'Higher Education: The Coming Shakeout' is excerpted below.
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Just as markets over-built housing, mispriced mortgages and bid up prices beyond the real financial capacity of homebuyers, America's colleges and universities have over-expanded and over-priced their product. We are getting an education bubble with dynamics similar to the late housing bubble. As more and more students find themselves with debts that exceed the salaries offered by the current job market, colleges have expanded beyond the capacity of their markets. Some kind of shakeout is coming. The question is: what kind.
During the long boom in higher education, colleges have also dramatically increased salaries and staffing levels of administrations. Some of this reflects efforts to game the rankings, which also is another aspect of the same imbalance. For-profit universities, with high dropout rates, heavily reliant on federal Pell grants and student loans, are only the more explicit and extreme expression of a general trend of colleges and universities becoming more marketized. Colleges are doing deals to set up satellite campuses in sheikhdoms, recruiting full-tuition state-supported foreign students and creating vanity diploma mills as profit centers. The flip side is a massive disinvestment by state legislatures in America's great public universities and an under-investment in community colleges.
Despite the broad premise that the cure for America's poor economic performance is more and better colleges, resources have been skewed in exactly the wrong direction. A report by the Century Foundation released last week reveals that per-pupil spending in community colleges, where 44 percent of post-secondary students attend, most of them children of the non-rich rich, has been flat since 1999, while spending at elite private universities is up 31 percent.
There is a huge mismatch between the greatest need -- affordable public universities and community colleges -- and where the investment has gone. Basically, it has gone to overbuilding and hyper-competition in elite universities, too much money for administration and marketing, for-profits siphoning off resources and graduates being saddled with lifelong debt (except, of course, for graduates with affluent parents, who generally pay the freight, leaving their offspring debt-free.)