Are Universities the New Automakers?

TheStreet.com

EXCLUSIVE OFFER: See inside Jim Cramer’s multi-million dollar charitable trust portfolio to see the stocks he thinks could be potentially HUGE winners. Click here to see his holdings for FREE.

NEW YORK (MainStreet)—The American automobile industry was once the envy of the world. But the automobile companies and their workers gradually slipped into complacency. Eventually, the industry was characterized by increasing costs and decreasing quality. The workers and executives earned more, but produced less.

Soon their product was inferior to that of Germany and Japan. Eventually, companies became bankrupt and - were it not for the American taxpayer – would have been dispatched to the ash heap of history.

It seems that the American education system, while currently still the envy of the world, is following that same trajectory. The quality of education produced by America's institutions of higher education is inversely proportionate to its cost. Moreover, questionable business practices tarnished the reputation of some universities.

In fact, according to a 2007 report by the Commision on the Future of Higher Education, the greatest increase – i.e. the greatest impact of tuition increases-- is for those in the lowest income quartile.

But just as significant as the increase in costs and debt burden, the report notes that the quality of the product of colleges – like public schools – is inferior. It states, "Over the past decade, literacy among college graduates has actually declined. Unacceptable numbers of college graduates enter the workforce without the skills employers say they need..."

It continues by saying that this decline in the quality of education is felt most by those "from low-income families and for racial and ethnic minorities." These are the very same people who are paying the highest percentage of their income.

The American people are noticing too. While "nonprofit" colleges and universities make considerable revenue from tuition and fees, the product they are turning out, i.e. the young men and women who are supposed to be educated, is inferior to past generations.

A recent book, Academically Adrift (University of Chicago Press, 2010), by sociologists Richard Arum of New York University and Josipa Roksa of the University of Virginia, both of whom do research about education, concludes that despite increasing tuition costs and that a bachelor's degree is now required for entry level jobs, the fact is a large number of students are not really learning anything in college.

According to their analysis of more than 2,300 undergraduates at twenty-four institutions, 45% of these students demonstrate no significant improvement in a range of skills - including critical thinking, complex reasoning, and writing - during their first two years of college.

Also in 2007, about the same time the Spellings Commission was highlighting the flawed merchandise produced by academia, New York State Attorney General Andrew Cuomo learned that universities were engaging in questionable business practices. Some financial aid officers were entering into "revenue sharing" arrangements with student loan companies.

Cuomo began an investigation in 2007 into this practice. As an article in the March 23, 2007 edition of Inside Higher Education revealed, Cuomo named some colleges that allegedly received kickbacks from student loan companies. The list included some of America's most prestigious universities.

Although the colleges and universities issued denials of wrongdoing, many colleges settled with the New York Attorney General's office instead of going to court as Cuomo indicated he would do. Cuomo's campaign eventually obtained the support of the National Association of Student Financial Aid Administrators.

A December 2007 communiqué from Cuomo's office stated that the University of Pennsylvania, New York University, Syracuse University, Texas Christian University, among others, "agreed to reimburse students a total of $3,368,443."

The combination of corrupt practices and unlettered graduates has made many Americans think twice about a college education. It has definitely caused them to question the system of higher education.

George Leef, director of research at a think tank called the John W. Pope Center for Higher Education Policy, thinks that big government is part of the problem although business is also a culprit.

"The corruption stems from government involvement," observed Leef. "When you have a lot of money available from government, you are going to find people scamming to obtain that money. Universities were all too happy to get in bed with financial aid companies. The colleges want to keep them enrolled even though many learn little or nothing of lasting value."

Leef believes that society has oversold the benefits of a higher education. It has been hyped by politicians. They use it as a means to dispense tax money to certain taxpayers in the form of tuition subsidies, which increases their political power.

"Everybody from Obama to Congress says we need more college graduates," Leef emphasized. "We insist that people go to college even though they have little ability and little interest. That has led to the erosion of academic standards and rampant grade inflation. College graduates without marketable skills are now flooding the labor market."

According to Leef this will continue until major employers emphasize skills in lieu of credentials. That has led to the erosion of academic standards and rampant grade inflation. College graduates without marketable skills are now flooding the labor market. This is starting to occur now.

"It is become evident that merely going through college does not tell you much about the person's abilities," Leef said. "Grades are so inflated and the curriculum is so watered down that businesses are realizing a college education does not mean much."

--Written by Michael P. Tremoglie for MainStreet

Rates

View Comments (9)