Student Loans and Changes in Higher Ed

Yikes! This bubble is going to burst. In the last decade, student loans have tripled – from $241 billion to $904 billion. Yes that’s BILLION with a B.

It’s easy to see why — the cost of tuition continues to skyrocket, even in a time of financial turmoil. It appears to me to be a vicious circle: Loans and financing are readily available, as are government grants, so prices go up. While these loans seem increasingly shaky (seriously — would you assume that you’d get, say, $150,000 back if you loaned it to a kid getting a history degree? And I say that as someone with a history degree), the government guarantees the loans, so why not? 

But a tipping point is coming when people will begin to question the value of spending well into six figures on a four-year undergraduate education. This student loan / higher education bubble has to burst, doesn’t it? And it will be a major factor in revolutionizing higher education.

I think increasing numbers of people will realize that it just isn’t worth it. The prestige of a fancy degree from Big Name U just isn’t worth the bondage to Sallie Mae for the next twenty years. A lot of real world employers don’t care anyway. The “college experience” is great, but at what cost?

Similarly, mounting budget pressures at the state government level will continue to force tuition higher at state-funded institutions, and budget pressures at home will mean fewer people can swing the higher tuition. So I think the bubble will gradually burst, and market forces will dictate a few changes in the landscape.

One such change, I believe, is that new players will emerge. The for-profit colleges will also continue to grow. They’re certainly not without detractors and even scandal, but surely there are good options out there.

And because they are for-profit, they are run like a business – meaning they should be more responsive to these kinds of market pressures. Like any business, they’re motivated to find the right price point for their customers. I think they also will tend to be more innovative in utilizing web-based learning environments that deliver education in a de-centralized way because they’re less mired in “tradition.”

Some traditional four-year colleges will adapt to market forces by lowering tuition and/or finding ways to deliver education for less money. Southern New Hampshire University, as detailed by Fast Company magazine, is a prime example of an innovative school seizing the opportunity provided by a shifting landscape. They’ve done so by utilizing technology and market principles like customer service and a commitment to technological innovation. If I was leading a small college, I’d aggressively pursue a similar path.

Some of the top-tier school will always have their niche (and their ample endowments), but many in the middle will get crunched by budget pressure and the growth of more affordable community colleges and for-profit schools. Perhaps we’ll even see self-directed, independent online learning environments emerge that eschew traditional accreditation requirements, and more apprenticeship-style models of learning.

I believe that the college environment my kids inhabit in the 2020s will be radically different than the one I experienced in the 1990s. And that’s not necessarily a bad thing, just different (and hopefully cheaper!).

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