In a post published earlier today, John Robb claims that as “there is reason to believe that costs of higher education (direct costs and lost income) are now nearly equal (in net present value) to the additional lifetime income derived from having a degree…this situation has all the earmarks of a bubble. A bubble that will soon burst as median incomes are adjusted downwards to global norms over the next decade.
Robb then extrapolates what a radical global shift in the industry of education might look like:
When will the floodgates open?
The shift towards online education as the norm and in-person as the exception will arrive, however, the path is unclear. It is currently blocked by guilds/unions, inertia, credentialism, and romantic notions. Here’s what could happen:
* Local governments cut costs. Nearly or officially bankrupt local governments, out of desperation, opt to reduce costs through online education (the single biggest line item in most local budgets). Drawing from online home schooling systems, the market for these systems explodes (growing at several thousand percent a year).
* Entrepreneurial innovation. As student populations at the collegiate level dwindle due to cost pressures, a major University (with a brand as good as MITs or Harvard), opts to offer full credentials to online student (at a tiny fraction of the cost of being in attendance). Ten million students enroll in the first year to attend Harvard’s virtual world.
* Open source alternatives. Unable to afford in-person education, the lack of a major brand in the marketplace, and a job market in free fall stunts the growth of online education. As a result, a massive open source effort develops to develop virtual worlds and other online courseware that rivals the best Universities. The government is forced, over the objections of established institutions, to confer credentials to graduates that pass standardized tests (in fact, comparisons quickly show that these graduates are the equal and/or better than traditionally educated competitors). The business world embraces them.
There are two related vectors flanking the institutions educations, with the financial crisis now factoring in as a third. The first vector is the replacement of large organizations by clusters of smaller organizations. I agree with Paul Graham - to some extent - with the suggestion that “all other things being equal, a society consisting of more, smaller organizations will care less about credentials.”
The second vector is the efficiencies made possible by technology. Everything from video lectures and wikis to the Edufire service opening up next week.
The third vector is the financial situation - the ravaging of endowment funds, state funds, and slashing of home values can’t be a good thing for colleges, especially all hitting at once. The fact that college costs are skyrocketing surely can’t help, either.
This massive attack on the educational status quo takes place alongside rising demand for college education. If Robb’s claim that the costs of a college education are approaching its real value, that would jive with the Wikipedia definition of an economic bubble as characterized by prices that are considerably at variance with intrinsic values.
But it doesn’t really make sense to begin characterizing education as a bubble , does it? After all, a common signal of an economic bubble is the appearance of arbitrage, or the “practice of taking advantage of a price differential between two or more markets”.
We haven’t seen this behavior with education, have we?
Think again. When you support the $4b test-prep industry by enlisting the help of books and tutors, you have decided on the value of education, and you’re therefore willing to invest a considerable amount in it. This is made all the worse because our economic behavior regarding education are largely driven by fuzzy, abstract notions of success. Just ask the millions of people out there paying off student loans for degrees that had little or no effect on their career.
A particularly troublesome aspect of the educational bubble is that it isn’t limited to a single income group or discipline. Staples like law and medicine are likely to be safe for now, just about everything and everyone else will be affected when the bubble pops.
So what’s the solution?
I’ll follow up this post with what I believe to be the best short term solution for avoiding a calamitous situation for students across the world in the uncertain times ahead.