Creative Destruction Coming to Higher Education
May 12, 2014
Creative destruction is coming to higher education, says Richard Vedder, Adjunct Scholar at the American Enterprise Institute.
Private businesses are used to creation and destruction, as new businesses come in to replace the old. Higher education, however, has been somewhat immune from this cycle -- very few colleges have actually closed, as college enrollment and government subsidies have only increased.
But that phenomenon appears to be changing, writes Vedder, as schools face stagnating tuition revenues. A number of colleges have recently announced that they are closing their doors and slashing the number of faculty on their staff. For example:
- Mid-Continent University in Kentucky recently announced that it was closing, and Georgetown College -- another Kentucky school -- announced a 20 percent faculty cut and a reduction in its offered majors.
- Iowa Wesleyan, which has been in operation since the mid-1800s, is dismissing more than one-third of its faculty.
- Nazareth College in New York and College of Saint Elizabeth in New Jersey have each announced major cuts to faculty and staff.
Why is this happening? Vedder identifies five factors behind the shift:
- The number of college graduates is growing faster than the number of managerial, technical, and professional jobs. Up to half of recent college graduates, according to estimates, are "underemployed," working as baristas, for example, or in retail stores.
- Students have borrowed massive amounts of money in order to finance rising tuition costs, resulting in $1.2 trillion in student loan debt, with default and delinquency rates even higher than such rates on mortgages during the financial crisis. Prospective students are becoming aware of the financial risks of going to college.
- Students are becoming more discriminating about the institutions that they want to attend; applications at the most selective schools have risen over the last decade, while applications at costly or mediocre-quality schools have seen enrollment declines. These schools will lose their students if they raise their fees.
- State appropriations for public schools has fallen since the recession, and private donors are limited in their ability to support colleges due to the weak economy.
- Competition has emerged, as online programs and for-profit colleges have begun to threaten the traditional higher education model.
Up to this point, Vedder explains, colleges have not had incentives to make their education more affordable or relevant to the workplace. Now, however, creative destruction is beginning to hit higher education.
Source: Richard Vedder, "The Higher-Ed Bubble Starts to Pop," Minding the Campus, May 4, 2014.
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