The recession and the menacing higher education bubble

Like the housing bubble, the higher education bubble is primed for collapse. Photo: Shahk (Flickr)

CLEMSON, SC, November 30, 2011 — The “higher education bubble” has become unsustainable and unstable. 

The meaning of a college degree has changed.

A college degree has three main values. Its primary value is to make students more productive and valuable in the workforce and the economy. Its secondary role is to provide credentials that employers want. Finally, college provides a social network within which to make contacts and find job opportunities. 

Instead of focusing on giving students valuable skills, universities sell “the college experience.”  Instead of focusing on expanding the intellectual capacity of students to make them valuable in society and the economy, universities have shifted to providing a good experience and a credential for employers.

The value of education is now over-rated.

The average wages of new college graduates are declining. A college degree is no longer a guarantee of steady income growth, and there are actually organizations devoted to stopping the “college mentality.” Paypal’s Peter Thiel feels so strongly about this that he is paying 24 students $100,000 each to not go to college.

Graduates with huge amounts of debt cannot help stimulate the economy because their debt is a serious burden on their lives and their spending habits. There are growing indications that college debt is “toxic,” especially because it is non-bankruptable, and unemployment (as well as under-employment) is at an all time high for young Americans.

Education is becoming too expensive.

Education costs have escalated rapidly, increasing over 439 percent from 1982 to 2007, while median family income has only risen 147 percent.

The cost of higher education for one student is rapidly catching up to the median family income in the United States. The working American family is not gaining assets fast enough to cover education costs, so students are taking on massive amounts of non-bankruptable debt to finance it. 

Growth of college costs relative to the CPI

Growth of college costs relative to the CPI

In fact, student loan debt has surpassed $1 trillion, and exceeds Americans’ total credit card indebtedness.

Nearly two-thirds of the cost increases at universities are due to increased costs of administration, and the number of administrators at four-year colleges has grown dramatically faster than the number of faculty personnel. Thus students and their parents are paying for more and more administration, not for more teachers or classroom attention.

Education prices have been inflated by government intervention.

Bubbles are always backed up by some form of easy credit. In this case, the government is both providing it and assisting the provision of it, through crony capitalism “regulations.”  

It’s well known in economics, notes Glenn Reynolds, that, “When the government subsidizes something, producers respond by raising prices to soak up as much of the subsidy as they can. College is no exception.

Bill Frezza sheds some light on the historical situation:

“To finance this so-called “right” to a college education, a Government Sponsored Entity known as Sallie Mae, originally the Student Loan Marketing Association, was created in 1972 to issue below market rate student loans guaranteed by the federal government. Like its cousin Fannie Mae in the home mortgage business, lending practices were guided by political considerations, not sound economics.

“Just as Fannie Mae fueled an unsustainable housing bubble, Sallie encouraged runaway college tuition increases. And just as the federal government was forced to nationalize Fannie Mae when the bubble bust, Uncle Sam has now nationalized the college loan business with an eye on disguising the coming tsunami of student loan defaults.”

With the Federal government spending almost $78 billion in higher education this year alone, the future isn’t really looking any brighter.

Federal involvement in higher education is harmful to all students collectively as college prices swell. It puts an unfair burden on the economy as well as on taxpayers who pay the $78 billion yearly. 

When will we realize that more government is not the solution? Government is the problem.

 

John Paul Cassil studies Management/Entrepreneurship and Political Science at Clemson University. A former U.S. House of Representatives Page, Cassil has since worked on conservative campaigns and in Congress for Congresswoman Foxx.

Cassil is the Managing Editor of the Tiger Town Observer, Clemson’s Conservative Journal of News and Opinion. He regularly speaks about activism at national conservative conferences.

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John Paul Cassil

John Paul Cassil studied Business Management (Entrepreneurship) and Political Science, recently graduating from Clemson University with the highest GPA of all business majors in his class. Cassil currently performs business analysis for the Secretary's Office of the U.S. Department of State, with an active Top Secret Security Clearance. 

Cassil has extensively traveled throughout Europe, the US, and the Middle East. He's lived across the American South, in Belgium, Kuwait, and Israel. He has interests in politics and foreign policy, having participated in numerous Model United Nations conferences around the world, including Harvard World MUN in Taipei, Taiwan and Princeton's 2008 Youth Initiative for Progress in Iraq Conference, in Amman, Jordan. 

In 2007, Cassil was appointed as a U.S. House of Representatives Republican Cloakroom Page by Speaker of the House John Boehner. Cassil has since worked for Congresswoman Virginia Foxx, as well as South Carolina Attorney General Alan Wilson's successful campaign. 

In College, Cassil served as the Managing Editor and Media Director of Clemson's Tiger Town Observer, as well as the Founder and Chairman of Clemson's Young Americans for Freedom. He has spoken about his collegiate activism at national conferences of organizations such as the Young America's Foundation and Eagle Forum. He has written articles for both The Washington Times Communities and Roll Call.

To find out more about Cassil, visit www.johncassil.com.

Subscribe to John Paul Cassil on Facebook.

This column does not express the opinions of the U.S. Government or any of its agencies.

 

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