Is the higher education bubble about to burst?
This is an outstanding piece by Glenn Reynolds (AKA Instapundit) on the higher education bubble. It is a must read for anyone who is about to send one of their kids off to college.
It’s a story of an industry that may sound familiar.
The buyers think what they’re buying will appreciate in value, making them rich in the future. The product grows more and more elaborate, and more and more expensive, but the expense is offset by cheap credit provided by sellers eager to encourage buyers to buy.
Buyers see that everyone else is taking on mounds of debt, and so are more comfortable when they do so themselves; besides, for a generation, the value of what they’re buying has gone up steadily. What could go wrong? Everything continues smoothly until, at some point, it doesn’t.
Yes, this sounds like the housing bubble, but I’m afraid it’s also sounding a lot like a still-inflating higher education bubble. And despite (or because of) the fact that my day job involves higher education, I think it’s better for us to face up to what’s going on before the bubble bursts messily.
The cost of a college education (especially at an elite university) has gone up exponentially. It is now to the point where only the rich, the very poor, or those with the foresight to start college savings accounts when their kids were still in diapers can afford to pay for the privilege of a college degree. It is not uncommon for someone to graduate with a six figure debt and a useless degree. To make matters worse, college loans, unlike other forms of debt like mortgages and credit cards, are impervious to bankruptcy. You’re on the hook whether you can afford to pay or not.
But bubbles burst when people catch on, and there’s some evidence that people are beginning to catch on. Student loan demand, according to a recent report in the Washington Post, is going soft, and students are expressing a willingness to go to a cheaper school rather than run up debt. Things haven’t collapsed yet, but they’re looking shakier — kind of like the housing market looked in 2007.
So what happens if the bubble collapses? Will it be a tragedy, with millions of Americans losing their path to higher-paying jobs?
Reynolds isn’t optimistic that the education industry will adapt to changing demands. He does see an opportunity for new, less expensive institutions through technology.
My question is whether traditional academic institutions will be able to keep up with the times, or whether — as Anya Kamenetz suggests in her new book, “DIY U” — the real pioneering will be in online education and the work of “edupunks” who are more interested in finding new ways of teaching and learning than in protecting existing interests.
I’m betting on the latter. Industries seldom reform themselves, and real competition usually comes from the outside. Keep your eyes open — and, if you’re planning on applying to college, watch out for those student loans.