The College Education Crisis

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The College Education Crisis

In most industries, competition drives quality and lowers prices. Unfortunately, higher education suffers from a serious lack of genuine economic competition. In fact, private colleges are essentially a government-subsidized oligopoly resembling electric utilities, while public universities are a lot like any other government bureaucracy.

To support this conclusion, consider that over the past two decades tuition has risen 3.5 times the average cost of living and that the quantity of skilled college graduates falls short of the demand in all too many fields. So, at a time of rapidly rising productivity, why is the effective productivity of colleges and universities actually declining?

The reasons for rising costs include the need to invest in modernizing facilities, providing enhanced security, and providing specialized equipment for technical training. However, the biggest single factor behind tuition inflation has been a lack of legitimate market competition. And the largest barrier to competition is the Federal Stafford Loan program, launched in 1992.1 Unlike most other forms of financial aid, these government-backed student loans have no restrictions on parental income. To colleges, this was simply a license to print money; and this new source of billions in additional aid dollars was an open invitation to increase tuition.

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Promoted as a low-cost program, Stafford Loans led to massive borrowing. Colleges got lots of additional revenue and students were left with the debt. The government had worked a "sleight of hand" in the education realm, shifting money from the future incomes of graduates to boost the incomes of college faculty and administrators today. Consequently, many students found themselves in financial bondage and society was little, if any, better off.

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So, what did these universities spend this windfall on? For the most part, administrators invested in what they perceived to be "quality enhancements." Unfortunately, most of them seem to have a serious misunderstanding of what constitutes the school's product. Universities see themselves as the product, judging their worth by the size and amenities of their campuses, the caliber of their faculties, and the range of services they offer. However, while these things may attract students and alumni donations, the real product is the student. The real measure of a school's quality is the quality of the graduates the school produces.

That's the rub. For all the additional revenue colleges now generate, the outcomes in terms of student capabilities are not all that great...

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