Tuesday, August 04, 2009

The Impending Higher Education Bubble

Amanda Carey writes:

This dilemma is not unlike what we saw in the housing market during the last few years. Someone decided homeownership was a good thing for almost everyone, so the government started pushing people to buy homes, using the tax code and other incentives. The same thing is happening with college. But instead of people getting loans for houses they could never pay off, 18-year-olds are getting excessive loans for college. And just as we saw before the collapse of the housing bubble, the price of going to college in America is skyrocketing.

The reason is simple. The increase in demand (artificial though it may be) means shorter supply, which ultimately means higher prices for everyone. But whether it's in the name of affordable housing or affordable education, the government continues to throw more money into the system, hustling to increase demand. The only difference with education is that instead of bailing out banks to force them to continue making loans, the government is now making the loans itself.

Traditionally, college has been discriminatory in the best possible sense. It was used to weed out those likely to be unsuccessful in the work force. Someone who did not make it through college did not make it to the high paying jobs, period. Furthermore, letting the market control tuition prices (even if they are high) means that many people who probably wouldn't thrive at college—or would do better at a blue-collar job—won't even apply in the first place. This weeding process would eventually decrease demand and in turn, prices would go down, especially at less competitive schools.

Instead, with government help and nudging, more and more people are entering college who wouldn't have made that decision if left to their own devices. We've seen the effects this kind of micro managing has on the housing market. If things don't change now, education will be headed down the same disastrous path and universities will soon become too big to fail.

Yep. Whole piece here.