Education Bubble?

In a nutshell, blue collar workers are subsidizing the college education of future higher income workers.
. . .
It has been found at many institutions all across the country that colleges have used government dollars not to increase options and improve facilities, but to increase headcount among staff. All of this extra overhead adds to the fixed cost of college. The cost is not just in salary, but guaranteed pension benefits that accrue to the staff members no matter what.
. . .
There are two ways out of the problem, and we ought to do both.

First, build more colleges. This increases the supply and tempers demand, dropping prices. At the same time, remove the stigma of going to a community college. Going to a two year school will also relieve demand pressure on four year colleges, allowing prices to stagnate.

The second solution sounds cold hearted. But in order to make college more affordable for everyone, government ought to get out of the higher education subsidy business altogether. Blue collar workers will thank them for removing this hidden tax burden. Colleges will run leaner, and the federal budget deficit will drop.

Is There An Education Bubble?” by Jeff Carter, Points and Figures, January 15, 2011

HT, Instapundit

New Business School
Creative Commons License photo credit: yosoynuts

We find that there is indeed a building bubble in US higher education, which we see is clearly represented by three separate periods in which the growth of tuition decoupled from the growth of US median income.

These periods of tuition inflation largely coincide with periods of recession or slow job growth in the United States, from 1990 to 1993, 2000 to 2004 and from 2007 to the present. That these distinct phases of tuition inflation have occurred during recessionary periods, while tuition costs have steadily paced household income in healthier economic conditions, suggests that US higher learning institutions have been the beneficiaries of a remarkable amount of insulation from economic circumstances during these periods.

Visualizing the U.S. Higher Education Bubble,” by Ironman, Seeking Alpha, September 8, 2010

Regardless of the root cause, the cost increases are not sustainable. Students and parents can make other choices, such as attending a two-year college, attending a trade school, purchasing a business franchise, investing in a new business, or (in my opinion the worst option) not going to college at all. As many recent graduates have found out, a college education does not guarantee a job.

The College Education Bubble,” by Investor Junkie, March 30, 2010

Random but important points: 1. Getting a college edjumication does not (NOT) raise your lifetime earnings by $1 million. When you control for inflation, opportunity costs of going to school, advanced degrees, and the kitchen sink, you’re looking at about $280,000 more over a lifetime. 2. Where you go to college is far less important to future earnings than that you go to college. According to Princeton economist Alan Krueger, the returns to attending an elite university (defined as one that will put you in the poor house) are far from clear. In fact, where you apply to college is a better indicator of future earnings than where you actually go….

Is The Education Bubble About to Burst?” by Nick Gillespie, Hit and Run, June 8, 2010






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Posted in: Caught Our Eye

1 Comment on "Education Bubble?"

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  1. Kim Atwell says:

    The education bubble about to burst? ARE YOU KIDDING? It burst in 2001 at the very least. The public has been buying propaganda. Jobs have been leaving the US since 1995 with Free Trade Agreements. There are very few instances where the absorbant costs for a college degree will
    turn a large salary profit to off set today’s tutition. This is the new millenium. Careers last only 5-10 years. Workers are cast aside like used parts at the age of 40. Staffing agencies rule,
    on call without pay. A company will hold on to a work for 5 years on an average. Many college trained professionals will be subcontracts for sometime(government list these as self-employed)then leave their profession due to the economics.