There is no higher education bubble

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.

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3 Responses to There is no higher education bubble

  1. joe says:

    It is not about the money it’s about the time sink. Why waste 4 years getting a diploma when you don’t have to? This is esp. true for wealthy folk who already have the fam/fri connections.

    • Foseti says:

      Fair point – I didn’t address that issue. However, I wouldn’t change my argument. People that went to the top schools control most of the positions of power in the US. It will continue to be worth getting a degree from those schools as long as those in power continue to hire graduates from those schools.

  2. Red says:

    I’m not sure if it’s a bubble or our economy has been shrinking for the last 40 years and thus education is a higher % of the pie.

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