Monday, August 27, 2012

Is There A Bubble in Higher Education?

The Rotunda at UVA
My daughter Caroline starts classes this week at the University of Virginia (UVA).

My wife and I took her to Charlottesville last week, and experienced the bittersweet emotions that parents go through when a child leaves home. Still, we are thrilled for her, and we are confident that she has a terrific four years ahead of her.

Getting into UVA is not easy.  Here's what the Washington Times reported last week:

Recession? What recession?

At top area colleges, applications for admission are actually up, despite continuing economic stagnation at the national level...

Earlier this week, Theresa Sullivan, the president of the University of Virginia, where move-in kicks off Friday, said the college had received a record number of applications — 28,200 — and accepted 3,416, or 12.1 percent of first-year students. (This compares with 34,302 students applying to Harvard, with an acceptance rate of 5.9 percent.)

I have read any number of articles in recent months discussing the so-called "bubble" in higher education.
These commentators suggest that the rapid rise in college tuition has priced a college education beyond the reach of many families. With entry level jobs scarce, paying tens of thousands of dollars for a higher education degree seems an needless extravagance to many families.
Moreover, the argument goes, advances in technology will eventually make physically attending classes on a college classes an anachronism. Microsoft founder Bill Gates was quoted earlier this summer:

The cost of an education just keeps going up. So you've go to see if you can change the way the system works. Having a lot of kids sit in the lecture class will be viewed at some point as an antiquated thing.
I'm not sure that higher education tuitions are necessarily in a "bubble".  To me, bubbles exist in markets where prices are far out of line with demand. 
The demand for a spot in a freshman class at places like Harvard and UVA would suggest that price is not the issue - there is an incredible desire for education at the top schools in this country.

In fact, you could almost argue that the top schools could charge even higher tuition rates based purely on demand (which I am not suggesting, by the way!).

The trouble in higher education is at schools deemed to be less desirable for whatever reason, as the Washington Times article also notes:
But the positive numbers from elite schools appear to be outliers. More disquieting trends have emerged at the other end of the spectrum, where U.S. colleges are beginning to see a drop in the demand for freshman places as high tuition costs and financial problems force families to think twice about taking on the burden of paying for their children’s higher education.

The Arlington-based National Association for College Admission Counseling (NACAC) reports that 375 colleges find themselves this year with vacant places: Last year, the figure was 279.

Then there is a large movement towards on-line education.  Here's an interesting talk at TED by Stanford professor Daphne Koller about what we are learning about offering college courses on-line: