Wednesday, April 27, 2011

Another good article on the Higher Education Bubble

Chris Dunn opens his article Education bubble is close to popping in our faces with:

Fair warning: This article will piss off a lot of you. That was the opening sentence to TechCrunch’s recent article, “Peter Thiel: We’re in a Bubble and It’s Not the Internet. It’s Higher Education.” Earlier this month Peter Thiel, the co-founder of PayPal, told TechCrunch that the housing bubble was replaced by the education bubble. Thiel was in the minority of people who predicted both the dot-com and housing bubbles. Now he and others are warning that most college degrees are not worth the cost.

According to Thiel, a bubble, in this sense, exists when “something is overvalued and intensely believed.” He makes another claim: “To question education is really dangerous ... It’s like telling the world there’s no Santa Claus.” Thiel’s definition is a good one because it accurately describes the frenzy surrounding the dot-com, housing and education bubbles.

Just like the housing bubble, the issue isn't should people buy a house or go to college, but should they waste a ton of money doing so?

Janine and I encourage our children to go to college.  But we also encourage them to be wise in where they go and not incur huge debts.  We don't plan to give them a lot of money so they can attend a high priced school.  If they want to go to Harvard or Stanford, they'll need to work out the financing.

With the current hard economic times I agree with Chris Dunn, the Higher Education Bubble will burst soon.  At some point the number of students applying to go to college will drop to a point which affects many schools.  Once that happens, many colleges will start to scramble trying to chase the shrinking applicants.  The classic law of supply and demand will result in lower prices.  Colleges that cannot survive on lower tuitions may not survive at all.

Hat tip: Instapundit.


Sebastian said...

We recently moved to a new city, expecting that we would be able to buy a new house here. However, there are so many people who have an interest in seeing that prices don't fall much. Banks, sellers, real estate agents, municipalities dependent on tax revenues and others don't want to see the prices fall to what is probably a truer value.
I can't help wondering how much of a similar effect there will be with education. It is hardly in the interest of alumni for there to be a general revelation that a number of degrees aren't worth as much as they paid. And as long as enough people are willing to shell out for them, the system will remain self-perpetuating. Others will be forced to participate in the college racket because they don't want to be the one at a job interview who doesn't have the baseline credential.
I'd love to see the bubble burst. In the next couple years, before my kids hit college age. But I'm cynical.

Henry Cate said...

You make a good point. I am sure there are a lot of people working to keep the bubble going.

I believe the bubble has to pop. As a society we not keep inflating the costs of higher education. But you are right, it make take awhile.