higher education

Forecast: Bursting bubbles

We've been reading stories for quite a while now about college students graduating with degrees in Women's Studies or some arcane art major, tens of thousands of dollars in student debt, and no job prospects.  College tuition and spending has soared in recent decades, much to the benefit of Ithaca and its surrounds.  

But parents and students are increasingly looking askance at the current college model, and the prospect that they might actually do something different is forecast as the "bursting of the education bubble."

Today, there is this:

Call it better learning through technology -- and cheaper.

As college and university classrooms around the country fill with students facing mind-numbing tuition, free online classes are filling up too -- and their rising number threatens to destroy the current model that has student loans soaring and parents feeling the bite...

Similar to how media began “supplementing” printed newspapers in the 90s with free online editions -- which transformed business models and made the news largely “free” on the web for consumers -- free online courses might (perhaps unintentionally) ultimately force tuition closer to zero. 

Exhibit A is Stanford's new "Introduction to Artificial Intelligence” class. It’s entirely online. It’s free. And it even promises student feedback, in addition to an unaccredited but still résumé-worthy “Statement of Accomplishment.” ...

Stanford is far from the only one making a bet on free online courses. MIT, Harvard, Yale, Oxford and dozens of other iconic universities are getting involved as well.

Our hometown Ivy, Cornell is no stranger to this trend, having run its CyberTower since 2000, first as a for-fee service and then for-free since 2004.  Some of the older material seems to be in ancient video formats but since it's Ithaca, you can still go there to learn about loons.

Online courses can easily have the same disruptive effect that Amazon had on the publishing industry and that iTunes had on the music industry.  

No, Cornell isn't going anywhere any time soon, but students may spend less time in a traditional classroom... and maybe less time in Ithaca. Cornell is branching out with a campus in Qatar and a plan for an engineering campus in New York City.  Fewer students spending less time in Ithaca can mean big changes for our county.  And it could happen quickly, meaning that we will need to diversify -- and fast -- if we want to maintain the lifestyle which currently emanates from the Cornell aura that has kept Tompkins County economically head and shoulders above our neighboring counties.  How exactly would we do that?

As Mark Twain said.... well, he said a lot of stuff.  But while living nearby and sharing rich associations with Cornellians, he only seems to have visited Ithaca twice and maybe never visited the Cornell campus proper.  

Just sayin'.

Higher ed in upstate NY: a perspective

Commentary on Tuesday's post on higher ed in our area by Tom Reynolds:

In the past, we have been shielded from the worst of economic times and the assumption is that it will go on forever—and that's what always gets us into trouble.  People borrow too much, governments spend too much, people drink too much beer thinking that life isn't a pendulum and good things last forever.

Colleges have not had a recession since World War II ended because the government has poured money into education without ceasing and, in many cases, without getting appropriate results.

SUNY colleges want to make decisions like private colleges, but they want the public funding subsidy to continue so they will still have a huge competitive advantage over private schools.  Let SUNY Cortland and SUNY Geneseo compete for students against Ithaca College on equal tuition terms if the SUNY schools are unwilling to fulfill the purpose for which they were established: to make a lower cost college degree available to NY residents.

Private colleges are directly subsidized through grant programs (Bundy money for example) and indirect programs for student aid (TAP, Pell, etc.).  They are also subsidized through required professional certification and continuing education courses that are taught by faculty and through overhead rates on grants (lab science grants came with a 100% overhead rate when I was handling them. So, a $1 million grant gives half a million to the college, not to the project).

But over 40 cents of every dollar spent by the feds is borrowed and the national debt will soon reach $16 trillion on an annual budget of $4 trillion.  NY State has huge structural budget issues that it will not address.  And yet education expects to continue to be funded in the manner to which it has become accustomed.

College liberals and our Assemblywoman decry "Wall Street," but colleges actively seek multi-million dollar gifts from those who got the hated "Wall Street bonuses."  Individuals invest their pensions in "Wall Street" and "oil company" stocks, and college endowments are filled with those "greedy" investments.  Where was the righteous indignation from our Assemblywoman last year when Cornell got a multi-million dollar gift from a "Wall Streeter"?  Why wasn't she condemning it as the progeny of "Wall Street" greed?  Colleges depend upon large donations and when business suffers, the giving suffers. 

Remember, the money that makes our colleges run comes from outside the Tompkins County area.  Tompkins will not continue as an economic island if we are surrounded by a sinking economy.  What happens if the governments cut back?  Where will the tuition money come from if "Wall Street" and "Main Street" are in a long term recession? Colleges say that people come back for an education when economic times are tough.  But they come back on borrowed money because they don't have a job. 

Many areas of Cornell could continue relatively unchanged as they are selective enough to ease their admissions standards in order to keep a full house and continue to support Cornell faculty in the manner to which they have become accustomed.  Of course, faculty will publicly decry the drop in standards while privately celebrating their continuing jobs.  But some areas of Cornell are public and they will certainly feel the effect.  Non-faculty may not be so lucky.  When Cornell sneezes, Tompkins County gets the flu.

Ithaca College will be another matter.  Certainly, they have a few selective schools, but when I worked there, admissions to their Liberal Arts programs required little more than the proverbial "pulse."  It has been many years since I worked for IC, but I know that private liberal arts colleges have not been increasing their admissions standards over the ensuing years, and they are heavily depedent upon government-supported student aid to keep up their census and high tuition charges.  A long term downturn in the economy and government aid will have a significant effect on IC and it will cause more than a sneeze.       

SUNY Cortland was contemplating major furloughs a year ago during that year's state budget crises.  They will certainly be affected by any state cutbacks, more so than Cornell or IC.  Cortland County, unlike Tompkins County, does not have a history of economic isolation.  

These institutions will not close, but cutbacks will affect their entire industry in an area that is primarily dependent upon that industry.  House values will sink as jobs dissappear.  People have already been leaving upstate NY in droves and if education falters, there is nothing left to keep people here.  Taxes will go up even more as there are fewer jobs to provide tax dollars.

Any decent industry leader does not want to become dependent upon one source of revenue.  But in the past, our one source has kept Tompkins insulated from economic reality and our liberal leadership believes it will continue forever.  Maybe it will.  Then again, maybe it won't.  And if it doesn't, Tompkins will be in a bad spot in a state that is broke, with political leadership totally clueless as to what to do.

Higher ed in upstate NY: Knitting, eggs, baskets, and bubbles

Ithaca is actually on the radar of Greg David of Crain's New York Business:

The big success story upstate is Ithaca. Virtually untouched by the recession, Ithaca has added jobs almost every year since 2000. That area's most important industry? Higher education as it is the home of prestigious Cornell University and the well regarded Ithaca College.

The job numbers should be center stage in Albany because they show how higher education is the key to reviving the upstate economy. On Monday, Gov. Andrew Cuomo threw his support behind a plan to unleash the key SUNY campus from micromanaging by Albany--including deciding on their own tuition--so they can marshal the revenues to realize their potential. (A compelling case for the proposal is available on the Citizens Budget Commission website.)

The proposal is being blocked by downstate Assembly Democrats who worry that higher tuition will close the door to minority students. The claim is probably not true, and even if it is, the costs to upstate are devastating. The only alternative to giving SUNY the tools it needs is to condemn upstate to becoming even more a welfare ward of downstate. Is that what the Assembly Democrats really want?

In other words, upstate should stick to its proverbial knitting.  But is it wise to put all of upstate's eggs in one basket?

We've blogged about what may be a higher education bubble here and here. In 2010, Michael Barone, who spoke at Cornell recently, wrote in the Washington Examiner last September:

As often happens, success leads to excess. America leads the world in higher education, yet there is much in our colleges and universities that is amiss and, more to the point, suddenly not sustainable. The people running America's colleges and universities have long thought they were exempt from the laws of supply and demand and unaffected by the business cycle. Turns out that's wrong.

Read the whole thing.

And at TechCrunch is an interview with Peter Thiel, PayPal co-founder, hedge fund manager and venture capitalist, in which he says

A true bubble is when something is overvalued and intensely believed.  Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.

And as the interviewer, Sarah Lacey, continues

It used to be a given that a college education was always worth the investment– even if you had to take out student loans to get one. But over the last year, as unemployment hovers around double digits, the cost of universities soars and kids graduate and move back home with their parents, the once-heretical question of whether education is worth the exorbitant price has started to be re-examined even by the most hard-core members of American intelligensia.

Again, read the rest.

So if upstate NY does decide to stick to its existing knitting rather than diversifying, and at the same time potential students (or their parents) start to figure out that it might be wiser to acquire higher education in some non-traditional way (such as distance learning), or build up a work history and become self-sufficient earlier, thus becoming able to take more risks because they haven't racked up buckets of debt—what then? What happens to upstate? Wouldn't it just become "even more a welfare ward of downstate" anyway?

As we've said here before, the laws of economics don't stop at the state—or county—line.

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