Goldman Sachs: Higher Ed Ripe for Disruption

A Goldman Sachs investment research report issued last month paints a very grim picture of the state of American higher education (h/t Bryan Alexander). The bottom line: “returns on a college education are falling,” and quickly.
According to a striking graph included in the report, the average “wage premium” from going to a four-year college (that is, the difference in incomes between college graduates and high school graduates) and college tuition (including room and board) rose in tandem throughout the 1990s. Then, starting in about 2002, something changed—the wage premium growth started growing more slowly, even as tuition kept rising as fast as ever.This disconnect, Goldman notes, is not a problem for all classes of colleges. It appears that the top institutions (as ranked by SAT scores) are still delivering good returns, while the returns for schools in the bottom half, and especially the bottom quarter, are falling off steeply. This can’t go on forever. If costs continue to exceed returns, the bubble will burst eventually—even if Washington keeps subsidizing it.Finally, Goldman summarizes possible avenues for a shakeup of the higher education system:

Two things in particular stand out as potentially disruptive to universities. First if employers changed their attitude toward nontraditional sources of degree awards. Massive open online courses (MOOCs) are the most obvious threat (30% of undergraduates already take some classes on line), but it could also be companies creating their own de facto degrees. Udacity for example offers nanodegree programs where curricula are designed in partnership with companies like Google, AT&T, Facebook, Salesforce and Cloudera. Second, for a broader new system of signaling and talent identification, look again to the tech sector; an increasing numbers of companies are using GitHub (a software development tool used for writing, storing and collaborating on code) to view coders’ portfolios of work as a better talent indicator than their academic resume. Consulting firms EY and PWC have both said they will use their own testing systems for recruitment rather than relying on academic grades.

Both of these avenues should be pursued aggressively. We’ve written before that despite the protestations of academic insiders, MOOCs have real promise—not just as supplements to brick-and-mortar degree programs, but as viable alternatives for large numbers of students. And a “new system of signaling and talent identification” is sorely needed. A national exam system, in particular, would help level the playing field for students who didn’t want to attend an elite college, or couldn’t afford to.
The current American higher education regime is not working for a huge number of students, and, as this report suggests, those who continue to cling to the status quo are in denial. The system has to change, and it will.