Thread: The Higher Education Bubble

Fascinating information. Looks like we are heading into an artificial "education bubble" with student debt skyrocketing and ROI diminishing. The infographic showing the rise in tuition vs the rise in home prices during the housing bubble is stunning and horrifying.

The Higher Education Bubble

My wife made a great point. Students living on their student loans are not reflected in the unemployment rolls. Youth unemployment may be even higher than it already is.

I'm so glad we have a creative group of people here that have found a way to educate ourselves and lessen the undergrad financial burden, but the article is worrisome.

In my MBA, we're studying emerging markets and one thing that can really make a country grow is an increase in education. Just look at South Korea... they barely qualify as a developing nation anymore. Why? Because of the large percentage of college grads. Overall, the general population has a lower level of education than the US, but in the under 35 age range, they're higher than most mature markets.

If we're really serious about seeing the US compete in an increasingly educated global marketplace, these numbers have got to change...


Source: OECD. I have had to use OECD data a lot in my MBA research. If you have time and want to see some interesting education indicators check out the following: http://www.oecd.org/dataoecd/61/2/48631582.pdf (page 32 is what I was referring to in my above comment about Korea)

Egyptians are highly educated due to heavy government sponsorship, however they have no jobs and so they revolt and carry guns around shooting into the air.
The Education Bubble Is Fuel for Revolt - Joshua Fulton - Mises Daily

From the article..

Like Tunisia, Egypt also has a massive youth-unemployment problem. Unsurprisingly, it also has a system of "free" college education.

In Egypt, enrollment in tertiary education increased from 14 percent in 1990 to approximately 35 percent in 2005. Yet this has not helped the unemployment rate among recent grads. The national Egyptian unemployment rate is 9.4 percent, comparable to the United States, but the unemployment rate for people between the ages of 15 and 29 is 87.2 percent. College graduates, largely because of their age, have a ten times higher unemployment rate than for those who did not attend college.


The Egyptian government also rigidly controls the educational system, just like in Tunisia. A centralized government committee controls decisions regarding curriculum, program development, and deployment of faculty and staff for institutions of higher learning across the entire country. Private universities were only legalized in 1992, and enrollment is very small.

I love this one...


Accreditation institutions can also force institutions of higher education to make changes that increase costs. For instance, the American Bar Association forced the University of Colorado Law School to increase the number of electrical outlets in the library and to construct an instructional court room, which the university claimed caused them to increase tuition.

At this rate, there will be an educational bubble that will burst. The cost of higher education is outgrowing our increased cost of living and thus making it unable to pay for college. For most working professionals, they receive wage increases of about 3% per year based on inflation. Unfortunately, tuition is increasing double or even triple that. Especially now, those who have been saving for years and years haven't prepared for such a large increase. They cannot afford to pay for their kids' education. At this rate, higher education will go back to being a very elite institution only for the rich. We cannot let this happen and need the government to intervene.

The government intervening and guaranteeing loans is exactly what is causing the problem. There is no market reason for the costs to grow this way. The schools are chasing the subsidies, and since the supply of money is guaranteed there is little incentive to keep costs down and a large incentive to drive costs up.

This is the result:



Alabama just went through a major crisis with its Prepaid Affordable College Tuition (PACT) program. Parents signed a contract with the state nearly 20 years ago guaranteeing full scholarships for their kids in exchange for regular fixed monthly payments over the years. When the time came to pay the bill the state was stuck because costs had risen far higher than they expected. Parents were on the verge of marching with pitchforks.

Here's a 2010 article outlining the problem. The shortfall now is near $1 billion.

DoD guarantees tuition but caps it at $250/credit. Guess what? Schools magically are able to operate on $250/credit and they beat down our doors competing for the money. They set up whole departments specifically to cater to us and help us get through the college process, all because of the TA subsidy.

Hey guys we can do our part. For one, don't vote these clowns into office. You know the ones. The ones who think the solution to every problem is additional federal dollars being given to students, schools, and states. The problem is that these subsidies, like dcan said, raise the cost of the goods being subsidized. Its basic economics. Most of us have taken CLEP macro and micro and we had to learn that there is a consumer surplus when the government subsidizes something. This increasing surplus allows the seller to raise his price, thus sharing in the surplus. The taxpayer is funding this surplus of course on borrowed dollars.

The next thing you can do is to educate others on the CLEP/DSST process. I almost force people to listen to my information on this topic. I realize that I lose their attention after a minute or two but I implore them to listen so that they can spread the knowledge. Its almost like evangelism. I truly believe that what we know is going to help turn things around. If students take fewer courses by CLEPPing out, it will reduce price pressure on tuition. "Too many dollars chasing too few goods" is the problem. That coupled with government incentives and subsidies creates a perfect storm capable of producing a big bubble.

I may have posted these in another thread, but if not they show how "alternative" education is preparing to face off against "traditional" outlets.

1. Straighterline to offer critical-thinking tests.

The company, StraighterLine, announced on Thursday that beginning this fall it will offer students access to three leading critical-thinking tests, allowing them to take their results to employers or colleges to demonstrate their proficiency in certain academic areas.

Why is this an important example of the new face of education?

2. Beware: Alternative Certification Is Coming

As college costs rise, however, people are asking: Aren’t there cheaper ways of certifying competence and skills to employers? Employers like the current system, because the huge (often over $100,000) cost of demonstrating competency is borne by the student, not by them. Employers seemingly have little incentive to look for alternative certification. That is why reformers like me cannot get employer organizations like the U.S. Chamber of Commerce to take alternative certification seriously. But if companies can find good employees with high-school diplomas who have demonstrated necessary skills and competency via some cheaper (to society) means, they might be able to hire workers more cheaply than before–paying wages that are high by high-school-graduate standards, but low relative to college-graduate norms. Employers can capture the huge savings of reduced certification costs. And students avoid huge debt, get four years more time in the labor force, and do not face the risks of not getting through college. Since millions of college grads have jobs which really do not use skills developed in college anyhow, alternative certification is more attractive than ever.

Back to StraighterLine, a company that has brought relatively high-quality college-level courses to undergraduates online at very modest costs. Through StraighterLine, a student spending a thousand bucks or so a year could get a large hunk, if not all, of a year of college-level learning if he or she applied herself. The biggest problem, as Burck told me, is that accreditation agencies refuse to accredit courses (they only accredit degrees), even though, arguably, a degree is simply a collection of courses. But the college-dominated accrediting agencies, seem to not want new forms of competition for existing schools.

Enter ETS and CAE. ETS has operated the famed SAT test for the College Board and owns and operates many other iconic tests, such as the TOEFL, GRE, and Praxis. Through affiliated organizations, it is big into employee testing. Via StraighterLine, students, for a modest fee, will be able to take the iSkills test that “measures the ability of a student to navigate and critically evaluate information from digital technology.” CAE is a powerhouse organization, with a board laden with leaders from the college world (e.g, Benno Schmidt, former Yale president; Charlie Reed, chancellor of the Cal State University System; Michael Crow, president of Arizona State; Sara Martinez Tucker, former Under Secretary of Education). The CLA assesses critical learning and writing skills through use of cognitively challenging problems. It is the test used by Richard Arum and Josipa Roksa to support the research in Academically Adrift, my favorite recent higher-education book. Hundreds of universities use the test.

Students can tell employers, “I did very well on the CLA and iSkills test, strong predictors of future positive work performance,” and, implicitly “you can hire me for less than you pay college graduates who score less well on these tests.”

The article also mentions Saylor, Khan, and others.

(Double post for some reason...)

This sounds like my path. I left my B&M school to pursue my interests in programming and computer technology while employed full time as a computer tech. I worked 6 days per week and supplemented my income with on site service jobs that paid cash. I spent my free time writing computer games and learning how to program more effectively. I then earned my MCSE certification and was ultimately hired full time as a Java programmer. Then I picked up a Java certification and an MCSD certification within one year of full time employment. From that point on, I was fully entrenched in my career and forgot about college for a long time.

If only large universities like Duke or Harvard or MIT allowed students to test out of degrees.