Popping the Higher Ed Bubble

I have found it interesting that it has taken so long for technology to bend the cost curve for Oklahoma higher education entities. Just as in many other areas of the business world, Oklahoma universities should have developed the ability to provide effective administration with far fewer people due to advances in technology. In the free market this is cutting overhead and driving down costs in so many areas. These savings offset many of the inflationary pressures such as increased health costs. However, in Oklahoma, higher education as a whole hasn’t realized these savings and as I have described in the past two articles, has grown spending far faster than inflation. This means the higher ed experience is in a bubble. It is drastically overpriced and will face a day of reckoning.

Just as the housing bubble was propped up by loose monetary policy and debt, the higher ed bubble is also fueled by debt. The federal government feeds the bubble by making it so easy for students to incur thousands of dollars of debt. Too many students don’t act like logical free market participants who demand the best product at the lowest possible price. Instead, they take the free money from the government and take on a debt that will haunt them for years to come. In fact, as a whole, Americans owe approximately 900 billion dollars in student loan debt.

This unsustainable set of bad policies must come to an end — and they will!

In his 2011 state of the state address, Texas Governor Rick Perry called for the creation of $10,000 four-year bachelor degree programs. His effort was initially opposed by some within the Texas higher education community, but students at multiple Texas universities are obtaining their degrees for less than $10,000 today. In fact, students at Texas A&M San Antonio can secure an information technology degree with an emphasis on cyber security for $9,700. Those who hold this degree typically get paid between $16 and $40 per hour and will likely start their jobs with little student loan debt hanging over their heads.

Perry wanted Texas universities to provide the 10k degree by leveraging web-based instruction, creating innovative teaching techniques and establishing aggressive efficiency measures. Online coursework clearly offers one of the foremost tools for driving down cost.

Ironically, just last week. Oklahoma State Representative Pat Ownbey circulated a letter from one of his constituents showing that they were paying $1,025.52 for just one online course from the University of Oklahoma. Of that amount, $384.90 was the cost of tuition and the rest was fees. Even though this student may never set foot on campus during the duration of the course, for just one course he will pay more than a tenth the cost of getting an entire degree at Texas A&M San Antonio.

The higher education bubble has started to burst in Texas. In Oklahoma, even when some of our higher education institutions are using technology to deliver a service, they are still gouging the student. Its not supposed to work that way. Technology is supposed to drive down the cost of education.

It is our job as policy leaders to bring this insanity to an end. Just as Governor Perry has started to break down the cost of getting a degree in Texas, so must we do here.

A key component of the plan obviously orients around web-based coursework. The University of Oklahoma’s current online education model is completely backwards. The university should shift cost away from online course offerings because online students don’t use campus services. They cost far less to serve. But by charging them hundreds of dollars in fees, the university does not provide an incentive for the student to use less costly services. In the future, I intend to write about the reasons why Oklahoma universities may fear the technology revolution and want to force students to stay and live on campus.

By failing to lead the way in offering reduced cost online access, local universities risk failing to establish market share in higher education venue of the future. Next week I will continue the description of how advances in technology are driving down the cost of education, allowing more students to get a degree than ever before and popping the higher education bubble.

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