How Big are the US Excess Supply of Education Services?

After posting the first article, the Association continues to share its research finding to the American public on the related topic.  Using the last ten-year data (2000-2010) AAEA has calculated the number of new higher institutions who have entered the industry.  Please note that not all new institutions were captured in the analyses, especially programs that were offered on-line and after 2010 academic year.  Therefore, one needs to be aware that the actual number of supply increase might have been significantly higher than what the Association may have used in the analyses.  On average, there is evidence of positive supply growth.  If this growth is higher than the demand, then one might expect it will affect both the intensity of the competition and the price of higher education services.  According to the law of demand and supply, the price should be affected in a negative way.  However, in reality that never happened.  Instead, it moves toward the other direction.  The regulator’s policy on student loans during the period of analyses may have played important role to avert the law of the market to function effectively.

When thing works against the logic, it is just a matter of time until the law of the nature makes important adjustments.  Market corrections are happening right now.  Some current examples are:

  1. The closures of Corinthian and Anthem’s Colleges.
  2. Financial troubles of the Art Institute.
  3. CFPB’s financial investigation on ITT for Predatory Lending.
  4. Declining student enrollments.

The US regulator has finally realized the unintended negative effects of current student loans policy and is trying to amend them through the CAR.

While only the DOE knows how big the excess supply is, outside observers can only see the symptoms of saturated industry. From other studies, we noticed that the so-called private colleges either profit or not-for profit may experience the hardest hit on their future financial survival.  Naturally, if the source of funding does not come from the tax payer’s, then the risk of going under are much higher compared to those institutions which are backed by the state revenues.

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