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Monday, June 1, 2009

Will Higher Education Be the Next Bubble to Burst?

This article does a good job of articulating the feeling that I've had for the last few years. I've been thinking that education is a service with a price tag way above the value it delivers to its clients. The only thing that keeps the education industry afloat is the fact that the need of education is engraved within the minds of the public. The decision to "go to school" is often based on no pragmatic economic justification.

Yes, we all have heard the "college graduates make $1 million more over their lifetime than high school graduates". But this statistics has been questioned numerous times. The major argument is that those who go to college are generally more responsible and capable individuals who are likely to succeed without a degree as well. In other words, this justification may be similar to "successful people wear Rolexes". Having been exposed to all facets of higher education, I cannot help but think that education is not completely useless yet the value it delivers to students is vastly overrated. Higher education will have to initiate "perestroika" or it will collapse just like the Soviet Union.

Will Higher Education Be the Next Bubble to Burst?

The public has become all too aware of the term "bubble" to describe an asset that is irrationally and artificially overvalued and cannot be sustained. The dot-com bubble burst by 2000. More recently the overextended housing market collapsed, helping to trigger a credit meltdown. The stock market has declined more than 30 percent in the past year, as companies once considered flagship investments have withered in value.

Is it possible that higher education might be the next bubble to burst? Some early warnings suggest that it could be.

With tuitions, fees, and room and board at dozens of colleges now reaching $50,000 a year, the ability to sustain private higher education for all but the very well-heeled is questionable. According to the National Center for Public Policy and Higher Education, over the past 25 years, average college tuition and fees have risen by 440 percent — more than four times the rate of inflation and almost twice the rate of medical care. Patrick M. Callan, the center's president, has warned that low-income students will find college unaffordable.

Meanwhile, the middle class, which has paid for higher education in the past mainly by taking out loans, may now be precluded from doing so as the private student-loan market has all but dried up. In addition, endowment cushions that allowed colleges to engage in steep tuition discounting are gone. Declines in housing valuations are making it difficult for families to rely on home-equity loans for college financing. Even when the equity is there, parents are reluctant to further leverage themselves into a future where job security is uncertain.

Consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college. There is a growing sense among the public that higher education might be overpriced and under-delivering.


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