Is spending on higher education the next financial bubble?

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerIs college worth the money? This is a seasonal debate, prompted by parades of caps & gowns and the agonizing, “So what do I do now?” from grads burdened with big loans but tiny incomes.

Some facts about college cost are hard to nail down: One source (The College Board) reports that inflation-adjusted “net tuition”—the posted price less grants (called “discounts” in retail)—rose 47% for private four-year institutions from 95-96 to 07-08; for public institutions, the price increase was 34%. Yet another source (The College Board) reports that net tuition & fees actually fell 14% for public institutions and rose a relatively modest 17% for private four-year colleges and universities—over the same period.

So who’s right? The College Board or—the College Board? Yes, that’s right: The College Board has two tables, one in Trends in College Pricing 2007 and another in Trends in College Pricing 2010 that disagree. Both are still posted on its website. This is driving me nuts and I’m going to get to the bottom of it. Stay tuned—I’ll get back to you.

Some facts are indisputable.

  • Posted tuition has been rising at an alarming rate. Discounting has become the norm, not the exception. Shopping for college is now like shopping for a new car: The MSRP (manufacturer’s suggested retail price) is only paid by folks who hate to haggle or who forget to ask.
  • The income spread between job holders with and without a college degree has continued to widen, encouraging nearly every parent in America to push their children toward college, regardless of interest or capacity.
  • Many students leave college with astonishing levels of debt, debt that simply must be repaid, even after bankruptcy.

In the wake of the financial crisis—one that was triggered by extending easy credit to people who had no reasonable expectation of paying off the loan—there has been speculation about higher ed as yet another financial “bubble.” Just like housing loans, access to credit for college has “civil rights” characteristics—if a college degree is essential to “getting ahead,” then we have a moral obligation to make college affordable for the disadvantaged.

Lenders contribute to the problem—just as a car dealer wants to move you up to the next model and load on the options, lenders are happy to help you or your child attend college. That’s how they make money. A note at says, “We can help you afford any college.” No, they can help you PAY FOR any college. Affordability is a different story. If we have a moral responsibility to expand access to the disadvantaged, then we also have an obligation to avoid saddling young people with unaffordable debt that can haunt them for decades.

A prospective student’s ability to pay off a loan depends on factors we don’t wish to discuss. How likely is it that the student will succeed in college? Should we extend a loan to someone whose odds of graduating are slim? This isn’t very different from enticing someone to borrow money on a house he or she can’t afford. Perhaps colleges and universities should share the risk—if a student fails to graduate, the school should refund a portion of tuition.

Should we be more willing to loan money for an academic program that leads to good job prospects? I loved studying philosophy when I was in college. But many graduate philosophers are privileged to ponder epistemology and cosmology while driving a cab or working at McDonalds. Perhaps college and university finances should be partly linked to placement rates.

As any college professor will tell you, many students aren’t ready for college—college is simply a way to defer the ugly prospect of getting a job! Perhaps we should encourage a year of work or service following high school, and provide grants and subsidized loans in exchange for service. What we should not do is facilitate a college degree—any degree will do—in exchange for decades of debt with little expectation of repayment.

Finally, let me get myself into serious trouble with my friends in public higher education. We spend taxpayer dollars to provide educational opportunity to our citizens and to improve the capacity of our workforce. This is vitally important to the future of our state. Education remains the path out of poverty for our disadvantaged citizens, and the path to competitiveness for our state’s economy.

We can meet these goals without putting government into the higher education business—in fact, I believe that we can do far better without direct state management. This year we’ll spend $2 billion operating the City and State universities plus an additional $1.8 billion in higher ed capital construction. The benefits of this subsidy rain down on all New York students, regardless of means; and on all public colleges and universities, regardless of quality.

Might the dual goals of providing access and preparing a competitive workforce be better achieved by spending nearly $4 billion on grants to students, distributed by need; and grants to New York’s rich portfolio of colleges and universities, distributed by merit? Yet we’ll not have the courage nor the political will to take such a bold step, just as we lack the courage to close or merge redundant campuses or to allow SUNY and CUNY campuses the freedom to set tuition and control the proceeds. As the number of high school graduates declines over the next decade or so, competition for students will be fierce. Let’s unshackle SUNY and CUNY from state control and establish a plan to phase out state support. What a revolution that would be!

ORIGINALLY published in Rochester Business Journal 6/17/11