Is U.S. Higher Education A Bubble Economy? (Infographic Video)

Tuition rates and student loans are rising ridiculously fast, with no slowdown in sight. So why aren't we getting smarter about evaluating the economics behind attending college?

Plenty of smart people seem to think there’s a bubble in higher education. And for good reason: The cost of a college education is skyrocketing and student debt is growing out of control, at the very same time that college graduates are struggling to find jobs. When they do, it’s often in positions that hardly require any of the "critical thinking" they were told a college education would teach them.

Critics might count all this as mere alarmism—but the data backing up the trends is so freakin’ crazy. Just watch this video created by Education News.

For embed link, go here.

So what’s going to happen in the face of all this data? Well, that’s where the "bubble" conceit breaks down. The very idea suggests that the value of an asset might suddenly crash, as people come to their senses and reevaluate how much that asset is actually worth. But people can’t buy and sell their college degrees. The "asset" in this case isn’t going anywhere. This isn’t to say that something bad isn’t going on. Rather, what we’re seeing with education is probably worse than a bubble, simply because it’s not clear that there are market forces in place to correct the rise in tuition costs and the increasing debt levels that are funding it.

The "market" for higher education simply isn’t pure enough. For one, students and parents alike tend not to be very rational about whether a college is worth the cost—we simply have a culture which, for good and bad, tells kids that no matter what, more education is an unalloyed good. That wouldn’t necessarily be a problem—after all, even if students do value an education, they should be able to recognize the prices attached to them. The problem is that the debt they take on isn’t the same as other kinds of debt: You can’t declare bankruptcy and escape from it.

Thus, the colleges and lenders pushing student loans upon kids know that they can pile on crazy dollar amounts and never have that debt erased in bankruptcy court. Put another way, those lenders are fine making bad bets on student loans that’ll never be repaid, because that debt will follow the student for their entire life. That is totally unlike the real debt markets, where lenders adjust their behavior based on default rates. If you make a bad bet on a borrower that can’t repay, you should get burned. That’s the only way that the market can regulate unsustainable debt levels. (If this nasty little dynamic sounds familiar, it should: After all, wasn’t it Fanny Mae and Freddie Mac that lent out far more money than they should have, under the assumption that they’d get bailed out even if things went bad? And we all know what happened as a result: Lots and lots of unsustainable bad debt, which ultimately crushed the economy.)

The real danger of this debt is that it’ll simply place an impossible drag on the broader economy as people continue to pay just for getting educated, instead of going out and buying cars and stuff that stimulates the economy. The banks and colleges holding this debt, in the meantime, have every possibility of folding as default rates rise.

But enough economics! What drives me crazy isn’t more of a practical value. We look at a liberal arts education as the summit of higher learning, as if it confers some greater ability to think clearer and be more creative. It doesn’t. Some students at really good schools are able to play a kind of three-card monte game in which they end up selling that philosophy degree as a qualification for a high-paying job. But most will graduate with no skills other than having read some books they didn’t like. We inherited this ridiculous ideal about higher education from Europe, where college used to be a finishing school for the rich. But today, students actually need practical skills that they can take into the real world, such as computer programming.

The point I’m trying to make is simply that there’s a huge opportunity for a different sort of education experience, one based on the real-world rather than the fantasy life of academia. The trick is convincing the best students that this is far more prestigious than reading Homer for four years. (I can’t effing believe I read Homer for four years!) Our education system will only reform itself when our ideal of what education should be changes as well.

[Image: Khomulo Anna/Shutterstock]

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  • Martin

    I agree on the idea that University needs to be more real world oriented, however I think humanities and academia have its merits too. The major point of University is not the knowledge you acquire but the way of thinking about things and actually showing that you have enough discipline and commitment to pull through reading Homer for four years (and maybe your stupid enough to do it) and of course meeting people that will help you get a career and start up companies. Also Humanities is a small percentage of all the other things you can study at Uni such as Medicine, Engineering and Business which will hopefully give you the sh# you need to deal with the evermore so complex world.  

  • Raymond Thimmes

    You absolutely hit the nail on the head. It's the American "ideal" that everyone needs a degree that's damning us. Just as the "ideal" that everyone needed a home brought our economy to it's knees. 

  • Samueladams1775

    As long as the government makes good on student loans and encourages a greater and greater percentage of the population to go to college, you will have increasing willingness to take on debt with the continuing devaluation of the college degree.

    Making it artificially easy for students to get loans isn't doing them any favors.  They are more willing to take on debt that makes no sense.

    This allows colleges to artificially raise prices without real market consequences.

    If the government got out of the student loan business, lenders would have to look at real collateral or the economic likelihood of students paying back their debt, based on their major and previous performance in school.

    If more people were forced to use their own money to pay for school, universities would have a tougher fight over students based on tuition.

    They might be forced to cut bloated administrative staff and eliminate majors which don't offer many career prospects beyond academia. 

    The correction is coming.  Universities can't keep building expensive new facilities financed by new debt taken on by recent grads.  Eventually parents are going to figure out that many schools and majors just aren't a good investment anymore.

  • MichaelADeBose

    Paths to degrees could be much more streamlined than they are currently. Many of the classes that are required have never been needed as some that get degrees around the world spend more time in their degree field and much less in general ed. This makes better specialist but potentially cuts back on what the bank might get in the loan. That trade schools have been greatly cut back on while we have blindly sent everyone to college, in itself says there's a bubble. I've also wondered how all a school's degrees cost roughly the same, sure required courses vary but, in the end there is cost parity even though degrees from a school's various departments are valued very differently in the job market.

    The banks aren't alone because this system also benefits the institutions themselves. UCLA for instance has the notorious walking/bike trail fiasco which was completed for their then newly hired chancellor while they were hiking fees for students. This is every indication of the irresponsibility of the institutions which very much like the country is charging these luxuries against the futures of the students who will bear the debt.

  • BrianStrongSoup

    Higher Education is adapting to the new marketplace, though not fast enough perhaps.  As a grad student at Winona State University, I can say that "authentic learning" has become a mantra.  Learn What Matters!  Relevant, Practical, "Real-World" Information and apply it NOW (not upon graduation).  We emphasize values (like the FastCompany article on UC-Berkeley) and have been preaching better alternatives to "brainstorming" for years.  In this age of transparency bestowed by social media, if classes aren't valuable, students tweet their displeasure during the class.  Only the strong will survive.  No longer can inferior or out of date educational products persist... at least not for long.