Wednesday, October 1, 2008

The Next Bubble to Burst in the Deleveraging Process: Higher Education?


Like housing, spending on higher education has been fueled by cheap credit facilitated by a government sponsored enterprise (Sallie Mae, in the case of higher ed). As with housing (up until the burst of that bubble), all this cheap credit has led to higher prices (interestingly, politicians who call for increased spending on higher ed every election year never seem to consider that this increased spending may have helped drive up tuition costs). Now, the common sense observation that, for many, college is a waste of money and time has started to seep into the mainstream. A few recent examples come to mind: Charles Murray's op/ed in the Wall Street Journal in August ("For Most People, College Is a Waste of Time"), "Professor X"'s essay in the June Atlantic ("In the Basement of the Ivory Tower"), and James Altucher's February column in the Financial Times, ("College a waste of time and money for kids").

How long until a clear-eyed consideration of the return on investment (of time and money) of college educations becomes part of the conventional wisdom? Given the increase in household debt over the last few decades (see the top left chart in the graphic above1), and the current, inevitable process of deleveraging, it would make sense for the federal government to throttle back on its policy of throwing money at student loans and grants. The best American universities -- public and private -- probably have enough money to provide scholarships for the most talented high school grads whose families don't have the resources to pay for college. If they don't, a leaner education policy more narrowly focused on providing merit scholarships to worthy applicants would make more sense from an economic perspective. From a political perspective though, the higher education industry is a reliable Democratic constituency, so I would be surprised if a Democratic-majority Congress decided to cut back on education funding.

1Graphic borrowed from Martin Wolf's September 23rd Financial Times column

3 comments:

Anonymous said...

Couldn't agree more.

Anonymous said...

BTW thanks for the links. Excellent reading, chock full of insights.

DaveinHackensack said...

Thanks.