Why the Higher Education System Is Unsustainable (i.e. Doomed)

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Higher education is a self-serving cartel that is failing students, the economy and the nation.

That which is unaffordable is unsustainable and will go away. The current system of higher education is profoundly unaffordable: it exists on an immoral foundation of student debt–$560 billion of which is Federal. Enormous expansions of student debt are required to keep the current system of higher education afloat. This chart shows the insane trajectory of Federal student debt:

Our Huge, Stinking Mountain of Debt: Student Loans (September 11, 2013)

But unaffordability is only one reason why the present system of higher education is unsustainable.

Before we start, it’s important to stipulate that the industry’s failings are systemic, and do not reflect the positive intentions and efforts of those working in higher education, any more than the systemic failures of U.S. healthcare reflect the good intentions and efforts of those employed in that industry. Despite the good intentions and hard work of individuals, these systems are broken.

Due to their size and structure, large systems such as national defense, healthcare and education limit the impact of individual initiative. This has several consequences. One is that individuals feel powerless to change the system and so they relinquish responsibility for changing it. As Voltaire observed, “No snowflake in an avalanche ever feels responsible.” A second consequence is psychological. Even if the system is visibly flawed or failing, insiders feel obligated to defend the system and their role in it, for two compelling reasons: self-preservation and the psychological need to believe in the value of one’s place in the institution.

Let’s start with what is self-evident about the basic structure of higher education:

1. As my colleague Mark G. described in Higher Education Cartel, Meet Creative Destruction, higher education is a legacy system based on the scarcity of recorded knowledge (printed and other media) and informed lectures. Both recorded knowledge and informed lectures are now essentially free and readily available. This is the material basis of the alternative system outlined in this book, the Nearly Free University (NFU), whose core is an open-enrollment, universally accessible, individually accredited curriculum designed for the emerging economy and the individual student.

2. The current higher education model is a factory composed of broadcast lectures and mass-distributed reading/coursework/tests. The student moves down the assembly line, attending the same lectures as other students, reading the same materials and taking the same tests. When the student receives a passing grade in a quasi-arbitrary number of courses, he or she is issued a diploma.

This factory model of education is fundamentally unchanged from the era of World War II, when the government expanded higher education from its traditional elitist function to serve the nation’s war production. While factories churned out war materiel with low-skill labor, behind the scenes the war effort demanded a vast increase in engineering and scientific skills. This began the transformation into a knowledge-based economy. The difference between an industrial economy that requires massive numbers of low-skill factory workers and a knowledge-based (often referred to a post-industrial) economy is the knowledge of its workers.

The factory model is obsolete in an era where a variety of nearly-free instructional materials and methodologies enable the student to select the most appropriate approach for his aptitudes and needs.

3. In terms of its financial structure, higher education is a cartel-like system that limits its product (accredited instruction) and restricts its output (credentials, diplomas). (A cartel is an organization of nominally competing enterprises that fixes prices and production to benefit its members. Cartels may be formal, such as the Organization of Oil Exporting Nations (OPEC) or informal like the higher education cartel. Informal cartels often rely on government regulations to restrict competitors’ entry into their market and on government spending or loans to fund their operations. To mask the uncompetitive nature of their cartel, they devote enormous resources to public relations.)

The cartel’s basic mechanism of maintaining non-competitive pricing is to enforce an artificial scarcity of credentials. The cartel’s control of a product that is in high demand (college diploma) frees it from outside competition and free-market price discovery, enabling it to charge customers (students) an extraordinary premium for a product whose value is entirely scarcity-based.

This is the very definition of a rent-seeking cartel, a cartel that extracts premiums solely on the basis of an artificial scarcity. By their very nature, rent-seeking cartels are exploitive and parasitic, drawing resources from those who can least afford to pay high premiums and misallocating capital that could have been invested in productive social investments. The term rents in this context means that the cartel collects a premium without providing any corresponding additional value. The rentier class includes landed aristocracy, who collect rents while adding no value to the production of their tenant farmers.

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