Policy Documents

Research & Commentary: The College Bubble

January 23, 2012

U.S. student loan debt has increased 500 percent since 1999, and the cost of college has risen 400 percent since the 1980s. Both have far outpaced overall inflation and price increases on such items as homes, new cars, and prescription drugs.

Noting this, as well as the increasing difficulty of getting a job without a four-year degree, has led some commentators to suggest college education is experiencing a price bubble similar to that in the housing market which, when it crashed, contributed to the current national economic malaise.

Few dispute college is becoming too expensive for middle-income families and students without extensive student debt. The dispute is over how to address the problem. President Barack Obama federalized student loans in 2010, and he recently reduced the interest students pay and increased federal forgiveness of student loans. He and other supporters of increasing taxpayer subsidies to colleges and to students say their aim is to make college more affordable.

Reform advocates point out federal subsidies invariably inflate costs by inviting producers to increase prices to capture more subsidy money. Subsidies also reduce the normal competitive pressures on enterprises because those purchasing the product or service do not bear the whole costs of it. Those calling for market reform say the federal government should in fact decrease its subsidies to higher education, which will require colleges and universities to cut bloat and prioritize expenditures to offer students and employers the education they actually need.

The following documents offer additional information on the college bubble.

 

Screw U.: Government Inflated the College Loan Bubble, but Obama Isn’t Fixing It
Since 1999, student loan debt has increased fivefold, largely inflated by government subsidy, writes law professor Glenn Harlan Reynolds in the New York Post. When government subsidizes something, he explains, its price increases so those producing it can capture the extra available money. Reynolds suggests allowing students to discharge loans in bankruptcy five or more years after graduating and making colleges responsible for guaranteeing a portion of the loan money they receive.

Why Does College Cost So Much?
College costs too much both for students and society as a whole, write Richard Vedder and Matthew Denhart for CNN Opinion, and the underlying structure of American higher education needs dramatic reform before relief can happen. The authors briefly outline why this sector needs more information, stronger incentives, and more innovation.

The Coming Higher-Ed Revolution
Most Americans now realize a college degree makes for easier upward economic mobility, but for many young people it remains out of reach, notes Stuart Butler in National Affairs. This situation—intense demand combined with a shortage of affordable supply—cannot last, he says. Sweeping changes in digital learning and technology are about to transform the business model of American higher education, most likely first hitting public universities, to reduce costs and offer students leaner, more teaching-focused education.

The Value of a Degree
A bachelor’s degree is still a good option for many students, writes Jenna Ashley Robinson for the Pope Center for Higher Education Policy. However, as prices continue to rise and gains in academic achievement and lifetime earnings stagnate, the college bubble—the discrepancy between cost and value—will inflate further, she writes, outlining with data the reasons why. 

How Much Is that Bachelor’s Degree Really Worth?
Although most advocates of college education for all cite a $1 million average of higher lifetime earnings for college graduates, this neglects the significant individual variation among college degree values, writes Mark Schneider in a data analysis for the American Enterprise Institute. The lifetime return on college for most graduates is actually $100,000 to $500,000. To measure these returns and help students and their families judge different programs, he says, the nation needs student record systems that link student higher education records to earnings after college.

Crossing to the Dark Side? An Interview-Based Comparison of Traditional and For-Profit Higher Education
Largely missing from the debate over higher education has been a sufficiently detailed look at how traditional and for-profit institutions differ in important areas such as administration, instructor experience, mission and governance, data collection and use, and student recruitment and retention, writes Ben Wildavsky of the Kauffman Foundation. Wildavsky interviews employees at for-profit providers, many of whom previously worked in traditional higher education, to mine their perspective about how for-profits are inexpensively serving a previously ignored set of students.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the School Reform News Web site at http://news.heartland.org/education, The Heartland Institute’s Web site at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland education policy research fellow Joy Pullmann, at 312/377-4000 or jpullmann@heartland.org.