Market Overview

The Ultimate Problem With A Higher Ed Bubble


There has been a lot of talk recently regarding a possible bubble in higher education. With increasing tuition costs for students and a dire job market after graduation, more are beginning to ask whether getting a college education is really worth it.

Given the prevalent use of student loans to fund higher education, US debt troubles, and increasing unemployment, the statistics strongly suggest that there is indeed a higher education bubble. To add insult to injury, with all the talk of the US debt ceiling, budget cuts could spell doom for federal student loans.

Most of the damage of any higher education fallout will land on the younger generations. If we include Social Security, this would be the second major nationwide pyramid scheme-esque institution that younger generations have been roped into in their lifetimes -- quite a track record for the older generations in American society. Even still, much of the shock wave of a higher education restructuring could be felt for generations to come.

The higher education bubble has many dimensions, and yet it has recurring themes with most other bubbles: easy credit, an excessive amount of debt, lax regulation, assets at the heart of the bubble serving as collateral, and a bit of "irrational exuberance". Many of these factors contributed to major financial bubbles of the past, including the infamous Dutch tulip bubble, the South Sea bubble, the dot-com bubble, and the recent housing bubble. In fact, there has been much recent discussion of the parallels between the housing bubble and the higher education bubble.

The idea that "every American should have a college degree" nearly echoes the idea that "every American should own a house". However, the higher education bubble has some key differences to the housing bubble. Namely, the fact that that individuals giving into the bubble are the younger generations. Further, students feeding into the bubble have no real assets or savings to depend on. Lastly, a college degree is not a tangible asset accruing an exchangeable amount of equity like that of a house. Unfortunately, these facts surrounding the higher education bubble are quite ominous.

Even aside from the massive amounts of debt that younger generations are taking on, there is a deeper issue to the higher education bubble: Higher education forms the backbone of our entire employment scheme. A college degree is often required to get a decent job. An educational background is often listed at the top of resumes. Not only does a college education reflect one's skills and knowledge, but it also reflects the core of an individual's career aspirations.

A college degree has become something that goes to the heart of a job seeker. As such, the bursting of the higher education bubble could seriously shake the American employment schema. If everyone has a Bachelor's degree, then a Bachelor's degree is no longer valuable. If no one has a college degree, then we have no educational standard from which to judge one's skills. Imagine owning an architectural firm and attempting to hire individuals as architects when there are no college degrees in architecture.

This brings us to the ultimate problem with a higher ed bubble: If higher education collapses, then we may have to radically restructure the way we delineate individuals' knowledge and skills for employment. The situation with higher education is intimately connected with employment.

Aside from the debate of whether the value of an education should really be tied to future career profits, when one seeks a particular education, one expects to secure a job in a particular field. If John Smith is 18 years old and is working at a fast food chain, then the prospect of working in fast food for the rest of his life may motivate him to go to college. Many young workers do not mind working in the service industry as such labor is regarded as temporary or a rite of passage.

The service industry is not for everyone, and the prospect of one day being able to escape the service industry may help workers weather the storm of disgruntled customers, low wages, and mindless, meaningless work. However, if after taking out excessive student loans & going to college, John Smith again finds himself still working a low-wage job in fast food, then he has not secured any upward career mobility. The only difference is that now after college, John Smith is saddled with thousands of dollars in student loans that he is unable to repay.

This issue cuts to the heart of social stability in labor. As the value of a college degree falls, so too will the credibility of colleges and governments promoting college degrees. Without a credible national educational standard from which to judge individuals, individuals will be left to rely on their work experience in order to get a job. However, if certain jobs require a college degree and many workers are not able to get a college degree, then many workers will not able to secure jobs in their desired field owing to the collapse of student loans and higher education. A population of individuals without necessary skills, unable to secure quality jobs (let alone desired jobs) could lead to a situation of immense societal alienation, resentment, and unrest.

Younger generations may grow to resent older generations in not having the comparable educational opportunities. Younger workers may feel alienated in their inability to move up in their career. John Smith may experience greater hopelessness or depression in not being able to escape the great American service industry. A legal, accounting, engineering, or medical field that was widely accessible for one generation and closed for another generation may lead to cross-generational conflicts or calls for radical changes in professional licensure requirements. Over time, these cross-generational differences could lead to the collapse of a licensed profession's credibility or legitimacy in society. Nevertheless, in the aforementioned scenario, it is important to realize that the sky has not yet fallen.

Governments could easily remove licensure requirements, and the doors to careers could remain open for future generations. Individuals could still rely on family and friends to gain the necessary work experience for a desired occupation, even though the doors to a formal college education may be closed. In the alternative, charitable and religious institutions may be called on to take a greater role in higher education, offering willing students an education for necessary skills.

Thus, if the legitimacy, credibility, and faith in the US higher education system collapse, owing to a higher education bubble bursting, then modifications in hiring practices and the labor market could lead to a more medieval system of apprenticeship for workers. To say the least, this would be a sad outcome. It was the growth of science and knowledge that drove human civilization out of the Middle Ages in the first place.

For higher education, as the societal vanguard of science and knowledge, to possibly revert individuals back to such a medieval state, is the height of irony. Nevertheless, human civilization presses on, and in turn, even without higher education, the passing of knowledge, skills, and information from older generations to younger generations will hopefully continue.

Posted-In: bubble college debtTopics Economics Hot Personal Finance General Best of Benzinga


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