A lot of the bloggers that I read are preparing to dance on the empty grave that they have dug for the higher education system in the US. I think they may be waiting a long time for the music to start. (I apologize for the extended metaphors)
In truth, I’m not sure whether there is a bubble or not. What I am sure of is that most of the analysis of "the bubble" that I have seen seems to be based more on wishful thinking than on hard analysis. I too would like to see the higher education system in the US replaced, but I suspect that it is not going anywhere.
For example, the graph in this article made the rounds last week. However, the difference between the price of houses and the price of college education is that everyone that buys a house actually pays the price of the house (even if through a loan). Many many people that go to colleges that cost "$40,000" per year actually pay much less. I think it was Greg Mankiw that said Harvard’s ideal tuition would be $1 billion/year and only Bill Gates’ kid would pay full tuition.
My experience with graduates from the top colleges is that the vast majority of them manage to pay back their loans without much difficulty. Many of them rely on help from their wealthy families. However, this seems unlikely to change and likely, perhaps, to increase as income disparities continue to widen.
If there is a bubble then, it will pop at lower-tier universities. Such a scenario, far from changing the higher education system across the board, could further entrench the position of the top universities.
Like it or not – and I don’t like it – the status quo at the top universities isn’t about to change.