Collapse of Higher-Ed Bubble Draws Near

With a surplus of middle-tier state universities offering four-year degrees whose value is coming under increasing scrutiny by students and families, Michigan is ripe for a revolution described by an article in the current American Interest online, “The End of the University as We Know It” by Nathan Harden.

If it hasn't already, this broad overview of a higher education system on the cusp of a transformation brought about by online learning should be sending chills up the spines of high-paid university presidents and their legions of administrators.

"The higher-ed business is in for a lot of pain as a new era of creative destruction produces a merciless shakeout of those institutions that adapt and prosper from those that stall and die," Harden writes. "Meanwhile, students themselves are in for a golden age, characterized by near-universal access to the highest quality teaching and scholarship at a minimal cost."

Some of the same forces pushing this revolution are already impacting university bottom lines and "pricing power," according to a new Moody's study reported by The Wall Street Journal:

For the (current) fiscal year, 18% of 165 private universities and 15% of 127 public universities project a decline in net tuition revenue… Nearly half of the schools surveyed by Moody's reported enrollment declines this fall, though overall median enrollment remained relatively flat from the previous year… Moody's also attributed the enrollment decline at some public universities to a ‘heightened scrutiny of the value of higher education’ after years of tuition increases and stagnating family income.

Legislators had better start paying attention, because like the implosion of the housing bubble, the higher ed one is all but certain to have an impact on future budgets.

While elite institutions like the University of Michigan are in a better position to navigate the transition, schools like Central Michigan University, Western Michigan University, Ferris State University and the rest of Michigan’s smaller state universities may be in deep trouble. Their massive overhangs of debt and underfunded employee pension promises are all but certain to bite taxpayers here as students and families increasingly discover alternative ways to acquire both learning and marketable credentials at a fraction of the cost of a residential college.

As Harden puts it:

(T)hose middle-tier universities that have spent the past few decades spending tens or even hundreds of millions to offer students the Disneyland for Geeks experience are going to find themselves in real trouble. Along with luxury dorms and dining halls, vast athletic facilities, state of the art game rooms, theaters and student centers have come layers of staff and non-teaching administrators, all of which drives up the cost of the college degree without enhancing student learning. The biggest mistake a non-ultra-elite university could make today is to spend lavishly to expand its physical space. Buying large swaths of land and erecting vast new buildings is an investment in the past, not the future.(Emphasis added)

Recent actions show that Michigan’s Legislature has been less than far-sighted in this regard.

2012 House Bill 5541: Appropriations: Borrow and spend $613 million on state university construction projects, signed by Gov. Rick Snyder on June 25, 2012.

Who Voted "Yes" and Who Voted "No” in the House

Who Voted "Yes" and Who Voted "No” in the Senate

Don’t expect leadership from this state’s bloated, multi-billion dollar higher-ed establishment, either.

Says Harden, “The biggest obstacle to the rapid adoption of low-cost, open-source education in America is that many of the stakeholders make a very handsome living off the system as is.”