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Does anyone see this coming? The next bubble to burst will be education(r/Economics)
I’m going to go against the grain and say there is no student loan bubble – it doesn’t even make sense. A bubble is when “asset prices that exceed an asset’s fundamental value because current owners believe they can resell the asset at an even higher price” (source). This is impossible in this context – you can’t resell your education and the debt is non-dischargeable (for good or ill).
Instead, it may be accurate to say college is overpriced, since bubble is makes no sense. I don’t think this is accurate. Over the last 40ish years the college wage premium has increased. In 1974, an average college grad made 32% more than a high school grad, in 1999, the difference had risen to 80%. You can read more about it in this book. A college degree is still a really good investment. Maybe not as good as 10 years ago, but not negative.
Also, you can’t evaluate returns to investment in college by looking at sticker price. Financial aid process lets schools do very precise price discrimination – they can basically just walk up the demand curve. Saying nominal tuition increased by X isn’t very meaningful. College is pricey, dropping out is very pricey, but it is still worthwhile. The college premium is not just a selection effect.
I’ll grant there is some signaling going on through the college process. But economists have shown pretty clearly that although a portion of college is signaling, not nearly all of it is signalling. And signaling isn’t necessarily entirely wasteful, separating smart hard working people from smart lazy ones isn’t easily achieved other ways.
This article suggests that online classes can replace college in some respects. Perhaps in some part, but not entirely. Lectures survived books and other recorded media, and learning with both was better than either alone. Plus, working with and around similar peers has real knock-on effects. And so far, the majority of for-profit universities have failed to produce the same graduation rates, quality of education, or lower costs than public and private universities – that could change, but we’re not there yet.