My friends forward me a lot of blog links. Lately some of those forwards have been about what observers like Glenn Harlan Reynolds and Mark Cuban perceive as an education “bubble.” Comparing rising tuition costs to the housing bubble, they expect a “pop” at any time.
In a widely re-posted blog, Mr. Cuban, the owner of the Dallas Mavericks, reiterated some of the themes that Mr. Reynolds, a University of Tennessee law professor, outlined in his book, “The Higher Education Bubble.” Both Mr. Reynolds and Mr. Cuban seem to share educators’ concerns about the enormity of today’s student loan debt. However, Mr. Cuban’s “bubble” analogy compared educators to real estate agents whom he said raised prices on bubble-era homes because “easy money will be there to pay your price.”
Mr. Cuban then asked, “Can someone please explain to me how what is happening in higher education is any different?”
Perhaps I can explain.
But before I do, I wish Mr. Cuban would apologize to our realtor friends who suffered as much as anyone during the housing crisis. As Culverhouse Finance Professor Leonard V. Zumpano, Ph.D. explains so well in our A place at the beach blog post, it was the subprime mortgage market, not the National Association of Realtors, which inflated the housing bubble.
As much as business school deans, educators, parents, and students lament the high cost of today’s tuition, I don’t think the housing bubble analogy – with or without agents, lenders, or investors as villains – has merit. Here’s why.
1. The cost of an education hasn’t grown because we’ve artificially inflated its worth.
The cost of a public college education has grown because of the way we now pay for it. Thirty years ago, states across the nation provided 65 to 70 percent of a state college’s support. Tuition, fees and grants accounted for 30 to 35 percent of typical revenues. But since 2000, cash-strapped states have scrambled to cut expenses and slashed education funding. The State of Alabama, for instance, now provides less than 20 percent of the cost of supporting higher ed. Tuition and other private sources must make up the difference.
The national deficit means the federal government can’t take up the slack. That means individual students are paying the difference, with lower and middle class families hit hardest.
The solution won’t be simple. But it does raise the question of whether Americans are still committed to providing public education opportunities for promising students outside the upper class. Abraham Lincoln’s very first political announcement, in 1832 at age 23, stated it as only he could:
"Upon the subject of education, not presuming to dictate any plan or system respecting it, I can only say that I view it as the most important subject which we as a people can be engaged in. That every man may receive at least a moderate education, and thereby be enabled to read the histories of his own and other countries, by which he may duly appreciate the value of our free institutions… For my part, I desire to see the time when education, and by its means, morality, sobriety, enterprise and industry, shall become much more general than at present…"
2. Student debt isn’t “the biggest problem the economy has.”
Mr. Cuban’s post stated that the crush of student debt is the reason the economy hasn’t grown. However, I don’t know of any economist that traces the worldwide recession, including the debt crisis in Greece, to a decline in American 20-something’s spending power.
As outlined in Culverhouse Professor Lonnie Strickland’s popular Become a Millionaire Before You’re 30 annual spring lecture, our grads are learning how they can help fuel the economy at the proper time -- but not in their 20’s, with or without student debt.
Innovation, Rigor, Relevance…
Those who have sent those forwards might be surprised to learn that Mr. Cuban and I do agree on at least two of his “education bubble” criticisms of higher ed. Culverhouse is already addressing those concerns in its “IR2” initiative. More about that in my next post.