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Is higher education a bubble soon to burst? 

The numbers aren't pretty in Arkansas.

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Consider parents of college-age children in their mid-40s. In 1985, around the time many of them were entering college, the average annual price of tuition, fees and room and board for public, four-year colleges was $2,665 in constant 2010 dollars, according to The College Board. In 2010, that number leapt to $7,605. The gap is similar, though somewhat proportionally less, for private schools: $12,379 in 1985 to $27,293 in 2010.

If adding consternation over that meteoric rise — four times the rate of inflation and almost twice the rate of medical care, according to a 2009 National Center for Public Policy and Higher Education report — to worries over depleted 401Ks and the potential for a double-dip recession wasn't enough for parents, now comes an even more troubling prospect: that college, the perennial means of advancement for a new generation, is essentially worthless.

The arguments come, not from the fringe, but from the likes of Forbes, New York magazine (which called the notion "one of the year's most fashionable ideas") and even The Chronicle of Higher Education. The gist might sound familiar: A foundational part of the American Dream since World War II, college grew ever-more accessible over the years thanks to tax incentives and government-backed loans. But over the last several decades, price rapidly outpaced value, and now in a stagnant economy, millions of Americans are upside-down on their education. Student loan debt now outpaces credit card debt, while graduates' earnings have actually fallen in the last decade. According to the Project on Student Debt, a non-profit funded by the Bill and Melinda Gates Foundation and other sources, Arkansans graduated from college owing, on average, $19,880 in 2009. What's a diploma worth if you can't find a job to pay for it?

All of which has led higher education skeptics to conclude that higher education is a bubble soon to burst. Peter Thiel is perhaps the most vocal harbinger of doom. His track record lends him credence: A Silicon Valley billionaire who co-founded PayPal and made the first angel investment into Facebook, he secured $100 million for PayPal just before the dot com crash, which he says he anticipated. And he made another well-timed bet for his hedge fund against the housing market in 2007.

"Education is a bubble in a classic sense," he explained in an interview with National Review in January. "To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the '90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned ...

"Probably the only candidate left for a bubble ... is education. It's basically extremely overpriced. People are not getting their money's worth, objectively, when you do the math ...

"It is, to my mind, in some ways worse than the housing bubble. There are a few things that make it worse. One is that when people make a mistake in taking on an education loan, they're legally much more difficult to get out of than housing loans. With housing, typically they're non-recourse — you can just walk out of the house. With education, they're recourse, and they typically survive bankruptcy. If you borrowed money and went to a college where the education didn't create any value, that is potentially a really big mistake."

But where does Arkansas fit into the debate? As a relatively poor and rural state, we've always questioned the value of higher education. For the first time, at least in recent history, a majority (51.7 percent) of recent public high school graduates enrolled in some sort of post-secondary education in 2010. Among those who attend college, significantly fewer graduate in Arkansas after six years than they do nationally (near 39 percent to near 57 percent, respectively, from 2001-2006, the most recent period comparable data is available).

Still, average tuition and fees at our public institutions has increased dramatically. From 2001 to 2010 among public, four-year colleges and universities, tuition and fees jumped from $3,434 to $6,068, a 76 percent increase. That appears to be a relative bargain compared to the average national climb — a 101 percent jump in the same period — but considering Arkansas's median household income is about 30 percent below the national median, Arkansans probably feel the increase just as much as anyone else.

What's behind the jump? College administrators have some ideas. Dr. Donald Bobbitt won't assume his position as president of the University of Arkansas System until Nov. 1, but he said recently that the drivers of cost increases throughout higher education are fairly consistent.

"Life has become more complicated. Institutions need to provide more services to our students than I suspect were in place when I was school [at the University of Arkansas] in the '70s — advisers, career counselors, safety on campus and a number of other things."

As increased services have come into play, state funding hasn't followed along, Bobbitt said, a point echoed by Dr. Allen Meadors, president of the University of Central Arkansas.

"Across the nation, the amount of appropriations going to universities has been decreasing for the last 20 years. When I was in school here, probably 75 percent to 80 percent of the budget was state appropriation. Today, it's 37 cents on the dollar. When you're getting 80 percent from the state you can have low tuition.

"It's not the state's fault. Medicaid eats up a big part of the state's budget. We want good highways. What about our criminal justice system? When they spend money there, it's got to come from somewhere else, and it's come from universities."

To get a sense of where public university prices might be going, Meadors suggests looking to the price of private schools, which don't receive state funding.

The gap is still wide, he said, comparing UCA, where tuition and fees are $7,183 this year (the highest in the state by $10 above University of Arkansas Fayetteville), to Hendrix, where tuition this year is $33,930. But if appropriations continue to decrease, he said it will only narrow.

But comparing the cost of public schools to private ones isn't always so straightforward. When asked recently about Hendrix College's 105 percent price increase since 2004, college president Dr. Tim Cloyd was quick to point out the distinction between price and cost at Hendrix. "Our price has increased dramatically over the last eight years, but our cost per family has really not increased dramatically."

Cloyd said that Hendrix has readjusted its sticker price because it has been out of line with its peer set. "We were offering the same sort of product and experience in the baseline as Rhodes, W&L and Vanderbilt, and our price was way lower."

But as tuition has risen at Hendrix, so too has financial aid, according to Cloyd. Hendrix not only offers need-based financial and merit scholarships, it recently created a new class of financial support it calls distinction awards, given to students for "gifts, talents and passions." Today, 100 percent of Hendrix students receive some sort of financial aid. According to Cloyd, Hendrix's discount rate — the average percentage of financial aid per student — is double that of most similarly priced institutions. This year, for instance, the average student-aid award was $27,662. But even that number doesn't represent the actual average cost per student because it also factors in federal student loans, which can be as high as $7,500 for third and fourth year students.

Cloyd said because of Hendrix's high discount rate the tuition increase hasn't represented a significant revenue boost. Still, the school has been able to dramatically increase enrollment (from 990 in 2001 to 1,469 in 2010) while adding faculty (from 82 in 2001 to 109 in 2010) to retain a 12-to-one faculty-to-student ratio. A just-completed $100 million capital campaign, begun near the beginning of the tuition hike, helped fund the expansion.

Those kinds of financial acrobatics aren't as easy to pull off at public universities, where despite underfunding, the goals continue to involve growth — in enrollment, in graduation rates — without sacrificing program quality. State schools are often stuck in a sort of Catch 22, according to UCA's Meadors.

"They do want us to enroll more students, but at the same time, they want our retention rates to be better. But unless you spend a whole lot more money, it's hard to give the attention to those who need remedial courses."

Progress demands new ideas, according to future UA system chief Bobbitt. "We simply can't continue to do what we've done in the past." At the University of Texas at Arlington, where he currently serves as provost, the expansion of online classes has helped increase enrollment by more than 30 percent in three years, which has helped with the bottom line, he said.

Meadors said UCA is looking for ways to save money by improving efficiency, applying for federal grants and ramping up its private fundraising efforts.

Perhaps not surprisingly, Meadors doesn't think higher ed is a bubble in danger of bursting.

"I don't think we're going to wake up one day and find that no one wants to go to college. But we don't want to keep making folks have to borrow more and more to go to school."

Cloyd doesn't think you can commodify higher education.

"It's not, 'Oh, I get this piece of paper. It's fungible. I can go here and get a job and make X.' Higher education, particularly a residential liberal arts experience like Hendrix, it's about cultivation of the whole person, a 24/7 developmental experience."

The future is up to the marketplace, Cloyd said.

"The cost of higher education is always going to be adjusted to the market. If suddenly the market stopped buying what you're offering, you're going to have to make an adjustment. [The current rate of cost increases] is sustainable for some institutions, but it may not be sustainable for others."

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