Is higher education turning into a ripoff?

Higher education is increasingly becoming a ripoff, writes Malcolm Harris on the web log of n + 1 literary magazine.  College tuition has increased sevenfold (adjusted for inflation) since 1978, but the average quality of education has gone in the other direction.  The salaries of administrators continually increase; those who do the teaching are being asked to do more for less pay and job security.

Students are continually being told that they have no economic future if they don’t go to college, so they take on crushing loads of debt.  American college graduates owe more than $800 billion in college loans.  American college loan debt now exceeds American credit card debt, while unemployment among recent college graduates is the highest on record.

If tuition has increased astronomically and the portion of money spent on instruction and student services has fallen, if the (at very least comparative) market value of a degree has dipped and most students can no longer afford to enjoy college as a period of intellectual adventure, then at least one more thing is clear: higher education, for-profit or not, has increasingly become a scam.

via n+1.

I’ve written about this previously, but Harris told me things I hadn’t known.  Student loan debt is securitized and repackaged into something called Student Loan Asset-Backed Securities, aka SLABS, just like the subprime mortgage loans.  So you have the potential for the same kind of crash.

Another thing I hadn’t known is that, under the  Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, no education loan, even money borrowed on a credit card, cannot be discharged through bankruptcy.  Before 2005, this only applied to federal government loans.

That means a college graduate with an outstanding college loan is in a form of indentured servitude.  If the graduate defaults, he or she is in the position of a debtor’s prison inmate on a work release program.

Unless something changes, college loans are headed for the same kind of financial crash as mortgage loans.  And colleges and universities seem to be following the failed pattern of U.S. manufacturing industry, and setting themselves up for the same kind of failure.  What happens to the higher education industry when their potential students come to realize they are not getting value for money?  Will they reform, or fall into the same cycle of cutting costs and quality of product?  This is a familiar script.

I don’t want to paint with too broad a brush here.  I am sure there are still colleges left which are still dedicated to the old liberal arts tradition, or which give value for money in terms of education for a profession or an occupation, and I know there are many individuals that are resisting the trend.  And I know that the research function of some of the big universities is as important as the teaching function. Nor do I deny the existence of responsible banks and well-run manufacturing plants.  But I believe the dominant trend is as Malcolm Harris wrote.

Here are some highlights from his article.

During the expansion of the housing bubble, lenders felt protected because they could repackage risky loans as mortgage-backed securities, which sold briskly to a pious market that believed housing prices could only increase. By combining slices of regionally diverse loans and theoretically spreading the risk of default, lenders were able to convince independent rating agencies that the resulting financial products were safe bets. They weren’t. But since this wouldn’t be America if you couldn’t monetize your children’s  futures, the education sector still has its equivalent: the Student Loan Asset-Backed Security (or, as they’re known in the industry, SLABS).

SLABS were invented by then-semi-public Sallie Mae in the early ’90s, and their trading grew as part of the larger asset-backed security wave that peaked in 2007. In 1990, there were $75.6 million of these securities in circulation; at their apex, the total stood at $2.67 trillion. The number of SLABS traded on the market grew from $200,000  in 1991 to near $250 billion by the fourth quarter of 2010. But while trading in securities backed by credit cards, auto loans, and home equity is down 50 percent or more across the board, SLABS have not suffered the same sort of drop.


Higher education seems an unlikely site for this kind of speculative bubble. While housing prices are based on what competing buyers are willing to pay, post-secondary education’s price is supposedly linked to its costs (with the exception of the for-profits). But the rapid growth in tuition is mystifying in value terms; no one could argue convincingly the quality of instruction or the market value of a degree has increased ten-fold in the past four decades (though this hasn’t stopped some from trying). So why would universities raise tuition so high so quickly? “Because they can” answers this question for home-sellers out to get the biggest return on their investments, or for-profits out to grab as much Pell Grant money as possible, but it seems an awfully cynical answer when it comes to nonprofit education.

First, where the money hasn’t gone: instruction.


Highly represented among the new precarious teachers are graduate students; with so much available debt, universities can force graduate student workers to scrape by on sub-minimum-wage, making them a great source of cheap instructional labor. Fewer tenure-track jobs mean that recent PhDs, overwhelmed with debt,  have no choice but to accept insecure adjunct positions with wages kept down by the new crop of graduate student-workers. Rather than producing a better-trained, more professional teaching corps, increased tuition and debt have enabled the opposite.

If overfed teachers aren’t the causes or beneficiaries of increased tuition (as they’ve been depicted of late), then perhaps it’s worth looking up the food chain. As faculty jobs have become increasingly contingent and precarious, administration has become anything but. Formerly, administrators were more or less teachers with added responsibilities; nowadays, they function more like standard corporate managers—and they’re paid like them too. Once a few entrepreneurial schools made this switch, market pressures compelled the rest to follow the high-revenue model, which leads directly to high salaries for in-demand administrators. Even at nonprofit schools, top-level administrators and financial managers pull down six- and seven-figure salaries, more on par with their industry counterparts than with their fellow faculty members.

And while the proportion of tenure-track teaching faculty has dwindled, the number of managers has skyrocketed in both relative and absolute terms. If current trends continue, the Department of Education estimates that by 2014 there will be more administrators than instructors at American four-year nonprofit colleges. A bigger administration also consumes a larger portion of available funds, so it’s unsurprising that budget shares for instruction and student services have dipped over the past fifteen years.

When you hire corporate managers, you get managed like a corporation, and the race for tuition dollars and grants from government and private partnerships has become the driving objective of the contemporary university administration. The goal for large state universities and elite private colleges alike has ceased to be (if it ever was) building well-educated citizens; now they hardly even bother to prepare students to assume their places among the ruling class. Instead we have, in [Marc] Bousquet’s words, “the entrepreneurial urges, vanity, and hobbyhorses of administrators: Digitize the curriculum! Build the best pool/golf course/stadium in the state! Bring more souls to God! Win the all-conference championship!” These expensive projects are all part of another cycle: corporate universities must be competitive in recruiting students who may become rich alumni, so they have to spend on attractive extras, which means they need more revenue, so they need more students paying higher tuition. For-profits aren’t the only ones consumed with selling product. And if a humanities program can’t demonstrate its economic utility to its institution (which can’t afford to haul “dead weight”) and students (who understand the need for marketable degrees), then it faces cuts, the neoliberal management technique par excellence. Students apparently have received the message loud and clear, as business has quickly become the nation’s most popular major.

When the crash comes, the government will bail out the lenders but not the students – just as in the home mortgage crisis.

Click on Bad Education to read the whole article. It is well worth reading.  Hat tip for the link to David Ruccio.

Marc Bousquet, who was quoted by Harris, is author of How the University Works: Higher Education and the Low-Wage Nation. He is a professor at Santa Clara University.  Click on How the University Works for his web log.

Click on Project on Student Debt for more data and updates.

Click on The student loan train wreck for an earlier post of mine on this subject.

This chart does not show all student loan debt.  It shows federally-guaranteed student loan debt owed to SLM Corp. (formerly the Student Loan Marketing Association, aka Sallie Mae) and the government itself.

The original title of this post was: Higher education: the next financial bubble?

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3 Responses to “Is higher education turning into a ripoff?”

  1. Perette Barella Says:

    I’m responding more to one of your sources than you, but: “no one could argue convincingly the quality of instruction or the market value of a degree has increased ten-fold in the past four decades”; “Because they can.” is the answer. I find this unsatisfactorily glosses over the issue.

    If we look at the factors: first, the introduction of student loan programs in the 60s and 70s, intended to combat urban poverty and help overcome racial disparity in wages made a way for more people to go to college than could previously afford it. The decline in the manufacturing sector starting in the 1980s pushed parents and schools to direct kids on a college path, including the ones who in prior years would have been seen as better candidates for skilled trades. Even skilled trades are in decline; we buy new appliances or electronics instead of having a repairperson fix them; instead of the laborious process of plumbing with copper we now use PEX tubing which can be installed with much less labor. So it’s not that the education is more valuable, it’s that there is more demand for it.

    Back in the 80s as we began losing large numbers of jobs to overseas (Japan in particular back then) there was an idea that we’d keep the design at home and just let the manufacturing happen elsewhere. But as my father would say, “They’re not all rocket scientists”; I would change this: we need a heterogenous mix of jobs to fit the range of people’s natural skill sets. There are those who would make brilliant craftspeople, but instead they’ve gone to college and developed skills in areas where they are limited. Instead of having them do brilliant things with their hands, they become mediocre engineers or administrators or whatever they studied for in college, and/or unemployed; either way, excess people with training for too few jobs is just supply/demand, forcing value of people’s labor to fall. Some end up taking jobs below their training, which has gradually created more expectation of a college degree among employers.

    Meanwhile, corporation’s aren’t stupid or wasteful; why build an expensive lab building and hire full-cost staff when you can donate some cash to a university, probably take a write-off of some sort, then fund some research at the university and get graduate students to do the same research at dirt-cheap prices. The university probably pairs your money with some alum donations to help fund the building, as a school it’s got some tax dodges in place to keep its cost low, and the students work hard on the research in hopes of making a name so they’ll be able to get one of the limited number of jobs in real industry when they leave. They’re freshly training, motivated, and not distracted by a family to boot. On the university’s side, they’re getting some exciting new research to put on the 4-color glossies, and if the research works out the university might get a cut of rights to whatever is discovered.

    This falling back on “because they can” bothers me because it ignores all the whys and wherefores in between. If enrollment had been limited by not having student loan and grant programs, this mightn’t have been set up. If we had a broader range of jobs, including more with on-the-job training as it used to be, this mightn’t have happened. If we didn’t have the Internet, which has allowed us to share information-based jobs with others in other countries, maybe we could have become the country of rocket scientists and this mightn’t have happened.

    But that’s coulda, woulda, shoulda; we let this happen by ignoring the changes the processes we set up. We do this again, and again, and again; setting up processes for some purpose, not really thinking it through to full depth, then starting it up and forgetting about it. Then the side-effects interact and magnify with other things, and it gradually goes out of control and we ignore it for a while, then we look at it and think, “Uh oh, we didn’t mean for that to happen.” But then the whole thing has become complex with intended effects and side-effects of multiple things interacting, and come up with some overly-simplistic explanations the whole systems spiral out of control. Usually we impose some new regulation that’s intended to control it but typically doesn’t and just makes the whole thing go off kilter and then spiral off in a new direction of trouble. But when it gets so bad we can’t decide what to do, or we just wait to long, then eventually it goes “bang” and there’s huge fallout and we angrily find someone to blame it all on.

    In any given system, people will figure out how to turn it to their personal advantage. Yet, we keep creating systems and regulations that are meant to provide communal benefits. Given a bit of time, though, someone always figures out how to exploit that creation. If we want to create a system that works and stays in balance long-term, we need to go back to something with a basic, simple set of fair rules; if we want to make on-the-fly adjustments they should be temporary because they need to be monitored for when they start to do more damage than good. The system we are in now is so complex, with patches and fixes on top of patches and fixes, that I don’t believe there is any hope of making it work right.


  2. philebersole Says:

    When I went to college in the good old days, anybody who was capable of doing college work could enroll in a state university and pay tuition at a rate that made it feasible to work your way through college and come out without being burdened with debt. In my opinion, that’s what we should be striving for today.

    The problem with scholarships and college loans is not that, too often, they become pass-throughs that enable college administrators to charge higher tuition instead of being of real benefit to students.

    When you apply the corporate model to the higher education system, your financial incentive is to prefer students who are rich and stupid to students who are poor and smart. Making college affordable does not in itself lower intellectual standards. What lowers standards is the corporate model, which says you should maximize the number of paying “customers” regardless of whether you are offering them a real benefit.

    I agree there is a need for a broader range of jobs, and a broader range of educational pathways. My nephew, who is not academic-minded, was miserable for years because he could not learn through classroom instruction and get a college degree, which every middle-class person is supposed to have. Then he joined the Navy, which teaches through hands-on learning, and he blossomed.

    Everybody from Bill Gates to Barack Obama is pushing the illusion that if everybody goes to college, everybody will earn a professional-level income. It is a way to avoid the real issue, which is how to put Americans to work doing the things that need to be done to reverse our decline. But it provides a way to put the onus on the workers rather than the employers.


  3. Henry David Thorough Says:

    It is. Absolutely. 3 of our kids are “under water” with school debt.


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