It’s a story of an industry that may sound familiar, Glenn Reynolds says:
The buyers think what they’re buying will appreciate in value, making them rich in the future. The product grows more and more elaborate, and more and more expensive, but the expense is offset by cheap credit provided by sellers eager to encourage buyers to buy.
Buyers see that everyone else is taking on mounds of debt, and so are more comfortable when they do so themselves; besides, for a generation, the value of what they’re buying has gone up steadily. What could go wrong? Everything continues smoothly until, at some point, it doesn’t.
Yes, this sounds like the housing bubble, but I’m afraid it’s also sounding a lot like a still-inflating higher education bubble.
A college education can help people make more money in three different ways.
First, it may actually make them more economically productive by teaching them skills valued in the workplace: Computer programming, nursing or engineering, say. (Religious and women’s studies, not so much.)
Second, it may provide a credential that employers want, not because it represents actual skills, but because it’s a weeding tool that doesn’t produce civil-rights suits as, say, IQ tests might. A four-year college degree, even if its holder acquired no actual skills, at least indicates some ability to show up on time and perform as instructed.
And, third, a college degree — at least an elite one — may hook its holder up with a useful social network that can provide jobs and opportunities in the future. (This is more true if it’s a degree from Yale than if it’s one from Eastern Kentucky, but it’s true everywhere to some degree).
While an individual might rationally pursue all three of these, only the first one — actual added skills — produces a net benefit for society. The other two are just distributional — about who gets the goodies, not about making more of them.
Yet today’s college education system seems to be in the business of selling parts two and three to a much greater degree than part one, along with selling the even-harder-to-quantify “college experience,” which as often as not boils down to four (or more) years of partying.
Reynolds sees hope in the for-profit segment of the education industry. Hedge-fund manager Steve Eisman does not:
“Until recently I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task.”
When Mr Eisman refers to “being involved with” an industry in this sense, David Foster says, he surely means shorting it.
First thought that comes to mind: after years — decades — of Federal support for (weapons) labs at school and Pell Grants and Sallie Mae and… so that college students can buy incredibly expensive educations they may not truly need, I can say this bubble has been inflating for a while. If I had it all to do over again — the four years of bachelor, four years of graduate school, the lost work time, the loans — I wouldn’t. But that’s a different topic. I just don’t think the juice is worth the squeeze for most college educations.
(Not that learning skills, networking, and knowledge aren’t important, just that the current loan-supported student-coddling system isn’t the best way to deliver these goods.)