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Higher education since the Second World War has been an extraordinary growth story, moving from an elite system to mass-participation in most countries. On average globally, one in three young people now enter higher education and more than three in four do so in Europe and North America.1

This growth was advocated and justified on economic and social grounds that commanded popular support. Higher education growth has far outpaced other forms of growth. Higher education grew by a factor of 6.12 between 1970 and 2013, while population multiplied by 1.93 and real GDP by 3.63.2 Meanwhile, growing middle classes, in populous jurisdictions possessing large numbers of 18 to 24-year-olds and rising GDP but insufficient domestic provision, started sending their children overseas for fee-paying university education, such that international education was seen by some nations – such as the US, Canada, the UK and Australia – as an export sector in its own right. In Australia, it is the country's third-largest form of export and, in the State of Victoria, it is the largest.3 In turn, international rankings arrived to inform choice, spurring competition and investment in reputation and research funding.

The sector’s Golden Age of expansion and esteem is now ending as a new set of factors come together to challenge traditional campus life, including rising tuition fees, spiraling student debt, escalating administration costs and doubts about higher education’s return on investment.

Declining value, soaring student debt

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Attainment rates of bachelor’s degrees in the young population are reaching 50 percent in some jurisdictions4 and one consequence is a degree’s decreasing earnings premium; even a negative premium in some instances. In the UK, it is estimated that one-fifth of degrees are not worth the money in terms of future earnings; these students would have been financially better off if they had not gone to university.5

In a 2020 survey on attitudes on higher education conducted in 11 countries and territories, 61 percent of respondents said a degree is less valuable than 10 years ago. In the UK, only 44 percent thought that the potential benefits of going to university outweighed the expense, although the 11-country average was 56 percent.6

The perceived decreasing return on education investment is coinciding with rising tuition fees and spiraling student debt, as well as rising administration costs. Student debt in the US tripled between 2001 and 20167,8 and has begun to undermine the equality of opportunity argument. Poorer students cannot pay fees up front, nor can they thrive while repaying significant tuition debts.9

Spiraling costs but limited funding

This takes us to a fundamental economic problem confronting higher education. Usually known as Baumol Cost Disease,10 it means that while universities need to cover costs that largely include paying competitive salaries to attract and retain sufficient talent, they are running out of productivity gains under their current operating model. Many have reached the point where creating larger classes and limiting subject choice are meeting consumer resistance. 

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An OECD report in June 2020 showed that in 13 selected countries and territories, total expenditure per student doubled after allowing for inflation between 1995 and 2015.11

The problem lies in the inability to scale up under the current, largely face-to-face model of higher education and the organizational culture that surrounds it. This is not, in theory, a problem if society is willing to pay for it all and productivity is rising within the economy to create the required wealth. However, the gloss has come off universities and there is unwillingness by anyone to pay more than they do now.

The gloss has come off with employers as economic change has accelerated and industry has increasingly called for job-ready graduates, rather than training them in-house. The gloss has also come off with governments as aging populations and the politics of healthcare compete for public funds, and votes. Cuts in public funding for universities have been experienced in many jurisdictions, partly offset by rises in student fees which have compounded the graduate debt problem.

And the gloss has come off among some of those who have ardently supported higher education as both a force for good and as value for money. If it is so good for equity, why is income and wealth inequality rising?12 If students are paying all this money, why do they mainly see adjunct teachers, not tenured faculty members?

Meanwhile, has post-secondary education become unbalanced between higher and vocational programs? In a possible sign of the times, the UK government in July 2020 said it was dropping the previous government’s target of 50 percent of young people going to university.13

Digital competition

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In the sector, there are other, more-disruptive forces also in play, as fast-emerging capabilities, new digital competitors and heightened expectations for service and choice suggest a bleaker future for traditional institutions that do not transform. Depending on the region of the world, e-learning is expected to enjoy a compound annual growth rate of 7.5 to 10.5 percent between 2018 and 2024.14 Many traditional universities are organizationally unable, or culturally unwilling, to participate in this and some competitors are becoming stronger and stronger.

  

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References:

1 Marginson,S. (2016). Higher Education and the Common Good [Kindle edition]. Melbourne University Press. https://www.mup.com.au/books/highereducation-and-the-common-good-hardback

2 Marginson S. (2017) Elite, Mass, and High-Participation Higher Education. In: Shin J., Teixeira P. (eds) Encyclopedia of International Higher Education Systems and Institutions. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-9553-1_50-1

3 Australian Government. (2019, September). Research snapshot: The global context of tertiary student mobility. https://internationaleducation. gov.au/research/Research-Snapshots/Documents/RS_Global%20context.pdf

4 Institute of Education Sciences: Nation Center for Education Statistics. (2020, May). International Educational Attainment. https://nces.ed.gov/programs/coe/indicator_cac.asp

5 Britton, J., Dearden, L., van der Erve, L. and Waltmann, B. (2020, February 29). The impact of undergraduate degrees on lifetime earnings. Institute for Fiscal Studies. https://www.ifs.org.uk/publications/14729

6 Ipsos, Fulbright Commission, University of California and King’s College London. (2020 June). Universities: Perceptions impacts and benefits – Higher Education around the world. https://www.kcl.ac.uk/policy-institute/assets/fulbright-survey-2020.pdf

7 Feiveson, L., Mezza, A., and Sommer, K. (2018, February 21). Student loan debt and aggregate consumption growth. Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/econres/notes/feds-notes/student-loan-debt-and-aggregate-consumption-growth-20180221.htm. 

8 Federal Reserve Bank of New York: Center for Microeconomic Data. (2019, August). Quarterly report on household debt and credit: 2019: Q2. https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2019q2.pdf

9 Chapman, B., & Doan, D. (Eds.). (2019).  Higher education financing: Student loans. Economics of Education Review. Vol. 71. https://www.sciencedirect.com/journal/economics-of-education-review/vol/71/suppl/C

10 Baumol, WJ., Bowen, WG., (1968). Performing arts: The economic dilemma. MIT Press.

11 OECD. (2020, June 18). Resourcing higher education: Challenges, choices and consequences. http://www.oecd.org/education/resourcing-higher-education-735e1f44-en.htm

12 Chang, H-J. (2011). Things they don’t tell you about capitalism. Chapter 17. Penguin. https://www.penguin.co.uk/books/177/177805/23-things-they-don-t-tell-you-about-capitalism/9780141047973.html

13 Richardson, H. (2020, July 9). Government to scrap 50% of young to university target. BBC News. https://www.bbc.com/news/education-53348709

14 Arizton. (2018, January).  E-learning market – Global outlook and forecast 2020-2025. https://www.arizton.com/market-reports/e-learning-market