Graduate School Bubbles Bursting Across all Professions?

Graduate School Bubbles Bursting Across all Professions?

One of my colleagues forwarded this story appearing in The New England Journal of Medicine.  The story provides an answer to the following question: "Are we in a medical education bubble market?"

The authors answer that question in the last paragraph of the story and suggest a difficult future for other professional schools.

Although it seems unlikely that we're in a bubble market for medical education, we may already be in one for veterinary medicine. That bubble will burst when potential students recognize that the costs of training aren't matched by later returns. Then the optometry bubble may burst, followed by the pharmacy and dentistry bubbles. At the extreme, we will march down the debt-to-income-ratio ladder, through psychiatrists to cardiologists to orthopedists . . . until no one is left but the MBAs.

It explains:

In medicine, students buy their education from medical schools and residency programs . . . . This education is transformed into skills and credentials that are then sold to patients in the form of services. So long as it is believed that patients, or whoever purchases health care on their behalf, will keep paying more and more for physicians' services, students and trainees should be willing to pay more and more for the education that enables them to sell those services. 

A simple measure of this market economy is the ratio of the average debt of a graduating

student to the average annual income in the profession on entry into the workforce. There are more precise ways to measure the return on investment in medical education — for example, the net present value of the stream of cash flows out (for education) and in (for services). But that value isn't very intuitive for most prospective students. In contrast, debt-to-income ratios reflect what students must borrow rather than what they must pay and, given whatever other assets they may have, how much in the hole they have to go. Thus, these ratios may better reflect how students actually feel about buying education.

It concludes that graduates can still expect to pass on debt costs to patients, except in two fields of medicine: primary care and psychiatry.  It then suggests:

[A]s high as the debt-to-income ratios may be for primary care and psychiatry, they are even higher for some other fields — notably, veterinary medicine, optometry, pharmacy, and dentistry. [Chart omitted.] For veterinarians, incomes have risen slowly even as student debt has exploded. [Citation omitted.] 

In short, the adjustments law schools are now making to respond to the decreasing volume of law school applicants predict adjustments other professional schools will likely face.

And, this generation of college graduates have no good, affordable, choices, it seems, if they want to obtain professional training that leads to a predictable middle-class lifestyle.

So, where are the stories about why professional school got so expensive across the board?  What role did the U.S. News ranking system play in the run-up in costs?  Did the professional school accreditation process contribute to the escalation of costs?

At the MAPLA conference, Washington University School of Law Dean Kent Syverud noted that legal education "has never been better."  We saw a period of extraordinary demand for a legal education that attracted domestic and foreign students.  The academy offered "terrific" teaching and research.  The best scholars in the world migrated to US law schools from abroad because U.S. law schools offered opportunity and stature.  Very qualified students entered law school with aspirations to change the world.  Law schools built "amazing" buildings with broad professional functionality. Law schools offered "stunning" services to students.

He suggested that dozen of current law schools now offer an education equal to the education offered only by the top 10 schools 25 years ago.  I believe that.

He called it a "Golden Period."  But, schools did not compete on price, but on U.S. News ranking.  (I thought as much.)  It came during an era of abundance with readily available student loan money, low default rates, and plenty of jobs for graduates.  He said (as closely paraphrased as I can get): "That world is gone.  We face dramatic change."    

Nov. 23, 2013 Update:  For more on the dental school analogy, see http://leiterlawschool.typepad.com/leiter/2013/11/the-dental-school-analogy.html.

Nov. 1, 2014 Update:  More on the dental school analogy.