Is There a Higher Education “Bubble”?

The question comes to my mind - Is There a Higher Education “Bubble”?

At the height of the recent housing bubble experienced in the United States, which helped precipitate the so-called “Great Recession” in that country and possibly elsewhere, there were several signs that have been recognized in hindsight. These signs were behaviors engaged in by buyers and sellers in the market that with perspective are clearly unrealistic. One was overconsumption: The building and purchase of oversize homes far larger than the families in question could realistically use. The other was immense debt loads, often with skyrocketing interest rates that could only be borne if the market continued to expand. The moment the market came tumbling down, the news was filled with stories about adjustable rates and interest-only loans that no one in their right minds would ever have agreed to unless they fully expected to sell the properties at a profit in a short time.

Today, we’re seeing similar behavior, say some experts, and a new bubble is forming that has even greater implications than the housing bubble: A higher education bubble.

Fits the Profile

Consider the indications: Higher Education is more expensive than ever, and the focus for many middle-class families is over-consumption – taking on tuition and related costs far beyond their capabilities, all for the prestige of a degree from certain institutions. Student loan interest rates are rising, are no longer kept low by government subsidy, and are one of the few forms of debt in the USA that cannot be handled via the mechanism of bankruptcy. In other words, many advanced degrees are incredibly expensive and the financing is murderous, yet people work very hard to avoid less-expensive degree programs in favor of a small number of elite programs.

What will really define whether or not this is some sort of “bubble” will be the simple question of whether the educations provided are considered worth the investment.

The Payoff

Even an incredibly expensive education to an Ivy League school is theoretically worth the investment and the years of crushing debt because it will pay off with career and earning options that would otherwise be out of reach – or so the logic goes. Graduating Harvard after four years in tens of thousands of dollars of highly-leveraged debt only makes sense if your degree gets your foot in the door in an industry where you can expect to earn a high salary, and into a network of other professionals or decision-makers who can, in turn, help your career.

If that ever ceases to be the case – if the proverbial “Harvard Law Degree Managing a Starbucks” becomes prevalent – the bubble will burst. If the elite schools no longer guarantee a better life, there will be no reason to attend them for most people.

The fact is, higher education is an investment. People may talk about the social benefits, the personal growth, but in the end what people expect from their degree programs is a better life, in the form of higher salaries, more stable and interesting work, and everything that comes with it. At the moment, most would agree that this is still the case, for the most part: People with Ivy League degrees do have access to resources people with degrees from lesser schools lack, and people with advanced degrees do better than people with just high school diplomas.

But no one is able to measure how much the degree matters versus how much the networking of elite school matters. As tuition continues to rise across the board, people would do well to ask themselves how much their educational investment is getting for them in return.