There is trouble brewing in higher education, and it has been developing for decades.
The US College Meltdown is here, no matter what higher education professionals may say. While a few variables related to the Meltdown have improved since the economic downturn of 2008-2009, the direction continues downward. That's why I have written more than two dozen articles on corruption, dysfunction, and financial failures in American higher education to document the many facets of the College Meltdown.
When I speak of College Meltdown, I am referring to the slow-moving decline of US colleges and affiliated businesses, which includes the following variables: (1) increased student loan debt, (2) decreased gainful employment of those who matriculate, (3) declines in student returns on investment (NYSE:ROI), (4) increased student loan non-repayments, (5) high student default rates, (6) reduced college enrollment numbers, (7) declines in entrance standards, (8) reductions in college revenues and endowments at less than elite schools, (9) increased use of debt (bonds) to fund colleges, (10) reductions in instructional staff and instructional pay, particularly with the use of adjuncts, (11) increases in class size, (12) college program closing, (13) selling of institutional assets, (14) heightened cash monitoring by the US Department of Education, (15) accreditation downgrades, (16) college consolidations, (17) institutional closings, and (18) reduced values and ratings of student loan asset-backed securities (SLABS) .
Total college revenues and expenses have continued to climb, to $342B and $314B in 2015. But the number of community colleges peaked in 2003-2004. And total enrollment at all postsecondary schools combined peaked in 2010-2011.
These College Meltdown Variables are influenced by a variety of macroeconomic and social variables, including: (1) age demographics, particularly the numbers of college age individuals, (2) family size, (3) family wealth, especially in the two bottom quintiles, (4) state and local allocations to higher education, (5) federal allocations to higher education, (6) employment participation, (7) median and quintile personal income of Millennials, (8) K-12 preparedness for college, and (9) immigration numbers.
Bain Capital ( Denneen & Dretler, 2012) and the New America Fund ( Selingo, et al, 2013) argue that colleges are spending beyond their means, using outmoded teaching methods, becoming less accessible to students and their families, and refusing to be accountable for student graduation and default rates and "gainful employment" numbers.
For me, the question is not whether a meltdown is here, but how quickly it is spreading, which type of schools are most vulnerable and what colleges are in the most immanent danger of failing.
While the vast majority of college closings come from for-profit colleges, many private and public schools are also performing poorly and downsizing.
At first glance, the most vulnerable schools are for-profit colleges, HBCUs, community colleges in cash strapped states, small private liberal arts and Christian colleges, tribal colleges, and public "dropout factories."
Low enrollments and downgrades in accreditation are variables that suggest huge problems. But factors such as negative Return on Investment (ROI) should also elicit alarm bells.
Models of the US College Meltdown will need to be stochastic, nonlinear, dynamic, and simulated.
In developing predictive models, analysts must consider the dynamic, somewhat unpredictable, and seemingly irrational nature of human behavior in relation to college choice. For example, as more working class and middle class people recognize that college is a high risk investment for themselves and their families, a greater number should choose to opt out of school or delay college participation, choose community colleges for the first two years of schooling, or select other majors. But this may not always be the case.
Rational Choice, a common theory in mainstream economics, refers to the idea that individuals make decisions to maximize their benefits and minimize their costs. But it doesn't take deceptive and misleading advertising and coercive enrollment techniques into consideration, nor the corrupt politics that keep subprime schools going despite their dysfunctional nature.
Theories of asymmetrical information, time discounting, and sunken investment, explain that people can make sub-optimal decisions about choices even as they gain consumer knowledge that has been withheld from them in their initial college choices. Many more will be unable to complete college because of poor K-12 educations and poor higher education options.
Myths about college choice may also be hard to change or challenge, especially if the media continue to sell this message. On the other hand, if enough middle-class people are hurt by their college choices, the government may step in to provide oversight and regulation.
However, it's probably safe to assume that there will be firewalls that limit the size and scope of the meltdown if it may hurt the more privileged classes.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.