Wednesday, May 18, 2011

Bubble in Education? Dr Housing Bubble Thinks So

"The explosive growth of student loan debt is troubling for a variety of obvious and not so obvious reasons. More needed attention is being drawn to higher education and questions are being sharply directed at the way college education is financed. The bubble in higher education has similar parallels to the bubble experienced in housing. Owning a home is a good thing and has been part of our national identity for close to a century. Yet during the mania very few questioned the method of financing this otherwise solid financial investment. It all depends on how you finance the purchase. The same dilemma is occurring with pursuing a college degree. Very few will argue that going to college is a bad idea. Knowledge is power as we all know. Yet is it necessary to go to a school just because they added a $10 million Olympic sized pool? The additional bells and whistles are similar to the peak bubble days in California where sellers tried to convince buyers that the new whirlpool and granite counter tops added tens of thousands of dollars in value. Value by what standard? Most of the mania was fueled by easy access to debt greased by Wall Street and backed by the government. The fact that we are approaching $1 trillion in student loan debt is staggering...."

" 'Every person should have a college degree' which rings eerily similar to 'every person should own a home.' At what cost? The only reason this is happening is because of Wall Street and government backed loans. Thanks to this new model, the for-profits are operating in the new world of subprime colleges. Yet there is no walking away from student loan debt which puts an albatross on an entire generation of college students. Will these people even be able to purchase a home in the future? Will their degree actually increase their earnings potential?"


6 comments:

Neil Wilson said...

Interesting that the UK is just starting down this particular stupid road just as the US is reaching the end of it.

To any right minded rational individual, it is obvious that the state has the lowest cost of capital and therefore if it was the case that students made more money due to a degree it would be worth the state investing in them - since the payback in taxes would clearly be greater.

That the state chooses not to make this investment, on a straight orthodox cost/benefit calculation, should be ringing huge alarm bells somewhere.

Mike Norman said...

Well stated, Neil.

Crake said...
This comment has been removed by the author.
Crake said...

For the for-profit schools, why stop with college age? Wouldn’t kindergarten through high school be an even bigger and more lucrative market? And what if there was a way they did not have to worry about conning perspective students to take out loans? Maybe they could get state and local governments to pay them directly.

Vouchers – cha ching - cha ching.

Tom Hickey said...

@ Crake

Prisons first, schools next. The prisons were practice.

Musgrave said...

One study into whether degrees pay for themselves, done in the UK I think, found that science and vocational degrees pay. That is, increased lifetime earnings cover the cost of the degree. As for arts degrees, these pay for females but not males.

Also beware of studies that do not control for family background. That’s because people from stable or middle class backgrounds tend to go to university, but they tend to earn more even if they don’t go. So what causes the increased earnings: family background or degree?

There is one voluminous study out there done by Eurocrats which fails to control for background. So it’s a waste of ink, paper and Euros, like many things produced by Eurocrats.