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Mark Cuban and College Meltdowns

Bob Brock

Mark Cuban’s provocative blog “The Coming Meltdown in College Education & Why the Economy Won’t Get Better Any Time Soon” got plenty of well-deserved attention recently. If you haven’t already, read it.

Cuban is the 54-year-old self-made billionaire owner of the NBA Dallas Mavericks, Landmark Theatres, and Magnolia Pictures.  He’s chairman of the HDNet cable network, a “shark” on ABC’s Shark Tank series, and author of 2011’s, How to Win at the Sport of Business.

Busy guy, smart guy. Plenty enough reason to pay attention to Cuban’s basic premise:

“We freak out about the Trillions of dollars in debt our country faces. What about the TRILLION DOLLARs plus in debt college kids are facing?

The point of the numbers is that getting a student loan is easy. Too easy.

You know who knows that the money is easy better than anyone? The schools that are taking that student loan money in tuition. Which is exactly why they have no problems raising costs for tuition each and every year.

Why wouldn’t they act in the same manner as real estate agents acted during the housing bubble? Raise prices and easy money will be there to pay your price. Good business, right ?  Until it’s not.

It’s just a matter of time until we see the same meltdown in traditional college education. Like the real estate industry, prices will rise until the market revolts. Then it will be too late. Students will stop taking out the loans traditional universities expect them to. And when they do tuition will come down. And when prices come down universities will have to cut costs beyond what they are able to. They will have so many legacy costs, from tenured professors to construction projects to research they will be saddled with legacy costs and debt in much the same way the newspaper industry was. Which will all lead to a de-levering and a de-stabilization of the university system as we know it.

And it can’t happen fast enough.” 

I’ll add a couple of logs to Cuban’s fire:

  1. Colleges typically operate on a “required growth” business model that necessitates continuous enrollment growth to finance escalating expenses, infrastructure improvements, and increasing legacy costs. Colleges don’t downsize often or willingly (ever?) in response to marketplace fluctuations, so they need a pattern of sustained growth to simulate financial stability. This need, in turn, feeds the craving for easy student loans and government subsidies.
  2. Our society’s desire to view a college education as an inherent “right” for every citizen – with big government deficit spending making it possible, of course – has been decades in the making, and falls under the law of unintended consequences.  In 2011, 39.9% of the U.S. 25+ population had an Associate’s or higher degree; 30.4% had a Bachelor’s or higher. That’s an increase of more than 5% in 10 years, a three-fold increase since 1970.  Stunning numbers that are widely applauded. But a number of indicators suggest we are approaching a level of educational attainment that the marketplace cannot support. Only so many jobs are available for college-educated individuals, and we’re hearing of increasing numbers of waiters and drivers and clerks with a college degree. Meanwhile, someone has to do the actual work and it is harder and harder for employers to fill journeyman and service jobs. Why are we surprised?  It’s an immutable law of nature that when you increase the availability of something of value, its intrinsic value diminishes commensurately.  Result: A college degree today isn’t worth what it used to be. When does the cost of a college education exceed its value?  For many, that has already happened. Perhaps, as Paypal founder Peter Thiel and others suggest, college should not be the automatic next step after high school.

In all honesty, we also should spread the blame for burgeoning student debt. Our culture has for decades been devaluing personal responsibility, and the chickens may be about to roost. When a student accepts guaranteed loan after loan to finance their education, it’s so very easy just to blame big government and universities for making money available.

But for most Americans, a life-changing education is doable without going into serious hock. Thousands upon thousands have done it over the years, and thousands still are. We all know how it’s done: combining work with classes, living at home, stopping out to gather a grubstake, subbing community college credits, choosing a school you can afford, etc.

It requires giving up something to get something. Sacrifice! Working hard and smart. These are attributes that seem in short supply today. But simply excusing a poor decision because loans are “too easy to get” ignores the reality that individuals need to accept personal responsibility for the personal paths they choose in college and in life.

Neither college students nor lawmakers nor the non-profit higher ed administrators are inclined to change behaviors.  But change is already being forced upon us all.  Smart brand managers will help their institutions prepare by staying abreast of the cost vs. value debate and positioning future-oriented strategies such as:

  • Increasing online degree capacity
  • Advanced technology for operational effectiveness
  • Entrepreneurial approach to growing new revenues streams
  • Supporting outcomes assessments
  • Implementing cost efficiency across the organization
  • Bottom-line assessments of the relevance and performance of each division

These won’t avert a higher ed meltdown, but they will help your institution stay healthy when/if it occurs.

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