Confessions of a Recovering Higher Education Bubble Hawk

Until recently, I was a college “bubble hawk.” I saw significant parallels between the housing bubble that triggered the Great Recession and higher education. I believed that the combination of easy student loan money, rapidly increasing tuition, “creative disruption” caused by education technology, and enrollment declines would hasten bankruptcy for many colleges.  

My previous beliefs regarding higher education’s impending doom—shared by many others—were reinforced by pundits who sounded alarms whenever a new report predicted catastrophe or an insolvent college made headlines. I fell into a trap identified by Thomas Jefferson in a 1787 letter to Charles Thomson, then secretary of the Continental Congress: “The moment a person forms a theory, his imagination sees in every object only the traits which favor that theory. 

Based on mounting evidence, however, I now believe that such apocalyptic predictions—which have become ubiquitous in recent years—ignore insights into the overall stability of colleges and fail to illustrate the many examples of schools that have successfully navigated treacherous financial terrain. To put it another way, I was wrong; now I realize that there is little likelihood of a college bubble building to an inevitable collapse, as did the housing bubble. 

First of all, colleges are not closing en masse, nor is there reason to believe that they will in the future. National Center for Education Statistics (NCES) data indicate that from 1990 to 2014, 129 colleges closed. That’s an average of about five closures per year. For perspective, in the wake of the Great Recession, during the 2009-10 academic year, nine schools went extinct. As the economy has slowly rebounded, closure numbers have returned to their historic average.

That average (5.3, to be precise) may seem high, but it should be viewed in light of the total number of degree-granting postsecondary institutions, which grows each year and is currently at about the 4,700 mark. It’s also best to analyze such anomalous closures on a case-by-case basis rather than to extrapolate a trend based on anecdotal horror stories. 

One such horror story comes from Sweet Briar College, a small all-women’s private school in Virginia. It unexpectedly announced in March that it will close this summer (its biggest problem was plummeting enrollment; this year, it only had 154 first-year students). This caused some commentators to say that the closure is “just the beginning of the college implosion” and “signals the coming shake-up of higher education.”  

But more representative of the norm is Mary Baldwin College. Like Sweet Briar, it is a small private women’s college with a modest endowment located in a small Virginia town. That’s where the similarities end, however.  

Mary Baldwin’s enrollment has increased in recent years and its financial outlook is positive because it began offering coeducational adult learning and graduate programs, created a college of health sciences to match degree offerings with its regional job market, started an aggressive marketing campaign, and revamped its online coursework. Those changes have reaped substantial dividends; the school now enrolls 1,750 students and plans to enroll between 2,200 and 2,500 by 2020.  

Pamela Fox, Mary Baldwin’s president, recently said her school “has evolved to meet the needs of new student populations” and that “[small] colleges without diversified programmatic offerings or a distinctive niche that appeals to a significant market segment seem particularly at risk.” 

Adaptability is essential for many women’s colleges, historically black colleges, and religious schools, which have struggled to attract and retain students. Higher education is very competitive; schools that cater to just one part of the student population put themselves at a disadvantage. In one recent response to having a self-limiting enrollment policy, St. Mary-of-the-Woods College in Indiana, citing enrollment declines and data that show only 2 percent of female students prefer same-sex colleges, announced that it will begin accepting men this fall. 

Not every struggling school will be as successful as Mary Baldwin, as Sweet Briar’s case makes clear. But most colleges willing to confront challenges and adapt will be able to not just survive, but thrive.  

Another key reason that I was wrong about the existence of a college bubble is that demand for higher education appears to be strong. Although the latest enrollment data show a national decline of 1.9 percent since last spring, that drop is due mostly to for-profit colleges and community colleges, which have had declines of 4.9 percent and 3.9 percent, respectively.  

For-profit colleges have faced drastically different conditions than the rest of higher education. Whereas higher education in general is bolstered by the federal government, for-profits have dealt with a major regulatory crackdown. And, like community colleges, they have been affected by an improving job market, which has diverted a big chunk of their student population—non-traditional students in their mid-20s—back into the workforce.  

Over the same period, enrollment increased at public universities and large private nonprofit colleges. In addition, as CBS MoneyWatch indicates, the number of high school graduates choosing to attend college has remained steady in recent years (today, about 70 percent of such graduates go on to either a two-year or four-year postsecondary institution). 

While demographic changes suggest that enrollment will not increase quite as rapidly as it did in the first decade of the 21st century (it increased by 45 percent from 1997 to 2011 in large part because of an uptick in the number of 18-24-year-old students), the Education Department has nonetheless predicted that, by 2022, national postsecondary enrollment will have increased by roughly 3 million students over the all-time enrollment high registered in 2011, which totaled almost 21 million students.  

There are two more reasons to believe that demand for higher education remains strong. First, as Vivek Wadhwa, an entrepreneur and academic affiliated with Stanford University and Duke University, pointed out in this Washington Post article, if credentials were all that mattered to employers, they would model their hiring departments after college admissions offices and ask applicants for SAT and high school GPA information.  

In other words, employers believe that college degrees signal some level of aptitude, acquired knowledge, and professionalism. For the majority of high school graduates and others hoping to position themselves well in the job market, attending college remains a very rational choice. 

The second reason to believe that demand for higher education is strong is that, as law professor Paul Campos details in this article for the Atlantic, both Democrats and Republicans have, for decades, propped up the college market with direct subsidies, tax credits, tax breaks, and so forth. Government support for colleges and universities is at an “all-time high,” he says.  

From 1980 to 2014, total government spending at state and federal levels (both direct subsidies and indirect, tax-related subsidies) increased from about $70 billion to about $160 billion (in 2014 dollars). In addition to that spending, the federal government has ramped up its provision of student loans, contributing to a 350 percent increase in annual student borrowing between academic years 1990-91 and 2012-13.  

All signs point to “more of the same” when it comes to higher education subsidization. Strong political incentives will keep the tax dollars flowing. Politicians everywhere tout college as the path to prosperity, a mindset that’s entrenched in American culture.  

One of the most powerful arguments for the existence a higher education bubble is based on the concept of “creative destruction,” which occurs when a new product, technology, or business model upends or reshapes an entire industry (for example, the rise of Kindle e-books has spurred closures of physical book stores such as Borders and Books-A-Million). Greatly influenced by this explanation for the dynamics of economic progress, “bubble hawks” have said that educational technology will disrupt higher education’s status quo and put many brick-and-mortar colleges out of business.  

But innovative learning platforms such as Massive Open Online Courses (MOOCs) have hardly been the revolutionary force that many expected. In many instances, attrition rates for MOOCs are high, student motivation is low, and, perhaps surprisingly, the resources necessary to build a good online course can be substantial.  

Furthermore, such advances in technology have solved problems of access, but not of quality. There are educational benefits from human interaction and one-on-one mentorship that have not been, and probably will not easily be, replicated in the digital sphere. Also, many brick-and-mortar colleges have embraced Internet classrooms, flipped classes, etc. If those approaches ever take off, they will likely be under the auspices of traditional postsecondary institutions. 

As Jefferson’s close friend and sometimes adversary, John Adams, once said, “Facts are stubborn things.” Regarding the question of whether mainstream higher education is facing an existential crisis, the facts suggest that the answer, at least for the foreseeable future, is “no.”