I sort of look at this a little differently I guess. I think a lot of it is basic supply and demand economics 101. My son is off in the fall to an Ivy. That school had roughly 37,000 applications for 3600 spots. What possible incentive do they have to control costs? If you get in and won’t/can’t pay, they’ll just move on to the next kid who can.
Other than continuing to need to provide relevance in education, I think the elite schools are largely immune to the factors described in this post. There will always be strong demand for elite schools and plenty of people to pay the freight. However, like cms implied, one should not assume that an ivy is the key to an immediate job.
OK, so we are prognosticating about a bubble bursting, but when??
Like what romanigypsyeyes has said above, there have been articles in, for example, Forbes, about the ‘college bubble’ since at least 2008, which much of the same reasoning. And articles in 2011 and articles in 2013.
Here’s a link to the 2008 article:
http://www.forbes.com/2008/10/22/college-debt-loans-biz-beltway-cx_md_1023schools.html
And here’s a link to a chart that shows the number of colleges closing year by year. It’s hard to say there is a trend. In 1995, 21 schools closed. In 2010, 20 schools closed.
http://nces.ed.gov/programs/digest/d12/tables/dt12_309.asp
So has the bubble happened yet? And when you predict a bursting bubble in 2008, which is 7 years ago, how long do you wait before you revise your reasoning?
Also, for those of you who are more economically sophisticated than I am, wouldn’t a huge number of closings actually increase the ‘sticker price’ families are paying for college.
One of the ways colleges are attracting students away from peer institutions is through the use of ‘discounting’ in the form of scholarships or ‘merit’ money. Now, if LAC A is mostly competing with LACs B and C, and using discounting to attract students, then once LAC C closes, there will be fewer institutions competing for students. Might this mean less discounting? Of course, maybe there would be fewer students overall going to college as schools close, but it might mean for those who are going, there will be even more loans.
Interesting discussion. To me, its veering off the point a bit. The bubble will burst when the costs STOP rising, not when schools close, and not based on weather schools are great for preprofessional training or ‘liberal arts’ minded.
How can a public university cost $25K/$40K (in state/out of state) and a private cost 60,000 per year? How is this possible? I know that colleges are playing the game of “charge more so you can give away more” but when will that start biting them in the butt? When people stop refusing to full pay? Reading on this site, I see there are a lot more people paying full or close to full pay at private universities than I ever thought possible- and not fabulously wealthy. $200K for college? Its ridiculous if you really think about it -especially with TAs doing a lot of teaching. My instate flagship U rose $20K in total cost since I graduated 20 years ago. And that’s a state school highly funded by the public!
Hopefully the preponderance of common apps will make schools more financially competitive -giving kids more options. Perhaps that is the catalyst? Low yield caused by sticker price? Could that be the magic bullet?
Fixed that for you.
(Yeah, yeah, I know, the ancient Greeks didn’t have colleges the way we do now. But claims that higher education as it’s existed at any given point in time is unsustainable? Yeah, that’s pretty much millennia old.)
Older thread but Sweet Briar, btw, is back in business, at least for now. And that’s primarily on the backs of alums, who apparently believe in the school enough.
@suzyQ7, there are a good chunk of people in the top 5-10% income levels.
About 4M births each year in the '90’s and later. You can do the math.
Keep in mind that Ivies and private equivalents take in maybe 25K each year. Roughly half are full-pay.
It will burst in spectacular fashion the day my last child finishes his/her final degree.
Youngest is a college freshman, all three will probably complete graduate degrees. So in approximately 4-7 years
the entire thing will implode.
Some colleges will close, because they have small endowments, buildings in need of major repair, high debts, shrinking enrollments, and a need to deeply discount tuition in order to attract students. It will mainly be colleges without strong professional training programs and that are in less popular geographic locations, and that are not attracting many full-pay international students. Private colleges in states with very good and affordable public college systems will be particularly vulnerable.
Within states that under-fund their public colleges, keep increasing the tuition, and offer need-based grants to the private and public college students, the private colleges will have an easier time competing. In some cases, state officials have purposefully screwed over public colleges in order to help private colleges.
Many private colleges are clustered together within certain geographic areas in the northeast, and the competition is getting too intense for all of them to survive.
If you can find bond ratings, it will give you some idea of which colleges are most in trouble. However, some colleges that are in trouble don’t bother with the bond market and don’t pay for bond ratings.
Also graduation rates matter. The colleges that can’t hold onto their students after the freshman year and can’t assist most of them in graduating are particularly vulnerable. It is expensive to recruit new students, and the college needs 4 years of revenue from them. Then again, freshman are more profitable to a college than seniors.
If you do the calculations and determine that you can just barely afford an expensive college - that means you really can’t afford it. There will always be unexpected expenses in life, whether it be a car accident, a roof leak, a disability, becoming a victim of crime, etc.
I’m not sure what the “bubble bursting” even means in this context. First of all, it’s not a “bubble” in the classic sense of over-investment based on the expectation of ever-rising prices and profits. Most colleges are non-profits, so no one is chasing after speculative profits here. Certainly sticker prices are rising, though it’s less clear how much real prices are rising for many people, net of FA and merit aid. And at public universities, much of the cost increase is driven by declining state support relative to the size of the state’s economy and the total tax take; that’s just a reallocation of costs away from taxpayers and onto consumers as the result of deliberate public policy choices—wrongheaded choices, in my view, but that’s another story.
Do we think some colleges will close their doors? Yes, probably; especially small, undistinguished, under-endowed private LACs that can’t afford to match rising costs with full-need FA, forcing students to pay a premium price for a less-than-premium product. But they represent a pretty small fractional share of the overall market.
Will some state universities be forced to shrink, shed programs, absorb higher s/f ratios, freeze faculty salaries, give fewer faculty tenure, and make other cost-cutting changes? Yes, probably, especially in states with shrinking pools of HS graduates, and especially at the lower-tier schools. But that’s already been happening for a long time in some places. Other states with rapidly growing populations may need to build new schools, or expand existing ones.
Will elite private schools be forced to cut sticker prices? Doubtful. Why should they, when qualified applicants are stacked 20 or 25 deep for every available seat, many of them willing to pay full sticker price whatever it may be? Of course, not everyone can afford to pay those high sticker prices—but at the elite level, they don’t. At Yale, for example, 50.1% of undergrads are full-pay. For the 49.9% who receive need-based FA, the average award is $48,261. Yale’s 2014-15 COA is $63,250. That means the average cost for students on FA is a hair under $15,000. Not too bad. Of course, not everyone can afford $15K, but that’s an average figure; some are paying nothing, or next to nothing, while others are paying more than $15K. The real cost of attending Yale isn’t the sticker price of $63,250; it’s what Yale calculates you can afford to pay, up to a maximum of $63,250, and on average that’s $15,000, unless you’re in the group that can pay $63,250 or more, in which case that’s your price.
The situation is dicier at schools, both public and private, that can’t afford to meet full need. That’s most schools. They’re in competition with each other to attract students, and especially to attract the better students. Faced with rising costs, they have hard choices. They can raise tuition, but at some point that will meet consumer resistance; they’ll lose students, or see a decline in the quality of their students as the better students elect to go elsewhere perceiving the quality of the product doesn’t justify the price, or as high prices cause their applicant pool to shrink, forcing them to reach deeper and admit students with weaker qualifications. They can offer merit aid to try to attract better students, but that’s an additional cost item, putting added pressure on other parts of their budget. They can try to cut costs, but many of their costs are fixed, and many variable costs—how many faculty they employ, how much they pay faculty, what programs they offer, how much of the teaching is done by low-paid adjuncts v. full-time faculty, etc.–may influence the quality of the product, or at least be perceived as influencing the quality of the product. It will be interesting to see where these schools go in the years and decades to come. Will they close, en masse? I doubt it. Will they suddenly be forced to slash tuition? I just don’t see that happening; it’s not clear where they could find the cost savings to make that possible, unless they suddenly transform themselves into entirely or largely online institutions. But then they’re competing with the University of Phoenix, and it’s not clear they’re the low-cost provider in that market.
@bclintonk - to me, the bubble bursting means prices stop rising or slightly decline.
“Certainly sticker prices are rising, though it’s less clear how much real prices are rising for many people, net of FA and merit aid”
For MANY people, real prices are full pay or close to it. The really smart kids get merit, the really rich kids pay whatever, but there are plenty of “average” kids going to average schools paying 40K+ per year including room and board. “The top 100” school are sticker priced 50K+. So even with 5-10K of FA or merit, its still 40K.
There is no way that it really costs 160K(+) to educate a young adult in this country. The problem is, the prices are NOT stabling out. They are STILL increasing…3% per year. When will the bubble burst? When will prices stop rising?
This isn’t what I think of when I think of a bubble “bursting”—that sounds more of a soft landing. A burst bubble would involve some sort of decent-sized contraction in the higher-education sector, and probably some widespread restructuring.
There are a lot of costs involved in running a college, actually, many of them hidden. Consider the insurance and maintenance costs, for starters, which can easily run into the millions per year—even spread across tens of thousands of students, that’s a pretty serious chunk of cash right there.
How do the community colleges manage? Its not the housing that makes the costs so much more expensive between a CC and 4 yr college. The reason its so expensive is they are steeling from Peter to pay Paul, they are over improving their campuses, and they are spending a TON on marketing and advertising.
And, of course, the cost of sports…
@suzyQ7, well, CC’s tend to hire a lot of adjuncts to teach introductory classes and trade school skills. Which is fine for CC, but if you want a 4-year college experience like, there is always the University of Phoenix and schools like that. Nobody is forcing you to spend $40K+ a year.
Not to mention that even the priciest in-state publics (many in the top 100) don’t cost that much.
@suzyQ7—where’s your evidence for these claims of what it costs to run a college? Mine comes from careful reading of discussions of news sources that deal with higher education in some detail. (I will readily admit I’m not a college CFO, nor am I likely to ever be, so I don’t have that detail of information.) Where does yours come from?
Last semester, my kid was in a class with 3 other students.
I am sure that the prof’s salary and benefits exceed $300,000.
So, that’s about seventy five thousands per student just for that class (assuming he/she teaches only 1 class). :((
Where is my wallet again?
It’ll burst the moment that student loans stop being so artificially easy to obtain. And that will happen as soon as people realize that bad loans will have to be paid for by public money.
Government money on hot-button issues can run for a long time, as long as there is public support. So the “bubble” may or may not burst any time soon.