August 8, 2010

The next big bubble - Higher Education

Glenn Harlan Reynolds writing at The Washington Examiner:
Glenn Harlan Reynolds: Further thoughts on the higher education bubble
Back at the beginning of the summer, I had a column in this space in which I predicted that higher education is in a bubble, one soon to burst with considerable consequences for students, faculty, employers, and society at large.

My reasoning was simple enough: Something that can�t go on forever, won�t. And the past decades� history of tuition growing much faster than the rate of inflation, with students and parents making up the difference via easy credit, is something that can�t go on forever. Thus my prediction that it won�t.
Glenn offers some suggestions:
Well, advice number one - good for pretty much all bubbles, in fact - is this: Don�t go into debt. In bubbles, people borrow heavily because they expect the value of what they�re borrowing against to increase.

In a booming market, it makes sense to buy a house you can�t quite afford, because it will increase in value enough to make the debt seem trivial, or at least manageable - so long as the market continues to boom.

But there�s a catch. Once the boom is over, of course, all that debt is still there, but the return thereon is much diminished. And since the boom is based on expectations, things can go south with amazing speed, once those expectations start to shift.

Right now, people are still borrowing heavily to pay the steadily increasing tuitions levied by higher education. But that borrowing is based on the expectation that students will earn enough to pay off their loans with a portion of the extra income their educations generate. Once people doubt that, the bubble will burst.
Alternative careers:
Many people with college educations are already jumping the tracks to become skilled manual laborers: plumbers, electricians, and the like. And the Bureau of Labor Statistics predicts that seven of the ten fastest-growing jobs in the next decade will be based on on-the-job training rather than higher education. (And they�ll be hands-on jobs hard to outsource to foreigners). If this is right, a bursting of the bubble is growing likelier.
And for the schools themselves:
Just as I advised students not to go into debt, my advice to universities is similar: Don�t go on spending binges now that you expect to pay for with tuition revenues later. Those may not be there as expected.

Post-bubble, students are likely to be far more concerned about getting actual value for their educational dollars. Faced with straitened circumstances, colleges and universities will have to look at cutting costs.
We are blessed to have an amazing Technical College in Bellingham. I have taken a couple classes from them for Welding and CNC Machining and the overall level of instruction and classroom resources are first rate. Someone graduating their two-year Welding program can get a job in a local shipyard or refinery starting at around $35-$45 with full benefits. Pays a lot better than social work. Their medical support program is another good one -- radiology, nursing, etc... Posted by DaveH at August 8, 2010 6:58 PM