The Higher Ed Bubble

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Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation. To put that number in perspective, housing prices, the bubble that nearly burst the US economy,  then the global one, increased only fifty points above the Consumer Price Index during those years. But while college applicants’ faith in the value of higher education has only increased, employers’ has declined. According to Richard Rothstein at The Economic Policy Institute, wages for college-educated workers outside of the inflated finance industry have stagnated or diminished. Unemployment has hit recent graduates especially hard, nearly doubling in the post-2007 recession. The result is that the most indebted generation in history is without the dependable jobs it needs to escape debt.

What kind of incentives motivate lenders to continue awarding six-figure sums to teenagers facing both the worst youth unemployment rate in decades and an increasingly competitive global workforce?

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5 thoughts on “The Higher Ed Bubble

  1. It’s not true to say that the money spent on student services has fallen: if you have visited colleges recently, as I have, you would be amazed at the dorms (many with air conditioning!), the gyms, the food courts, the overseas travel opportunities, etc. Plus the fancy arenas and stadiums count as student services of a sort, since the students get to attend high-level athletic contests at modest prices.

  2. “They say low wages are a reality
    If we want to compete abroad”
    Workingman’s Blues #2
    See also this analysis.
    His solution is unfortunately exactly wrong,
    “The biggest need is more competition. The free market would work and work well if there was not a monopoly on accreditation.”
    since of course education is nothing at all like a free market (perfect competition ? complete information ? it would make a catblogger laugh); but the analysis is largely accurate I think.
    Both of these analyses blame greedy administrators, etc for higher college costs: certainly the corporatization of higher ed is a factor. However another significant contributor to tuition increases has been the cuts in public subsidies for higher education. The actual solution, as for healthcare, is a not-for-profit government run public option, as we used to have in the state universities. Again as for healthcare, that appears to be politically impossible. Pity.
    “the market will — as it does — ruthlessly redress any inefficiencies that exist, pricing tuition upward and upward until higher ed ceases to exist (to the extent that it still does) as a meritocratic alternative to inherited privilege.”

  3. I think it’s time to unbundle higher education and offer the choice of going a la carte. Not everybody needs or wants a fancy gym, amazing dining, a dozen a capella groups, a new stadium, or professors who teach two courses a term.

  4. I don’t know how to make higher education cheaper, but I’m guessing the real problem is going to be the debt. Somebody with $200K in debt and little hope of earning more than $40K a year isn’t going to be able to contribute much to taxes and has a great incentive to take big risks. They don’t have much hope of getting any disposable income without a drastic change.

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