generating research at universities should be eliminated. There are important areas of research outside of the sciences and engineering that require innovation. For example, I have an extended family member who is pursuing her PhD in urban studies around how to effectively develop curriculum for English as a second language. Research of this type is critical to develop solutions and programs for improving the delivery of education and expanding the opportunities for underrepresented portions of our population. Failing to do so has many negative consequences including increased crime and incarceration rates, and fewer young adults with the skills to enter the workforce.
Many research universities have built very nice, but very expensive-to-maintain campuses. As the enrollment in these universities peaks and begins to drop, there is a solution that can help with the maintenance costs. Why not sell or lease some of the buildings to companies that can and should be closely collaborating with the universities? Start-up incubators could utilize some of the space, funded by venture capital.
There are many academic purists who would argue there should be a clear separation between public universities and private corporations. However, when a model is no longer economically viable, as will be the case soon when the tuition bubble begins to burst, new creative solutions need to be explored. How different is it for universities to collaborate with private corporations than for private corporations to create their own internal universities and academies?
Concluding Remarks
The next generation of students and their parents will need to consider whether a traditional university education provides sufficient return on investment, if enrolling is indeed even financially an option. More students who do wish to still pursue a four-year degree may need to defer attending a university for two years, along with its enriching experience, and to attend a much more affordable (potentially tuition-free) community college, perhaps while living at home. My brother and I both took that route, based on constraints of what support our parents could provide, and we ended up both going on to complete our PhDs.
Pure economic factors will drive innovations, like the very popular code schools, as alternatives to four-year university degrees. As these alternative schools with a high degree of focus in developing marketable skills emerge and prove successful, companies will continue to relax their four-year degree requirement for many entry-level positions. Additionally, companies will see the value of investing in their own internal universities and academies, both to provide training for new hires and to build the skills of their existing employees.
Public research universities need to be forward looking and get ahead of the coming tuition bubble. Solutions exist, including those detailed here, and those that are able to adapt will survive, and indeed thrive, albeit in forms that may look quite different than their current ones.
