Between a bubble and the cloud

The higher education finance bubble is here.  Unlike those icky derivatives on mortgage-backed securities, you can see this one in plain day.

Like the housing bubble, the cost of higher education has grown wildly inflated by the relatively easy access to student loans and grants over more than three generations.  And unfortunately for graduates burdened with ever-increasing levels of college debt, the economy has left them "upside-down" and "underwater" (like their parents houses?).

We got here almost the same way housing did.  Like home ownership, a college education had become so virtuous and culturally-standard, banks were pushed by government guarantees to lend to students regardless of either the student (borrower) or the institution (house price) or chosen major (neighborhood). Like mortgage lending, the bank gets paid for initiating and writing the mortgages, not servicing them.  College administrators get paid for selling an educational product, paid admissions, not for the value of the degrees-- which are deemed valuable on their face as long as someone else is paying.

College students are presumed smart-enough, right? But when it comes to their own education, students can be fallible and gullible consumers.  They trust in the notion that if they were accepted to a highly-competitive school, they must be getting an excellent product and will be able-- the social contract goes-- to repay whatever it cost them because they will be successful.

But what happens when the marketplace for their talents and degrees hits a recession?  Can they sell their degree at a loss to cover the loan?  Default on the mortgage on something that resides only in their heads?  What happens when the brain bubble bursts?

While the current President has proposed restructuring the mass of student debt, extending it or limiting payments to a percentage of earnings, the colleges and universities know very well that doing so avoids the root cause: the cost and street value ratio for a traditional brick and mortar college education is out of whack.  When money was cheap and easy, of course, the educational establishment could afford wages and salaries that surpassed the norm in the communities where they operated, provide the ultimate in job security, and cave in to union-like demands for both.  No self-respecting university president believes this can go on, which makes one wonder why the craven effort to salvage students' bad loans?

Instead, many smarter universities heeding their own favorite rallying cries for "sustainability" and have been, true to creed, open minded enough to see their circumstances from the outside-in, be analytical about themselves, and willing to experiment with new ways to serve students.  They are embracing the cloud, distance learning via computer, and lower priced tuition.

There are limits to what can be translated effectively via online lectures and course material without the in-person experiences and dynamics that college memories are made from.  Professors who put students to sleep in person can be assured of higher slumber scores teaching via Skype.  Students who kissed-up by asking nuanced questions to show their inquisitiveness, without proving their failure to read the material, will no longer be sneered at by their peers, they will be muted.  The cloud will have a silver lining.

Even the most traditional schools, like Harvard are giving the new cloud the old college try.  Why?  Because the cloud will rain money.  By opening their campuses through the cloud, more students can enroll at lower prices and still receive approximately the same educational product-- maximizing per-professor output and increasing demand at lower prices.  Moreover, the cloud lets students attend lectures they miss while they are at work, scaling-up the phenomena of a "go-as-you-pay" education, versus go as you pray (for a job). And what about that ultimate sacrilege: making Harvard and MIT classes free online?  Go as you learn!

The only way for the university cloud degree innovation to be killed mid-birth is the government bail-out the current President proposes (and very much like the one General Motors was forced to take that essentially protected the United Auto Workers contract, not the viability or value of GM cars).  If the higher education finance bubble is dealt with the same way as GM-- subsidizing the status-quot bloat, making innovation "risky," while the economy continues to languish under government regulation and debt-- there will be a race to the bottom, and the cloud will dissipate as a passing educational fad.