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Sunday, April 17, 2011

Education Bubble in US

My friend, Sunil Bajpai, shared this interesting article, based on an interview of Peter Thiel, who is claiming that there is an education bubble in US. Some quotes from the article:

    A true bubble is when something is overvalued and intensely believed.

    [It is intensely believed] that you will always make more money if you are college educated.

    It used to be a given that a college education was always worth the investment– even if you had to take out student loans to get one. But over the last year, as unemployment hovers around double digits, the cost of universities soars and kids graduate and move back home with their parents, the once-heretical question of whether education is worth the exorbitant price has started to be re-examined even by the most hard-core members of American intelligensia.

There have been other reports which have questioned whether spending a crore of rupees on a bachelor's degree is a good investment for an american.

I think India must take advantage of this situation. In India, the most expensive (not for the student but the total cost to government/student/others) engineering education is in IITs, where the total cost to government and student combined is about Rs. 5 lakhs per year, including tuition, hostel, mess, and all sundry expenses. The top US schools may be providing a better quality education, but certainly not worth 5 times the cost.

Would it be worthwhile for some foreign universities to setup a campus in India, solely to bring in students from US (and other such countries where the cost of education has reached a stage of bubble), and provide the education experience here, since the cost of faculty, staff, building, and everything else is less here. To attract the best faculty, they could pay a significantly higher salary than IITs. And they could provide them with an even better research environment than IITs. The student services (hostels/food) could be improved too. But with all these additions, the cost to the student would still be a fraction of Rs. 25 lakhs a year that students are spending to study in top US universities.

Of course, since this model does not increase the availability of faculty in India, at least not in the short term anyway, it will lead to poaching of existing faculty in IITs. Not a very comforting feeling, I must say.

Medical tourism is passe. Get ready to welcome education tourists.


Vikram said...

I doubt higher education can be said to be a bubble. Both income and employment are quite correlated in the US,

Average yearly median income:
People without a Bachelor's degree: $ 31,000
People with a Bachelor's degree: $ 52,000
People with an advanced degree (PhD etc) : $ 72,000

So not only is there a substantial reward for getting a bachelor's degree, there is a severe economic and social penalty for not having a bachelor's degree.

Education at large state universities like Texas, California, Arizona is extremely cheap for in-state students, which is where the vast majority of students are.

I think the major concerns here are at private elite universities and for-profit colleges.

L said...

We already have education tourism. African, Nepali, Sri Lankan, Maldivian students as well as students from some other countries already enrol in our colleges in increasing numbers. Five years ago, we never saw foreign students on our campus, now we have close to 150 and it is increasing every year.
This is for our BCom and BSc courses.

Dheeraj Sanghi said...

@Vikram, I am glad you commented. Please look at the Wiki site carefully. The 52,000 is an error. The 31,000 is approx in the middle of 39015 (median income for males) and 24808 (median income for females). If you look at those with Bachelor's degree, it is 50916 as the median income for males, and 31309 as median income for females. So it seems that a bachelor's degree is giving an additional median income of 12K for males and 7K for females. So let us say, around 10K as median extra income due to bachelor's degree.

Now, how much of this is due to degree and how much is due to the fact that most people who did not do bachelor's were not so bright anyway. Reduce that from 10K. If we look at how much of the "education" we really use in the job, I guess it is ok to assume that 50% of this is due to education and 50% of this is due to inherent competence of the person. So the advantage of bachelor's degree is only 5K.

If this is true, does it make sense to invest even 100K extra on education (the cost in the cheapest public university) to get an extra annual income of 5K.

Ajay Bharadwaj said...


Some observations:

1. The value of certain type of education should first be seen as enabling us to do something. Difference in salaries of a Shop Assistant with or without degree won't be much but you won't find a doctor without a degree.
2. Once you decouple education, credentialing/reputation and experience (for example, over 4 years of undergraduate degree), you could better explain the difference. So you pay more to get a better education or better reputed degree or better experience.
3. I think IITs should create un-subsidized categories of student but to be successful they will need to also focus on experience aspect of it. The additional money brought in by the unsubsidized category can be used to attract and retain top faculty.

Ankur Kulkarni said...

Prof Sanghi, thanks for writing about this. When the foreign university buzz was on about a year ago I had written about exactly this.

I think there is huge potential in this idea.

Vijay said...

Where are you getting at? I believe your facts and believe your maths. It may not be worthwhile to go to college in purely dollar terms. But is that all there is to college? I believe one of the more important things a college does is to keep a fellow out of 'productive' economic activity, thereby contributing to a reduced workforce looking for jobs, less demand for goods (since presumably, students do not have enough income to buy lots of things), produce employment opportunities in education sector. In short, it leads to service sector spending NOT leading to increased carbon, waste, etc.

Even if we see it more like spending on travel or entertainment, it is worth it.

More power to 'wasteful' education.

Thinker said...

Thank you for the post. India should aim at becoming the education superpower it once was.

It should invite the best Indian minds in academia worldwide to start Indian Universities (rather than inviting foreign universities setup cheap substandard shops in India).

There is already such an initiative in the area of Information Technology. See this link.

mcenley said...

I would like to share this presentation given my Michael Karnjanprakorn (CEO of Skillshare) on the current college debt crisis in November 2010.

It is very relevant to the topic under discussion.

Ankur Kulkarni said...

Prof Sanghi,

Why exactly are you uncomfortable with faculty poaching? I feel sorry for great institutions that would lose out and the social costs that faculty poaching would bring, but I feel it might give teachers across the country the respect they deserve and increase their earning potential. It would do for faculty what IPL has done for cricketers who couldn't make it to the national team, but were nonetheless very good.

The foreign university bill is again being discussed and there is some suggestion of disallowing faculty poaching by some means or the other. I think any such move would be a step in the wrong direction.

Dheeraj Sanghi said...

@Ankur, IPL caused expansion not disruption (unless you consider T20 as disruption per se). So, if the foreign and private universities take away a few faculty members every year, and keep making life progressively difficult for IITs, that is not a problem. But if suddenly 20 percent of faculty of an IIT leave, it would cause disruption, which I would be unhappy about. (This statement is coming from heart and not from brain. My brain refuses to think about such a possibility, and whether it would be good for society in the long run.)

Ankur Kulkarni said...

I agree with that the sudden departure of faculty may be problem for the system as a whole. What do you think would be the appropriate safeguards against this? A crude totalitarian approach is to disallow local faculty from joining foreign universities or make 75% foreign compulsory. But that is likely to benefit IITs only to the extent of not losing existing faculty. They will still find it hard to hire new faculty.

To me it appears more likely that foreign universities will come with some stars from home campuses who will teach on short term basis and a group of young PhDs from Indian universities to assist the stars. I think this is the model that ISB Hyderabad follows. They may not indulge in much poaching at all.

For sake of comparison, have PSU employees been poached in substantial numbers by MNCs?

Dheeraj Sanghi said...

@Ankur, When MNCs come, they recruit people from existing companies. If there is large enough market, then everyone loses a few and that loss can be handled. If market is small and one company loses many, there will be a problem for that company. And usually what happens is that there are some niches which have more severe shortages than other areas. For example, when private airlines started expanding in India, the problem was primarily of experienced pilots (commanders), and everyone poached Indian Airlines just for commanders.

Similarly, I would think that foreign universities would hire people from IITs only in a few difficult to hire areas like IT. And then we are starting to talk about very small numbers causing problems. If in our department, 5-6 faculty members were to leave within a semester, it would be a serious problem. So we are not talking about 50 people leaving IIT, which is very unlikely, but just 5 people in some niche area.

What can be done, I don't know. Something like what airlines were forced to do - increase the notice period from 3 months to 6 months, and no cash compensation in lieu of notice. Most potential employers and employees consider such a long notice period as too risky, and this would act as a dampener on movement.

Ankur Kulkarni said...

The tricky thing, I think, with specialized man power like faculty, pilots etc is that any dampeners on movement would also create dampeners on entry. More restrictions one puts on faculty movement, more attractive it becomes for younger faculty to join the foreign university instead of an IIT.