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It Was a Good Run

It Was a Good Run

I predict that 20% of colleges and universities will shut down or merge in the next 10 years, and probably more.

It was a good run.

Most people fail to understand that higher education is in itself countercyclical. When the economy is bad, and people lose jobs, many of them will go back to school. You have probably heard about the for-profit education boom and bust. That is old news. You might not have heard that total enrollment has been declining for the last eight years as the economy has improved. What comes next will pulverize nearly every institution of higher learning in the country, private and public.

The reason: demographics. Basically, an echo of the baby bust of the early seventies. I was born at the bottom of that baby bust in 1974. My small generation hatched a small generation, which is now making its way through college. Enrollment will drop 15% on average, on top of the eight-year correction that schools have already experienced. This may not seem like much, but finances at colleges and universities have deteriorated sharply, and many of them will not even be able to withstand a drop of a few percent.


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There have been bull markets in dot-com stocks, homebuilder stocks, energy stocks, and FANG stocks. There can be a bull market in anything, even higher education. Unless you have been trapped under something heavy, you probably know that college is expensive. It is expensive because it is implicitly subsidized by the federal government, which will lend any amount of money to any student without regard for willingness or ability to repay.

The demand for higher education has been relatively inelastic, but demand elasticity is starting to set in. Today, 45% fewer 18- to 29-year-olds say going to college is “very important” than in 2013. A 45% drop in just seven years. I talk about it incessantly on my radio show. Higher education has become so expensive that it makes practically no sense for anyone, except as a luxury purchase for the idle rich. Not even a Wall Street job is going to be any help in paying off $200,000 to $300,000 in debt.

So we have fewer students going to college and fewer students wanting to go to college. Right.

The bull market was awesome. New academic buildings, new athletic facilities, new residence halls with swimming pools, climbing walls, and recreation facilities. Lots of administration and diversity staff. Ironically, the one cohort that utterly failed to benefit from the boom times was the professors, who are really the only people adding value and remain vastly underpaid. When the cuts come, they won’t come for the administration or the diversity staff. Academic programs will be the first to go, which raises some interesting questions about what the purpose of a university is.

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A discussion on higher education would not be complete without a discussion of college football, which is a drain on resources in 99% of cases. Yes, Alabama is wildly profitable. Only a handful of football programs are, and hundreds of schools have tried to replicate what Alabama is doing. The economics of college athletics is widely misunderstood. Some people complain that football is a source of alumni support, but it really isn’t. It’s popular among alumni, yes, but financially speaking, the vast majority of schools would be better off without it.

Some schools are thinking outside the box and trying to recruit folks outside the rapidly shrinking pool of high school seniors. There are millions of people in the US who have “some college” on their resumes, all of whom are potential customers, depending on how much debt they have left over from the last time around. Schools will also be recruiting foreign students heavily. But it won’t be enough to plug the gap. Smaller liberal arts colleges are already closing, and many more will close their doors for good, or merge with larger schools to stay afloat. But state schools will suffer too, and many of them will require explicit taxpayer assistance, which will be politically distasteful to say the least.

Schools will resort to lowering standards to keep enrollment up, but that is a race to the bottom, and the value of every student’s degree will decrease correspondingly, setting off a vicious cycle that makes college even less attractive. My suspicion is that universities—allegedly with very smart people in charge—have done pretty much zero to prepare for the coming bust. Many schools have lots of debt, not much cash, and a lot of fixed costs. Almost nobody has prepared for what is about to come next. And this is operating under the assumption that the Department of Education continues to be as willing to lend money as it has been in the past.

As an investor who came of age in a bear market, I tend to look for bear markets. We have had some wingdingers in the last 20 years. This one will be up there, with pretty profound economic effects. Colleges and universities employ a lot of people and in many cases are the lifeblood of a single town. You’ve probably noticed that the nicest buildings in your town are the academic buildings. Wait until they are all empty.

Jared Dillian

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Jan. 4, 2020, 3:32 p.m.

Jared, thanks for the fine article this week.  I have what may be considered a radical view on higher education.  I believe higher education (and “education in general) has become a major business sector.  When I compare the cost of a attending a college/university these days with costs in the previous century, it is clear THEY HAVE GROWN OUTRAGEOUSLY!  Higher education has become a business designed to make EXORBITANT profit for the institution,maximize faculty and staff numbers, push students through the system in assembly line fashion, use athletics as a profit center and have failed considerably in producing graduates well qualified for the business (or any other)world. They have put their students in outrageous financial conditions with oppressive student loans. I would recommend the Department of Education launch a detailed review of the colleges and universities to revaluate whether they are beneficial in their present form or whether they need to fall under a cost/benefit model that would benefit the students, the people paying for the “education” and the entire nations fiscal wellbeing.  Long story short, higher education is a “rip-off in it’s current form!
Jan. 4, 2020, 9:28 a.m.

In my area, Central Florida, you can graduate from High School with 1 year of College credit. Stay at home and go to your Community College for your second year. Now you have 2 years with no debt.  Then decide what you want to do for your final 2 years. Only a few professions actually require 4 years of college, CPA/Medical/Law/Architect/?...I’ve recommended to all the young people I meet, no matter what they’re ambitions are, to go to the Community College and take Introduction to Accounting, Introduction to Finance and Introduction to Management. With that knowledge base they can do about anything and be successful.

jack goldman
Jan. 2, 2020, 6:25 p.m.

College should be free as a tax on future earnings, as a per cent of income, let’s say 10% or 5%. College is a scam and was supposed to be free when television came in but it failed to work out. With computers information is free. But who validates that one person is worth $500,000 per year and other is worth $50,000 per year? Wish I could sell my degree back to the college. It never benefited me financially but was fun and was a good finishing school for me. Many will disagree with you. Self centered, liberal, lefty, college graduates want the sun to rise and set on their holy sacred worthless degree. Education is the last place that is a monopoly, union, and bureaucracy. Only vouchers and competition can solve the glut of educational monopolies as gateways to jobs. Since IQ tests proved racist, blacks having lower IQ scores, the education segregation has replaced race segregation. White males with college degrees making big money. White male high school and drop outs have a DECLINING life expectancy. College is a racket, just like war is a racket. It’s a massive scam.
Jan. 2, 2020, 12:43 p.m.

Jared, great article today. I would think everyone agrees that going to university is a must - but to your point is it worth drowning in debt to get it? It’s so disappointing because the real value as you say of university is not simply learning information - but being exposed to IDEAS and how to THINK. True, you can get ideas so easily from the interweb but it’s a shit show today and for young people to navigate this and have meaningful knowledge is next to impossible. We need to make university affordable again and put the monies where they bring the most value. To intelligent professors who can build and mold the brains of our future leaders.

Thomas Elwell
Jan. 2, 2020, 11:54 a.m.

Great 10th Man article.  I enjoy reading your out of consensus take on things.

One big coming issue for schools that I haven’t heard anyone mention is that I believe there will be a switch from degree requirements to non-degree knowledge requirements in recruitment.  With online courses and other digital means for self-directed learning, businesses will increasingly rely on their own standards, tests, boards, etcetera to determine if applicants are well-qualified for the job.  They will value degrees much less than in the past and even make them optional for candidates.  That may take a while, but I think the switch has already started.

Jan. 2, 2020, 10:28 a.m.

I completely agree with the analysis and declining value of higher-ed as currently constructed.  The solution is waiting for a forward-thinker that combines Massive Open Online Courses (MOOC) while keeping the campus mentality.  Imagine an inner-city block outlined with 100 flags from the best universities and 10,000 students wearing whatever sweatshirt they want, on a campus that has all the traditional offerings but with classrooms streaming the best of the best professors and courses from around the world, all at the cost of a local community college. Any university with a 45% declining client pool would be foolish not to be interested..

Thomas DeSimone
Jan. 2, 2020, 10:19 a.m.

Have thought about higher education economics for quite some time.  Run this calculation: the compound annual growth of tuition at your college since you graduated until today.  Mine is 8%.  There is no business in the world that over 45 years could raise its price at that rate, with no significant increase in product value and still be in business, but the government lending to its customers without evaluation of collateral gave colleges freedom to do so.  The average age of our trades people, steel workers, HVAC, plumbers and electricians is 55, we need them desperately and those careers come with little or no debt, but we make kids feel inferior if they chose those careers.  I could go on.
Jan. 2, 2020, 9:52 a.m.

Easy to pile on after a Wall Street journal article 2 days earlier…  but more insightful is your misunderstanding of the facts.  The facts are that college enrollment is up, at accredited schools.  While the number of people in the demographic group is down there has been a significant jump
In the percentage of non Anglo ( read Hispanic/ African Americans) enrolling. this shift is enormous and driving enrollments up.u ( and good for the country)  I agree some liberal arts schools are done, because technology has made their degrees less attractive than other routes. Student debt, actually is low in non profit institutions, the Trump universities and their like ripped off a lot of people.  You live in South Carolina, look at Columbia and see how many companies are moving operations to be near these institutions.. Finally,  since English is the language of the internet, foreign enrollment is unlimited with the exception of current politics.  at best, your article iis poorly researched,
Jan. 2, 2020, 9:30 a.m.

Agree with your demographic projections and colleges failing (especially smaller enrollment institutions.
Disagree with your conclusion college is too expensive.  Community college plus state or private college (not elite) will cost no more than $50,000.  This amount is not too high not to be able to be paid back.
Your comment regarding the decline in individual’s view that education is not very important is worrisome.  America’s economy depends on an improving knowledgeable workforce that is capable of life-long learning. Further, educated parents are more likely to have educated children.  This creates a virtuous cycle for America’s future economic needs.
There are many problems (counseling, debt repayment systems, decline in government support, supply of higher quality instruction (knowledge workers paid more in private sector or few alternatives if you leave) etc. ) with our college educational system but not going does not solve it nor is it good for the future of America.

Marion Hill
Jan. 2, 2020, 9:23 a.m.

Can you expand more on your college athletics conclusion because I think it is wrong.  College football is very profitable for universities and overall athletic budgets are profitable or break even.  See here -  I don’t see how this is a drain on college resources.

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