How UI can survive after the education bubble bursts
Saturday, September 24, 2011
Beth Cody, Writers' Group member
Iowa City Press-Citizen

Ah, September in Iowa City: Despite the trials of parking downtown, I can't help but enjoy the back-to-campus season. I grew up in another college town (Ames) and attended the University of Iowa myself, so the promise of another new academic year always fills me with nostalgia and joy.

Therefore it pains me to consider the coming troubles that higher education now faces. And I don't just mean the cuts in state funding that are currently being decried as the end of higher education.

No, it's going to get far, far worse than most people can even imagine at this point.

It's becoming clear that higher education has been experiencing an economic bubble for the past several decades, the result of noble intentions leading to government programs with unanticipated side-effects.

Federal government loan guarantee programs now ensure that nearly everyone with reasonable high school grades and a desire to go to college can do so (about 70% of high school graduates now attend college).

There isn't space to detail the myriad problems caused by this "easy money": declining academic standards, lowered value of degrees, crushing debt burdens, more graduates than jobs requiring degrees, etc.

Focusing only on the economic effects upon colleges, institutions have found themselves in a bind: The abundant loan money has allowed them to raise tuition prices far faster than the rates of inflation for decades now, which has encouraged them to:

1. Expand department and course offerings to attract more students
2. Increase salaries to attract better professors
3. Build fancy new facilities (academic, recreational and housing) to compete for students to pay for it all
4. Increase administrative functions to oversee the growth

But a number of forces are now working against the universities:

1. Students and parents are finally starting to balk at the high cost and lowered value of college
2. Technology is just beginning to make available alternatives to traditional four-year, brick-and-mortar colleges
3. Demographics: the college-aged population is about to decline
4. The fixed costs of employee benefits, tenured salaries, maintaining enlarged facilities and servicing major debts incurred for building those new facilities are at an all-time high
5. Overall economic conditions are declining, leading to less ability to pay tuition, lower donations, lower state funding and lower returns from endowment investments

These trends are certain to intensify during the next decade, leading to tremendous financial pressure on colleges and universities.

Additionally, when interest rates inevitably rise from their historically-low, artificially-maintained current rates, universities with debt payments will be squeezed even harder.

Further, as federal government revenues are squeezed by increased entitlement and debt payments, federal student loan programs may be cut or even entirely discontinued.

Universities will be forced to make substantial cuts. Entire departments will be eliminated, hiring will slow, capital spending on new buildings will cease and schools will need to entirely re-prioritize their goals.

Some universities and colleges will not be able to lower tuition enough to attract students while cutting expenses enough to stay in business (I have read one estimate that 25% of institutions will cease to exist).

Those that do survive will be smaller, compelled to be more efficient and effective.

The University of Iowa has managed so far to keep tuition somewhat low compared to other Big 10 universities (particularly for Iowa residents) so it may have an easier time paring back expenses as revenues fall. We local residents can certainly hope.

But other college towns will not be so lucky.

In the long run, it will probably be better for everyone, colleges included, to have fewer, less-expensive institutions with fewer students. But it's too bad that there will be such suffering in the meantime: out-of-work academics, students with huge debts and useless degrees, college-town economies devastated.

Government is great at misallocating resources with noble intentions, but it's the people who always suffer in the end.