The College Bubble

For years, colleges have treated their students as consumers, building ever more elaborate facilities and hiring ever more dazzling star scholars to lure applicants. They did this regardless of how high these investments drove tuition, since easy credit meant families could stretch to cover the costs. But with the credit crisis come signs that the college bubble is bursting, as “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,” the Chronicle of Higher Education suggests. Further evidence: The New Yorker aims to deflate creative writing programs, “designed on the theory that students who have never published a poem can teach other students who have never published a poem how to write a publishable poem.” [%comments]

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  1. Zach says:

    This is best seen working at a state college. Getting the trickle recently got more complicated. Instead of the rest, it is the best of the rest, especially when the state increases tuition and fees to compensate for state deficits. The deluge in students seeking cheaper education gives the state schools more of a selection. College on the cheap got more expensive and more selective. Cheap schools think they can go to the bank. We all know how that turned out.

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  2. Doc says:

    The other dirty little secret is that only the saps like me who’ve worked hard to amass a little money pay full retail for our kids. Between grants, forgiven loans, scholarships and other sources the average student pays about 60% of stated tuition.

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  3. Matt says:

    There is a difference, right? The house may have cost $100k to build, but the cost of the land and the home “appreciation” is speculative.

    Public Colleges (I assume) are charging in-line with their expenses for salaries and facilities. In other words, there is no built-in speculative cost of college (at least for public schools). When a house is sold, the seller tries to get as much money as possible from the buyer, and I don’t think that’s the same for public colleges. What they do is say “here’s our budget, what do we need to charge to break-even or stay afloat?”

    How does that make this bubble different? Anyone want to speculate?

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  4. a_c says:

    First of all, we know that people with more years of post-secondary education have higher average salaries. But why? Here are the four factors that contribute:

    (1) College students have higher IQs than non-college students. The SAT, which is basically an IQ test, is used to select people who are suitable for college study. The book The Bell Curve explained that IQ is positively correlated with income independent of education.

    (2) College students come from wealthier families than non-college students. Wealthier families provide their children with industry contacts and other advatanges that help them earn more money independent of their degree.

    (3) Credentialism: employers value the credential of the degree even though the degree holder doesn’t have any job skills that the non-degree holder doesn’t possess. Somem industries, such as law, are regulated so that only those with the credential are allowed to practice. Education for the sake of the credential imposes an externality on society. The person with the degree is getting a job opportunity over an equally qualified non-degree holder. Normally, the best public policy is to discourage activities with externalities, but U.S. policy of encouraging education is doing the opposite and thus making a bad situation worse.

    (4) Students might actually be learning job skills that they wouldn’t have otherwise been able to learn if they were not in college. This primarily applies to more vocational courses of study such as nursing or engineering.

    I think that the economists in the NY Times article are ignoring factors (1) and (2), especially factor (1) because it’s politically incorrect.

    My conclusion is that America is overeducating its youth, and we should cut down on the number of people attending college. A good start in this direction would be for the government to stop funding higher education and to cut out the student loan program.

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  5. Grant says:

    #4 – IQ ain’t what The Bell Curve cracks it up to be. I suggest a read of Stephen Jay Gould’s excellent The Mismeasure of Man for a different perspective.

    That said, I agree that the college push of recent years was probably harmful in the long term. More realistic college expectations are probably in order.

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  6. Grant says:

    Oh, but cutting government spending on education very well could lead to a return to the days when only the economic elite went to college. Government funding is there to make college more of a meritocracy, and for that reason I think government funding is worth keeping around.

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  7. Ray K says:

    Having to do with #1 & 2, we know from Freakonomics that the biggest indicator of child outcome is the parents. Thus it should come as no surprise that smart wealthy parents tend to breed and raise smart wealthy kids. While no one should be denied an education (if they can finance it), this fact must be considered. There are certainly methods of gaining financing outside the federal government. The problem is that it requires work, which some people will not put forth, and thus are probably better left out of college. Personally, I paid very little to go to an out-of-state state school. I am proud that I received no federal or state government assistance.

    For the corrollary, if anyone has noticed a mechanism that keeps lazy rich kids out of college and high paying jobs I’d like to hear it.

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  8. Degrees for Everyone! says:

    #4, college students no longer have higher IQs, better study skills, come from wealthier families, nor necessarily have better credentials like they did 20 years ago.

    Today we are enmeshed in an “Everyone must go to college!” ideology that encourages people to attend college even if they have mediocre intelligence and/or academic talent, have no where near the monetary sources to pay for college (without resorting to the hellpit of the student loan industry), and expect to get the credential just by paying tuition and sort of showing up. There are too many mediocre people who either bluffed or cheated their way through college, are swamped with students loans they will be repaying until they die, and have credentials that are essentially unnecessary to do the work they need them for.

    If college has truly replaced the high school diploma in terms of a minimal credential, then EVERYONE has overpaid for their college education. The days of a college education virtually guaranteeing economic success have been over for a decade.

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    • Jae says:

      This does mean a grad school degree will be the new ‘college diploma’ of the future?
      If so, don’t you all think at the current rate we’re going down a very vicious spiral toward higher and higher degrees just to satisfy credentials for meager jobs?

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