According to Richard Vedder, higher education has been for the most part immune from the cycle of creative destruction. However, that history appears to be changing. Why? Administrators of many of the nation's institutions of higher education are now having to confronting stagnating rather than expanding tuition revenues.
Creative destruction is taking its toll:
- Mid-Continent University in Kentucky has announced that is closing.
- Georgetown College (of Kentucky) announced a 20% faculty cut and reduction in the number of majors offered.
- In operation since the mid-1880s, Iowa Wesleyan, will dismiss 33%+ of its faculty.
- Nazareth College (New York) and College of Saint Elizabeth (New Jersey) have announced major cuts to both faculty and staff.
So, what's going on? According to Vedder:
- The number of college graduates is growing faster than the number of managerial, technical, and professional jobs. As the mainstream media has been all so quick to point out, ~50% of recent college graduates are "underemployed."
- Students have amassed massive tuition debt to finance rising tuition costs. How much? $1.2T in student loan debt! Worse yet, default and delinquency rates are higher than both were during the financial crisis.
- As "intuitive capitalists" (The Motley Monk's term), prospective students are becoming aware of the financial risks of going to college and, thus, are becoming more discriminating about the institutions they want to attend. Although the number of applications received by the most selective institutions has risen over the past 10 years, the number of applications at costly or mediocre-quality institutions have declined. But, administrators at these institutions cannot raise tuition and fees.
- Due to the weak economy, state appropriations for public institutions have declined since the recession and private donors are less able or willing to donate to colleges as in the past.
- The traditional model of higher education is threatened as competition from online programs and for-profit colleges offers less expensive alternatives.
Creative destruction is unfolding across the landscape of U.S. higher education, much of it due to market forces that administrators in those institutions do not comprehend. Why? Up this point, their socialist experiment has never been challenged. But, that's all changing and only the most fiscally fit institutions will survive.
Let the discussion begin...
To read Richard Vedder's study, click on the following link:
"The Higher-Ed Bubble Starts to Pop."