College tuition bubble?

I think it's a bubble, but I don't think the pop is as imminent as some think. A full generation was told that they were failures if they didn't get a job that required a college degree. I don't think it's possible to fix that brainwashing. But come the generation raised by mine? Look out...

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come the generation raised by mine? Look out...

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This generation, the kids that are 0-10 right now. Are either going to be stereotypical 80s on steroids. As in, all about making money, frick everyone who is in your way, frick political Correctness, just have a great time in life of excess and throw caution and care into the wind.

Or

It's going to be institutionalized communist fascism.

I'm excited to see which one prevails.

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Ditto. We’ve been hearing about this bubble for years now. At some point it either pops, or there wasn’t a bubble to begin with.

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It want happen until the federally guaranteed students loans are stopped.

An interesting subject, and there are a number of different underlying complex currents at work here, some of them multi-generational in nature, and all of them complicated.

The price of college is artificial in many ways, bolstered by a tentacled system of government subsidies for both student loans and university research. The delinquency and default rates of student loans are problematic, and probably artificially supressed by the government in various ways, but it's not technically a bubble, so much as it is a system of perpetual bailouts and subsidization.

Peak Enrollment Already Reached
But that's not the whole story, because the system can't just go on as business as usual, for a number of reasons. First, because the U.S. may have already hit peak enrollment in 2010. So with college attendance dropping ( LINK), there is less demand, and less automatic tuition hikes.

More Informed Consumers of Education
Second, yes the government can always bailout the student loans industry, but typically this only limits the damage on the corporate supply side. On the personal side from the adults in their 20s and 30s who have defaulted on student loans, the results are often catastrophic. Word has gotten out about this over the past 10-15 years, and seeped into the national consciousness, whereas before the "ever higher" ambition to more degrees was based more on 1990s style over-exuberance. Thus, when parents send their teenagers to colleges today, they are much more cost-conscious, and with attendance falling, they have much more power to negotiate lower costs.

Parents and Students Demanding Career-Based Colleges
This is sad, but you can't fault them. Ultimately, a university education should not be about simply enhancing your career earnings potential. But the stakes of the game have become so high with the huge tuition bills and student loans, that it's practically difficult for the non-elite to look at college any other way. So everybody gets inflated grades, because the parents are shelling out money for a degree that better damn well ensure good job prospects, and the employers don't have time to research the particular grade curve dynamics of every program from every school across the country and the world. Then you have the parents demanding placement in good internships, to where colleges almost become like overpriced apprenticeship guilds. It's weird, unfortunate stuff, but I don't see any easy fixes. (See from The Atlantic, " The Ethos of the Overinvolved Parent.)

Universities as Gate-Keepers that Protect Companies from Anti-Discrimination Lawsuits
Ever since the Griggs case in 1971, U.S. companies have been generally hesitant to offer IQ-type tests to job candidates ( LINK), for fear of being hit with anti-discrimination lawsuits. How did they solve the problem? By relying on universities to screen with SAT scores instead. By shifting all the anti-discrimination wars to the realm of education, we isolate the problem, but seem to make the inefficiency much worse.

The Bifurcation of Wages in the Globalized Economy
Not only must corporations hiring employees use universities to screen for IQ and basic reading comprehension and math skills, but now they must also rely on universities just to screen for job candidates who simply "have their shite together." This has a lot to do with the bifurcation of high-wage jobs separating from low-wage jobs in the U.S. economy, partially due to the effects of globalization, and the fact that the welfare state and marijuana/opioid use now makes it very difficult to hire native Americans as non-degree employees for manufacturing companies.

Back during the housing boom of 2004-06, we would often read stories about construction companies who couldn't find white or black Americans willing to do the grunt work, so had to rely on Hispanic immigrants. Now we are getting tons of stories in the press about a similar phenomenon among manufacturers.

This has led to the phenomenon of "degree inflation", where jobs that never required college degrees in the past, suddenly require them now, because employers are fearful that non-degree job candidates today are not reflective of the same caliber of persons as they were in the past. In other words, employers are starting to use colleges as gatekeepers not just for IQ, but now also for just finding motivated, enthusiastic candidates with basic functional skills. (See from Forbes, " How Degree Inflation Weakens the Economy.")

The False Promises of Worker Retraining
A somewhat positive sign is that people are now starting to realize that the much-touted worker retraining programs are often underperforming taxpayer boondoggles. I think this started with the Japan-hysteria of the late 1980s, and picked up steam with Clinton in the 1990s, but generally speaking, it's been one of those sentimental talking points that has polled well across the political spectrum. But the whole premise of this type of thinking is flawed, in my opinion, because it relies on the government to pick up the slack in the crevices of the economy where government-subsidized universities have not yet reached. Thus, it's an obstacle to serious types of systemic reforms (including more flexibility in minimum wage arrangements and probationary hires) that would incentive corporations to be in charge of training their own new workers carte blanche... which they should be. So I'm somewhat glad that faith in this fad is dying out. (See from The Atlantic, " The False Promises of Worker Retraining.")

The Limited Impact of MOOCs
There are MOOCs and other remote-learning options out there that 10 years ago seemed to me poised to render much of brick-and-mortar university education obsolete. I now will admit that I was wrong about the near-term potential for this. Even in STEM fields, it's difficult to land the top jobs without the credentials from established university degree programs. Over time, I have come to appreciate just how difficult it is to police such impersonal programs. People in advanced fields can easily throw out a lot of jargon and impressive-sounding stuff on a resume, simply aping what else is out there. But it's incredibly difficult for the people doing the hiring to ferret out the fakers during the interview process.

You are a good poster

What does the bubble look like when it pops? If you default on a student loan, what can the bank take? If colleges lay people off, would it really be that many people ?

Wow that Atlantic article was insane

How about they make legal again for employers to give IQ tests and we blow up the whole University necessary system completely

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Public schools, at least in the south, are not very expensive. Especially if you are getting a degree in Engineering, Business, health care etc still a great ROI

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Even the most expensive universities are still worth it if you make the most out of the experience.

Mental models can be easier to form with extremities. Imagine a college degree costs $500K in tuition to acquire and all colleges charge the same rate - either you pay the amount and have the opportunity or you don't have an alternative for university education. Even in this far out example, the investment can still be a positive ROI for the best talent. People who use a college degree to climb the ladder quickly and are making 100K+ in their mid to late 20s would still have the utmost incentive to pursue the degree.

When working for 30+ years, there is plenty of time for payback. It is the same way with MBA programs charging $100-150K, yet they point to exit opportunities pay $110K+ and someone making $65K before the program can get a payback period in only a handful of years.

I think the "bubble" will actually force the general population to rethink the value proposition of a university degree but I think we are a long distance from the economics not making sense for the top performers.

Undoubtedly, there is a breaking point. If a college degree costs $5M to acquire, then even the smartest citizens will seek alternatives. I just do not think we are close to this tipping point.

No one has mentioned the government running out of money as the most likely possibility. If the government has no money to fund student loans, the bubble will pop pretty quickly. On top of declining enrollment and a shrinking population attending college going forward, the inability to borrow from the government to subsidize tuition will be the biggest factor to end the last remaining bubble in our economy.

FYI, The GAO has already said in 2021, the entirety of the projected federal budget will be consumed by Social Security, Medicare and interest on the debt. That means there will be no money to fund a single dollar of government spending beyond these 3 obligations, including the military, nor any other government department we expect to function as a society.

The largest liability on the Treasury's balance sheet is already federally guaranteed student loans at over 4 trillion, after SSI and Medicare, and it's only getting bigger.

Facing a retiring populace and a well established fiscal cliff in about 4 years, it will be hard to put loans for liberal arts degrees ahead of baby boomers demands for transfer payments and national security.