The Higher Education Bubble

Forbes.com ^ | April 5th, 2011 | Richard Vedder

[Black_Shark]

Higher education is in a bubble situation—its price has risen sharply, fueled by cheap federal loan and grant money (sound familiar?) while the return on the investment has fallen. More and more college students are either not graduating or are taking jobs that do not require college-level skills and often pay mediocre amounts. In investor parlance, the price-earnings ratio on investing in higher education seems to be rising sharply. Where markets operate without external interference, there would be a correction. Sensing lower returns on their investment, the demand for higher education would fall and, with that, enrollments. Declining demand would lead to falling tuition fees, etc. Colleges would layoff lots of workers.

Yet market forces in this sector are grossly distorted by governmental and, to a much smaller extent, private philanthropic payments. Subsidies are propping up a situation that is unsustainable in the long run, but can be maintained at least temporarily without critically altering enrollment and pricing situations. Thus the way and timing of the bursting of the bubble is different than say, the housing or equity markets, but the bursting will occur nonetheless.

[jnsun]

Mr. Vedder,

A college degree in the US is almost as phony a credential for productive contribution to society as Barack Obama offers for Presidency:

1)Although it is nice to acquire a liberal education background the technical competence which makes an individual a worthy contributor to our national prosperity is acquired through practice, hard work, and experience in an appropriate sector, electrician, construction, manufacturing, agriculture, programming, software design, automotive mechanics, etc. etc. Indeed the contemporary computer world, where the successful have little to do with college education, illustrates this graphically.

2)Twelve years of school, through high school, is more than adequate (given of course those twelve years are valid) to provide a mature honest individual the necessary foundations in reading, writing, math, to go on to develop a productive avocation.

3)Acquiring competence and skills through work and self study is infinitely more effective than attending a venue of overpaid professors and football parties. There are exceptions, but the phony significance given to college degrees is far far far beyond national and personal long term economic reason.

4)This will be increasingly realized in coming years so that skilled technical positions, unrelated to college degrees, will inflate costs across the national economy and understandably so. Given this it is a grave personal mistake for one to avoid becoming technically competent in a needed field in deference to some "business" or "liberal" credential.

5)The only reason, that is, the only reason, that college education is so demanded these days is that the public school systems are so abysmally ineffective that the appeal for another four years, namely "college," is inevitable.

Johnny Suntrade, the Suntrade Institute