Friday, April 6, 2012

The Education Bubble

It is possible that you have heard of the concept of an "Education Bubble". We have seen a Tech Bubble that burst in 2001-2002. We have also seen a Housing Bubble that burst in 2007-2008. Some people are now predicting an Education Bubble is the next thing that will burst. I didn't really like this term when I first heard it, but recently I have come around to accepting it. This term is used to describe something that I have been worried about for a while, a devaluation of standard college education. This blog post will present my views on this issue and what I think schools, like the one I teach at, need to do to make sure they aren't destroyed when this bubble bursts.

First off, I should explain why I didn't like the term "Education Bubble". I think that a college education is extremely valuable. Studies such as What's it Worth? show that those with a college education earn more than those without, and for many majors, the difference is easily large enough to justify the expense. In addition, those with a bachelors degree are far less likely to be unemployed than those without. In fact, if you look at the plot linked to in the previous sentence, you probably notice that even having college without a degree seems to have moved away from the college degree curve since the last recession.

The reason I didn't like the term was that it implied to me that the value of college education was going to drop. I don't see that. If anything, I feel that the value of high levels of education is going to increase. One thing I do see changing is that just having a degree in whatever you want is no longer sufficient. I'll come back to this point later.

So if I don't think that the value of college level education is going down, why did I say above that I foresee a devaluation of a standard college education? The reason is that I see a rise in the availability and quality of non-standard forms of education that will cost a lot less. As prices are set by marginal utility, the devaluation I see isn't of the product itself, but how much it provides you above and beyond much cheaper alternatives. From the standpoint of what the market will bear when it comes to tuition, it doesn't matter if the pressure is devaluation from above or increased valuation of lower-cost products, either way, tuition costs will have to come down.

Where the Pressure Comes From
The source of the pressure that I think colleges should be feeling comes from new technology that allows education on a much broader scale. One of the more well known agents in this is the KhanAcademy. With funding from the Gates Foundation, KhanAcademy has made some waves. Most people think of it as a tool for teaching elementary kids arithmetic, but if you visit the site you will see they have a lot more going on. The math goes well into the college curriculum with differential equations. They also have more diverse topics like science, finance, and art history. All of these videos are free to watch. It is also free to do testing that verifies what you have learned for many of the topics.

Of course, KhanAcademy isn't really gunning to replace colleges. Other sites like Udacity and Coursera are. Those two sites were born in late 2011-early 2012 out of Stanford, and both offer full courses online. They include evaluation in addition to lectures. Udacity was co-founded by Sebastian Thrun who is probably best known for his involvement in the Google autonomous car project. In the fall of 2011 he offered his Stanford AI course to the world online and over 100,000 students signed up and 20,000 finished the course. A detailed look at this can be found in an article from Wired. There are three significant features I want to point out.

  • Thrun left his tenured position at Stanford to found Udacity. That is how much he believes in this model.
  • Students stopped coming to his lecture at Stanford to watch the videos because that felt more personal to them.
  • "Fifty years from now, according to Thrun, there will be only 10 institutions in the whole world that deliver higher education."

These aren't your standard online courses and things have moved well beyond OpenCourseware.

Speaking of OpenCourseware, MIT has seen this Stanford based "threat" and has answered with MITx. Their goal is to be able to offer certification for completing MIT courses and they want the entire MIT curriculum on there. This type of thing is already being utilized by some people. Today there are questions of acceptance by employers and others, but I don't think it is likely those obstacles will slow things down too much.

Another recent entry into the fray is the Minerva Project. Their goal is a bit different. They want to be an affordable, elite institution that uses material from top faculty from around the globe. In some ways, this shows that people are still feeling about for what will really work. However, it is likely that something will gain traction, and all of these are reducing the margin between what one can get for a low cost (possibly free), and what one gets in the standard college experience.

Current Impact
These new challengers are just starting up, but hard economic times have already forced a number of institutions to make changes. The motivation for change can be seen in declining enrollment and rising discount rates. Basically, it is getting a lot harder to pull in students, especially those who will pay the money that higher education is currently asking for. Some schools are already responding to this by cutting tuition. Even more have chosen to freeze tuition or take other measures.

What it comes down to is that the competition for students and student dollars is getting more fierce. It isn't just an economic problem either. It has moved full force into the political arena as well. State schools have been feeling it for a while as their state funding gets cut. Having the federal government turn an eye to it means that private institutions might have to deal with this as well. Honestly, having state school defunded helps private institutions as it closes the tuition gap. Losing national funding from grants and the like won't be so helpful.

Needed Changes
So what needs to happen? The short answer is that tuition needs to come down. Even if the economy picks back up enough that individuals and families are willing and able to pay higher tuition, The availability of real alternatives at much lower cost or no cost will eventually push people away from standard colleges unless they drop their price.

How much does tuition need to drop? My gut feeling is that tuition needs to drop to almost nothing. Room and board plus the opportunity cost of being in college is probably going to be a significant hurdle even without additional tuition. I can see some tuition as being needed for various psychological reasons, but I can't see it being a big part of the budget for a college or University. That's going to be a real problem for schools that currently get the vast majority of their budget from tuition. I don't see much hope for those schools in 20 years, perhaps even in 10. The timescale depends as much on social momentum as it does on technology changes. Schools with large endowments have a chance to restructure themselves so that their endowment covers the majority of their budget. That isn't going to happen overnight though. That is where the bubble part comes in. Schools which start making changes in advance can restructure their budgets in a smooth transition and survive. Those who fail to do this will have to rush at the last moment to make the changes and I expect most will burst and fail.

Making this Happen
So how can a school make this happen? I can only talk to this in a limited way as college budgets are far from my area of specialization. In the case of Trinity I believe that ~55% of our budget currently comes from tuition. That is a lot of money to shave off. However, if that can be dropped to ~25% in 10 years it would, IMO, be a significant step in the right direction and at that point we would definitely have a clearer picture of how much more needed to be done. For this to happen, tuition needs to drop, but having a bigger endowment would certainly help as well.

So how can a University lop off ~30% of their operating budget in 10 years? I have no idea on the details. My hope is that someone reading this will know more about that and come up with something. However, I can talk to aspects related to faculty and technology.

The bottom line is that we need to be more efficient, and do more with less. This has been a mantra for businesses through most of the economy. However, it hasn't hit education. Indeed, we have gone the other way. We typically push for lower student/faculty ratios. Trinity is now down to 10:1. We tout that  as a benefit in our recruiting. There is no doubt it is a great thing in many ways. There is also no doubt that it is extremely expensive to maintain that ratio. Doing more with less in education really means finding a way to give students the feel of an individualized educational experience with good access to faculty without having 10:1 student/faculty ratios.

In order to do this, we have to re-evaluate how we teach everything. I think we need to take some notes from our upcoming competition as well. If you read the article from Wired linked to above, Thrun mentions that students stopped coming to lecture in favor of the videos. Today's students often consider watching a video in their room to be a more intimate and individualized interaction than being in even a small lecture hall with the professor. This points to one easy change: faculty should not be full time lecturers. We should take advantage of things like online videos, even making them ourselves. Time spent face-to-face with students should be spent using formats that exclusively can't be done with prepared videos, like answering questions, providing critique, and moderating discussion.

In many ways, making students watch videos is not that much different from asking them to read. I believe that the videos work better, but only partly because they are videos. (The dynamic nature of video can definitely help with some topics.) What makes them really successful is having them done in short segments (10-15 minutes is ideal) and having them followed by questions that help a student identify if he/she understood the material. That can be done for reading too, but making it work requires utilizing technology.

That is the other half to doing more with less. Education has been very poor at making good use of technology. Many different approaches have been tried. Few have been really successful in changing the fundamental nature and efficiency of the education process. I feel like we have finally hit the point where that can change. Electronic evaluation gives us the ability to place little sign posts that students have to go past and check off. These don't have to be a primary form of evaluation, just something strong enough to serve two purposes. They have to tell the student if he/she is really grasping the material and they need to allow the faculty member to check that students are doing each of them. The technology exists to do this today. It takes more prep-time, but once created, it is useful for many years and allows faculty to focus more on efforts that are very individualized. That is the one edge a traditional campus has over something like Udacity, and we have to find ways to maximize it.

It is probably already apparent at this point, but I feel that I have to explicitly mention that any movement to reduced teaching loads is moving in the wrong direction. To cut 30% off a University budget is going to require increased teaching loads. Faculty might balk at that, but keep two things in mind. I really am talking about working smarter, not just harder. In addition, if the education bubble does burst and we haven't done this, faculty become unemployed and most will have little chance of re-employment.

The World Keeps Changing
Now to the other topic that I feel is closely related, and which I know many of my colleagues will probably be upset to hear me say. I feel that we are moving out the the window of time where "a college degree in anything" insures a job. In an earlier blog post I wrote about differences between what is happening today and the industrial revolution. In regards to education and jobs, prior to the 1920s, people could safely drop out of primary school and still get employed. When the industrial revolution rewrote the rules of American farms, that changed. Somewhere around the 1950s I believe the rule had become that a high school diploma was what you needed to make sure you had a good job. For all of my life, ~1980-2010, the rule of thumb has been that a college degree, regardless of what it is in, is the path to a good job and a good life. I think we are moving out of that phase.

This is part of the education bubble. This is the reason you have people like Peter Thiel telling students that they should simply skip college. I personally still see a huge value in college education. However, there is a gain of truth in what Thiel has to say. I think it is possible today to get a college education that doesn't serve you well later in life. Regardless of what you major in, you have to make certain you pick up certain skills that will benefit you after graduation. All too often, college students under the impression that "any degree will do" search for the easiest route. I think what Thiel is really pointing out is that the world is constantly growing more competitive and those who seek the easy way out are dooming themselves to failure, even if they complete a college degree.

Maybe I am Wrong
Of course, it is always possible that I am wrong. It is possible that companies will decide that credentials from places like Udacity have no meaning. Maybe colleges don't have to lower tuition or can even raise it and students will continue to walk through our doors and pay whatever we demand. I don't think I'm willing to bet my career on that assumption though.

I would like to thank Bryan Alexander for ideas and some of the links in this post.