Mark Cuban on the "College Bubble"

Mark Cuban, who answered reader questions here a while back, compares rising college tuition costs to the housing bubble in a recent blog post.  Here’s his argument:

It’s just a matter of time until we see the same meltdown in traditional college education. Like the real estate industry, prices will rise until the market revolts. Then it will be too late. Students will stop taking out the loans traditional Universities expect them to. And when they do tuition will come down. And when prices come down Universities will have to cut costs beyond what they are able to. They will have so many legacy costs, from tenured professors to construction projects to research they will be saddled with legacy costs and debt in much the same way the newspaper industry was. Which will all lead to a de-levering and a de-stabilization of the University system as we know it.

And it can’t happen fast enough.

IMHO, the biggest problem the economy has is the enormous student debt new college grads and those leaving college find themselves with. In the past leaving college meant getting a job and getting a used car and/or an apartment with some friends. Yes there was student debt, but it wasn’t any where near your car payment. You could still afford the car and the apartment. Now its the exact opposite. Today, the minute you graduate college you face the challenge of debt against a college education whose value is immediately “underwater”

Cuban argues that college debt is to blame for many of the economy’s woes.  “The crush of college debt has taken an entire generation of graduates, current and future out of the economy,” he writes. “Which is exactly why the economy hasn’t grown and won’t grow beyond microscopic growth rates we have seen so far.”  Interestingly, student debt doesn’t seem to have soured university grads on the college experience; recent survey data indicates that only 3 percent of college grads regret having gone to college.

Related: we are working on a Freakonomics Radio podcast about “the value of college,” which is so interesting (to us at least) that it might become a two-parter, set for release sometime this summer.


"the biggest problem the economy has is... student debt"?- nah- it's the banks- and of course, it's no coincidence that the finance industry wants to skim $ out of the student loan process, hence their lobbying against federally based student loan funding


I wonder if the low regret rate is due to the fact that the bubble hasn't popped yet. How many US homeowners regretted owning a home ten years ago?


Agreed. Or, maybe it's the question asked... I don't regret going to college in the least. It was a better experience than I could have ever imagined.

What I do regret is going to an out-of-state school for undergrad and now for my dual JD/MBA degress. By the time I graduate, I will have upwards of $350,000 in student loans, with my interest totals growing rapidly every day. My sibling had close to $200,000 in loans when she graduated, and without a doubt she was and is handcuffed by the debt. She should have a new car and a new house by now... but no, she has a beat-up old wagon and rents an apartment with 2 other people, barely scraping by because of her loan repayment each month.

The nation needs to find a solution for student loan debt or the economy will continue to struggle. Graduating class after graduating class will continue to be unable to put money back into the economy because they'll be paying off student loan debt for 20-30-40-50 years.

On another note, not only should Univerisities consider lowering tuition costs, but they should also make it easier for "out-of-state" students to become "in-state students for fee-paying purposes." I have lived in Indiana since 2006, when I started my undergraduate degree. Now, I have committed to spending 4-6 more years of school here and who knows how many additional years post-graduation, but I am still paying out-of-state tuition for my graduate degrees because my core "purpose" for being here is education, and not work. I'm not going anywhere Indiana. Let me pay a little (actually a lot) less in tuition, and I'll give you even more money back in spending after I graduate. Seems reasonable to me.


Lee D.

Most colleges, unless they have a very unusual endowment fund, count on the higher fees paid by out of state students to meet their budgets, in fact admissions are tasked to make that balance accordingly. In fact, many small schools will give sports scholarships to out of state students due tot eh likelihood their friends will follow them and pay the higher tuition. Secondly, you will find zero voice or support to get lawmakers to change laws for the express purposes of placing more burdens on their in-state constituents making the assumption that state support is required to meet their budget needs. However, there are great examples of supply and demand benefiting college students who promise to work in economically disadvantaged areas in certain states. Mainly this is limited to teaching jobs but there are other areas of need that would offer tuition/loan forgiveness in return for work in these geographic and economic areas of need. However, my guess is that, altruism aside, to maximize your economic potential you will take a job in the private sector, probably at first in Indiana and hope that congress keeps the interest rate on your loans low.


Jonathan Jackel

The problem with Cuban's analysis is that bubbles are usually related to assets that can be sold and resold. When a shock hits an overheated market, sellers rush for the exits. That's what pops the bubble and causes prices to spiral downward. There's no possibility that kind of a run with college degrees. Grads might have buyers' remorse for spending so much on a degree with a small economic return, but that will not directly translate into lower demand for college education because a degree -- practically any degree -- is seen as an important credential to get any kind of middle-class job. For the bubble to pop, there will need to be a credible alternative to a college education.


How does one repossess a college degree? Are there trillions of dollars of CDO's based on education debt? I think the analogy has a limited application. Commenting on Cuban's original post, he assigns no value to the cultural contribution of higher education - in his argument, the only value of college is as job training. Perhaps the low regret rate is due to the fact that many graduates feel that increased learning has enriched their lives in ways that can't be captured in dollars; in other words - in the most important ways.

Joe J

I see the reasons being they just got back from a fun vacation and were asked did they regret it, 2 months later they got the bill. Kids are being told over and over thet the golden ticket is to go to college, financially for many majors it hasn't been true for a while. Culturally, it's debatable, spend 5.5 yrs (the current avg for a 4yr degree) and 350,000 in another way and we will see if your life is enriched more.
The main reasons student debts are a problem are, tuition has been growing so fast. When you have a pricing system where the consumer doesn't directly or immediately pay, you get ridiculous price increases. A second is loans are given out with no basis on, projected ability to pay, or value in the item being bought.
The easy solution is make student loans like other loans. You would never get a buisness loan without describing how your buisness was going to be profitable.
you would never get a house or car loan without the house or car as collateral, and a fair market estimate of their worth.


Walter Wimberly

What people talking about the college bubble fail to realize is that companies still want to see degrees for new hires. When that ends, and you can be a _________ without a $40 - $100k degree, then the degree bubble will truly burst. Until that time, people know to go work for Company X requires a degree in Y, high school students (and their parents), who don't fully understand how much money is truly involved will continue to go to college.

Kids are told all the time that to earn good money, you have to have a degree. The list of jobs that pay well, and don't require the piece of paper, are few. And, just being honest, the number of people who can write that iPhone app, or start the blog and make enough to live on is few. That is why the iTunes store has ~350,000 apps, but you only hear about a few making real money.

The real way to get the bubble to burst, is for there to be an viable alternative to college, that employers will acknowledge. This could look like company sponsored trade schools, certificate programs, employment testing, etc. The problem with all of these is that there is some additional cost to the company. If the company requires new hires to have a degree, there is little if any cost to them, especially in this current economy.


Enter your name...

The mindlessness of some of these requirements is mind-boggling. My husband was once turned down for an interview at Apple because his college degree -- from the 1980s -- wasn't in computer science.

His thought? "And their CEO's degree was in...what now? Oh, that's right: he doesn't have one, does he?"


Actually, Enter your name (hee hee) makes an unintended point about why college degrees are so necessary for most people looking for work. Apple did not want to hire another Steve Jobs - they already had one, and he was playing a role as visionary leader - they wanted to hire a computer programmer. That is how a pyramid works - just because Mark Cuban (or Jobs or Gates) didn't graduate college, it doesn't mean that their companies could succeed without a big base of people with college-learned skills. Computer programming, business functions, etc., are all needed in a big, successful company, and if trade schools want to offer similar levels of quality in preparing employees with those skills, they will quickly become just as expensive as universities.

caleb b

I believe Cuban’s analysis is spot on. People like to poke fun at art history majors who can’t find jobs, but the problem is much, much bigger than that.

I majored in business and graduated 5 years ago and even with great grades and financial aid, I still had to borrow $50 grand to make it through school. I went to a state schools and I worked part time. But HEAVEN FORBID, I transferred and changed majors so I needed a fifth year to graduate. I wasn’t lazy, I worked, I didn’t borrow to go on a lavish study-abroad trip to Europe. Hell, I was so broke that I didn’t even buy my books, I read them in the book store and put them back on the shelf.

It is just EXTREMELY difficult to make it through school these days without borrowing money (a lot of money). It can be done, but if you make any mistakes along the way (like transferring, or changing majors, or not making a 1,400 on your SATs because your parents couldn’t afford the test-prep), you’re screwed.

Blaming the 18-22 year old students is not the solution. It's the schools that are jacking up the prices to insane levels to pay for "freshmen experience activities," or building ever nicer dorms, or building new alumni events building.



Well, it's both. Schools know their customers. How many 17-18 year olds just HAVE to go to the party school, the school with the awesome dorms, the school with the brand new student union or fitness center? Few parents CHOOSE which college their children will attend. The kids choose, the parents subsidize (sometimes), and the debt accumulates. How many 17-year-olds are willing to go to the boring commuter state school, live at home, go to community college for 2 years for all the gen eds, etc?

VERY FEW. There is an entitlement mentality surrounding the "college experience", and the universities know this - they cater to this. And yes, it drives up costs. Calculus hasn't changed in 400 years, why do you need to learn it in a posh hotel-like conference room with smart boards? You don't - but kids want that.

I do agree with people that the demand for college degrees won't go down anytime soon - it's the first thing employer's look at on a resume.



Calculus wasn't even invented 400 years ago - but you get my point.


I went to a top 100 school,I have 2 BA's and 2 Master's Degrees, one in Economics and one in Finance. When I graduated with my 2nd MA I had 0$ in student debt. I did the smart thing, worked part time through college, went to an in-state school, had multiple scholarships, got an Assistantship for my 1st Master's Degree and used my company's tutition re-embursment benefeit to pay for my 2nd degree.

College is only expensive if you are out of state, don't know how to get scholarships, or lazy and don't want to work while you are in school. There are soo many ways to get funding for college tutition, people just don't take advantage of them.

I only had to take out a student load to pay for my books. Even then that was only a few thousand dollars for 8 years of college.


As any recent graduate from the University of California system can tell you in state tuition are skyrocketing as well, 8% a year just like private schools. At the same time community college and Cal State schools are reducing classes and enrollments.

I'm not sure I buy the idea that the bubble is going to burst though, how exactly does Cuban envision students are going to suddenly stop taking out loans? Despite the high price there is still a line at the door of students waiting to take on debt in order to gain access to the higher income that college education affords. As long as a degree is worth the price and the risk, students will begrudgingly pay.


"As long as a degree is worth the price and the risk, students will begrudgingly pay."

There's the flaw in your assumption. Eventually students will just stop going to college. Too many kids are graduating with worthless degrees and making no more money than their high school classmates who went right into the workforce for this to be sustainable.

It's a prime example (which art appreciation majors never learn, because they don't take statistics) of how correlation does not imply causation. The observation was that lifetime earnings of a college graduate were significantly greater than the lifetime earnings of someone with a high school education. So people assume that any degree will do, that simply graduating from college immediately puts him or her into a different earning class. Unfortunately, the causal relationship is not with the degree, but with what the student learns. Come out of college with knowledge and tools to be useful, and you will make money. Most kids aren't doing that now, though, so they are coming out of school with 6 figures of debt so high that they'll never see a return on that investment.

If college had cost what it does today when I went (starting to feel like a long time ago), I may have sought another path in life.



Nobody regrets going to college; it's typically one of the high points of any given person's life. Who regrets going to class a few days a week and getting fall-down-drunk on the weekends?


I won't argue against Cuban's main point that college costs are getting too high, but I think a related issue is an economically bad choice of school for a lot students. Many opt to go to private schools when they intend to go into a field of work that doesn't pay much (e.g., Teachers College, Columbia, for those who plan to become classroom teachers). That puts them in big-time student debt when they get out.


I think the elephant in the room here is that 80% (WAG) of the jobs out there say they require a degree; when the reality is that most of them could be done by someone with just a high school diploma and a little on the job coaching.

The requirement of a college degree for low level jobs sprung from the overwhelming numbers of baby boom children growing up and needing a place to work. It was a quick and dirty way for HR departments to throw out 3/4 of all applications without having to the face to face work of previous generations.

That same surplus of manpower has locked out their children and possibly even their grandchildren from landing those jobs because they, themselves are still doing that work.

On top of that they've systematically dismantled the public education system that gave them the basic skills to get the jobs they are doing now. Thereby forcing their grandchildren into indenturing themselves to the various banks just to make ends meet.


Mike B

It's not about the specific job skills, a college degree is all about the old distinction between officer and enlisted, engineer and technician, gentry and peasantry. Someone with a degree from a reputable institution is simply more likely to be in a higher social class (in the context of interests and activities), is not going to require as much supervision and will be able to be given more autonomy. A secondary education in this country is designed to produce a worker that can reliably follow orders. College is designed to create a worker that can be trusted to self-direct much of their work.


With student debt so high, why is that that they government isn't more proactive at lowering rates? Even better, why are schools allowed to raise tuition costs to such extreme levels? With costs much higher than the return (at least for 2012 graduates), what's the motivation for students to choose college?


Enter your name...

They set the rates that high because the universities have to be able to make ends meet.

The question is why they are spending so much more on non-instructional stuff:

Jersey Hiker

I have to wonder what the long-term implications are. I am paying off significant debt in a job without a 401k. I am barely able to save any money for retirement. I do not expect to have any of the benefits of social security. And I consider myself lucky. On one hand, I wonder how my generation (I'm 29) and those younger than me will be able to support an already aging and retiring generation above us, and on the other I'm wondering how well my own generation will fare when we age and are supposed to retire if all of our savings are deferred to pay off our student loans.


For what it's worth, I think conventional personal finance wisdom would suggest that you pay off a little less each month (if you can - it may not always be possible) and put the extra money in an IRA or other retirement savings. While you were able to borrow money for college, you won't be able to borrow for retirement.

For your main point, I think those of us in the 20-40 age range have to really look out for ourselves financially. We can't assume that the safety net will be there for us.


Good advice for any age group, really. I've always expected that Social Security and so on would go bankrupt just about the time I could start collecting it, so have planned so that I could survive without, and anything I do collect wil be gravy.


Asking college graduates whether or not they regret college is a poor question. Humans are remarkably good at convincing themselves that their current state is the best thing that could ever have happened to them. People look back at college and don't regret it because they made a lot of great friends or were exposed to culture and experiences that they might not have been. But if you had asked, did you need four years of college to work in your current profession, I am pretty sure the majority would have resoundingly answered NO.


The bubble is going to burst. As with all bubbles, the sooner it bursts, the better. Insane rates of inflation in the cost of higher education inflate the bubble, but the development of alternative means for a college-like education will be what pop the bubble.
Might be online classes, new modes of accreditation, or something I have never heard of.

What I am certain of is that hiding the inflation behind student loans that burden students limits their ability to pursue careers since they have immediacies that need addressing. The current system is kicking the can down the road. As a resident of CA who sees how the private schools, UC and Cal State systems are failing to even slow the rate of acceleration, I can confidently say the system will blow up. The industrial model has had a good run, but it needs to die.

I just hope we don't go full retard, blame the "free market" and socialize the whole thing.



I don't know if this would be considered "socializing" the system, but some of our world competitors, like India and China, pay 100% of the cost of students to study certain subjects - engineering comes to mind. I could certainly see an economic value in doing that - I don't think it is any more "socialized" than giving tax breaks to a company that wants to build a new plant in a particular area. If we think a degree in engineering will be a net gain to the economy, it would be better to subsidize that degree and get those students into school and out to the workforce as soon as possible - not slow them down with part-time jobs and student loans thereby encouraging them to take six or eight years to reach the economy in any meaningful way.


Bob, I don't really disagree with the general concept of subsidizing engineers. I lean libertarian, but am also a realist. By "socialize the whole thing" I meant that I am concerned that the state will try to pay for everyone's higher ed. That would be a disaster for costs, making the current situation all the worse.

I would prefer that the state get out of the student loan business. Costs would go up in the short term, but the educational system would have to figure it out. I am sure that college would become less of a fun, party, extended adolescence atmosphere, but them is the breaks. I also think a lot of degree programs are being offered by schools as a way for subpar students to have something to do while they are paying tuition, room and board. Ending the subsidies of student loans would make the calculus of getting a degree in underwater basket weaving a lot different, and in my opinion, more accurate.
I am not against more students getting an education in college. I am against more students going to college just "cuz that is what all my friends are doing".



The most useful part of my own college experience was the student job I got. In hindsight, if I had simply found an entry level IT position, I would have gotten the same experience far cheaper.

I don't regret it, though, mainly because I didn't go to graduate school and paid in-state tuition, so I got off pretty cheap. Also, to some interviewers, a degree makes an impression, regardless of whether the degree is related to the work or not. Whether that is justified or common I don't know, but the same can be said for being an Eagle Scout or ex-military, or member of a certain fraternity. These are credentials that some people take very seriously.


Mr. Cuban is flat wrong about at least one thing, when he claims that "They will have so many legacy costs, from tenured professors to construction projects to research..." Fact is, research is a profit center for universities. At the one I'm associated with, a tenured professor in computer science is expected to bring in at least $1 million in research grants. The university will take IIRC 30% of each grant for administrative & facilities costs. Much of the rest will cover part of the professor's salary, and pay wages (& tuition/cost waivers) to the student research assistants who'll actually do most of the work.

Enter your name...

That's true for the sciences, but not so much for the rest of the university.


Like many very clever (in their business) wealthy people Cuban doesn't understand the facts and is pretty stupid about other issues, but thinks he knows everything. There are many reasons for college debt being high. State colleges used to receive massive taxpayer support, they don't. So fees have skyrocketed, but actual costs haven't gone up much, we've just shifted it from a public good (paid by taxes on wealthy people like Cuban, income tax in USA used to be 91% of income for the rich in the 1954, yes 91%) . Many private non-profits used to get matching grants (at least in some states) and don't. Super low interest subsidized loans have not kept pace with inflation. At some colleges, facilities have become nicer. At most, administrators have proliferated at much higher salaries, adopting the corporatization of America attitude that executives are "worth" what they made and are the true wealth creators. Actual faculty salaries are a small piece of the pie and at most colleges not much compared to industry jobs requiring doctoral degrees and decades of experience in field.

Freakonomics authors -- since you're economists, why don't include some facts and context in your posts?


JD Deatherage

The government makes more money available to students to finance their educations. More money on the demand side means the suppliers just raise their prices. College costs are rising faster than inflation.

So now, students are burdened with high debt before they graduate (if they graduate). The benevolence of the government has just made the problem worse.


I think the biggest problem is the entitlement attitudes of college students today. They want every electronic, every designer label, and they want to tick off everything in their 'bucket list' -- all while piling it on credit card debt. Yes, the college tuition is out of control, but the expectation that you can buy now and somehow pay it later is the biggest economic bubble out there.

It's almost as if they see being in such debt as being inevitable, and therefore they try to cram in positive experiences now before they are saddled down with too much debt.


How to trick the system: get a world ranking book, take your money to a similarly ranked school oversea for 10% of the price. People are not familiar with the idea that college can cost a lot less, or that there are better or equivalent schools abroad. Once they do, they can put a lot of pressure on the costs here. Anyone not going to a top 20 school should consider this alternative.