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Higher Education: The Next Big, Bad Bubble

58 points by byrneseyeview 16y ago

Ardit20 16y ago
Bubbles are not visible when you are in them. So I guess it is a good bet that when many are saying something is bubbling, it probably isn't.
- byrneseyeview 16y ago
  They are, almost by definition, invisible to the participants. But you can call a bubble during the bubble, as many people did during the tech bubble or the real estate bubble. It stays a bubble as long as they (or at least their financial bets) are in the minority.
  - Ardit20 16y ago
    I do not think anyone predicted the 2007 crash besides whoever is in the business of predicting crashes. The Prime Minister of the United Kingdom then declared that he had eradicated the cycle of boom and bust. We all felt that it could only get better. Now if some guy is so smart, then perhaps there is something very wrong with our system of selecting the top banker, which is the governor of the Bank of England in this country. I would like however to suggest that higher education is very different from estate or technology. Higher education is slightly more like electricity or clean water. It is a necessity. The universities may charge however much they like, as may companies which provide electricity, because people simply have to bear it. Someone who is interested in exploring the world, even if that may be through such a low field as you suggest of sociology or psychology or indeed philosophy, will still be willing to take the grants that states provide in order to fulfil such desire. They think and so they may be right that they will indeed die and the aim as long as they live is to explore the reality of the life that they do choose to live. What is the nature of people, how could we be governed better.... What I am suggesting is simply that there is no bubble in education nor can there be. Whatever the number of people that are educated so the better it is. Education you see is very different to an eighteen year old than to someone who has gone through life so well perhaps and has the freedom to provide us his wisdom through the internet. That eighteen year old perhaps your have forgotten does not actually quite know yet who he is or the nature of reality. Higher education provides him a good grasp of that. What I would be much more worried of is the hierarchy in education, the only place where it is feasible and desirable for a communist system to be implemented in as far as providing all with the same standard of teaching and holding them all to the same standard. As for bubbles, there are no bubbles here. Nor will there ever be. Bubbles happen in the for profit sector. Not in the most basic service besides food and water that humans require.
    - byrneseyeview 16y ago
      No, there were lots of people who don't explicitly predict crashes, who still called this one. Michael Lewis' The Big Short is a fun overview. The Greatest Trade Ever is also good; the protagonist of that one is a merger arb, not a doom-sayer. And of course, countless people sold when they found prices too high. It seems very obvious to me that the establishment has to buy into it for a bubble to exist. Prices peak when optimism peaks, so you'll necessarily be able to point to people in authority who were too optimistic. The only alternative to that is a) for prices to undershoot rhetoric (arbitrage opportunity!) or b) for prices to never go down (result: buying is a safe bet, causing a bubble, leading to a crash). What I am suggesting is simply that there is no bubble in education nor can there be. Whatever the number of people that are educated so the better it is. This is what we call a "Bubble mentality". No P/E too high; it's the Internet! No collateral too poor; it's the ownership society! You clearly don't believe that; you would not be happy if, e.g., we were starving because every farmer decided to finish his Masters in English lit. There is a right amount of education, and it is not an arbitrarily large amount. What I'm pointing out is that by every measurable quantity, we're paying more and more for something of less and less value. Education you see is very different to an eighteen year old than to someone who has gone through life so well perhaps and has the freedom to provide us his wisdom through the internet. That eighteen year old perhaps your have forgotten does not actually quite know yet who he is or the nature of reality. Higher education provides him a good grasp of that. Not sure what you're trying to say. I'm 23. Education is beneficial. That doesn't mean it's worth trading anything of value for any extra amount of it. It is precisely this kind of thinking that leads to other bubbles.
chime 16y ago
> 1. The price of college is continuing to rise faster than the rate of inflation. Then maybe inflation isn't taking everything into account? My health insurance cost is rising faster than inflation too. So is health care cost and nearly every service that requires labor and cannot be imported/outsourced. Doesn't that tell you that the true rate of inflation could be much higher than the publicized rate? Rate of inflation includes lots of goods that can be cheaply imported. But you cannot import enough cheap labor with PhD degrees. And these are not included in calculating the rate of inflation.
- byrneseyeview 16y ago
  Education is one component of inflation. Different components are rising faster or slower than the general rate of inflation. For example, housing used to inflate faster--not so much, lately. And medical care is still growing fast. But food, clothes, and especially electronics are getting cheaper.
  - yummyfajitas 16y ago
    Actually, housing didn't inflate much either. Owner equivalent rent increased at a rate of only 1.4%/year between 1987 and 2008. http://www2.standardandpoors.com/spf/pdf/index/House_Price_Rent.pdf http://www2.standardandpoors.com/spf/pdf/index/House_Price_R... (I took 130% as the mean increase from exhibit 2 on page 5, but that's just an eyeball estimate.)
    - byrneseyeview 16y ago
      That's very surprising! Housing prices obviously went up, so how did this not show up in a higher cost of living?
      - yummyfajitas 16y ago
        The cost to purchase a home went up, but that isn't the same thing as the cost of housing, since home purchases have a strong component of speculative investment. An analogy to make it more obvious: imagine I sell packages consisting of 1 banana + 1 share of Chiquita stock. If Chiquita stock goes up, does that mean we had food price inflation?
brlewis 16y ago
Better returns might come from ensuring that everyone gets a good kindergarten education.
- Legion 16y ago
  A good idea, but giving children new parents is both expensive and legally sticky.
- protomyth 16y ago
  Technically, better money spent is testing children for developmental disabilities in the pre-kindergarten years (0-5) and spending the money to "fix" at that time is a better first step. A problem found in kindergarten might end up costing the government in excess of a million dollars can sometimes be fixed for less than $100,000 if known about earlier. For example, hearing problems can be worked around earlier in life to allow proper development.
sprout 16y ago
Personally I think looking at higher ed is looking at the wrong side of the equation. We're not in an education bubble, but a "bunge"[1] if you will - the opposite of a bubble - with regard to labor prices. In other words, people aren't overpaying for education, businesses are underpaying for human talent. [1] http://www.johnkay.com/2008/07/02/metaphors-in-free-fall-the-anti-bubble-named/ http://www.johnkay.com/2008/07/02/metaphors-in-free-fall-the...
- yummyfajitas 16y ago
  Why do you believe talent is underpaid?
  - sprout 16y ago
    The top 10% of Americans hold an ever-increasing share of American GDP. So I suppose to be a little finer-grained, upper echelons of society overpay themselves and underpay the majority of the labor market, even as they benefit from the fruits of a highly educated labor market.
    - yummyfajitas 16y ago
      How does the top 10% receiving an increasing share of GDP imply that the bottom 90% are underpaid? If the top 10% are also creating an increasing share of GDP, then that would imply that everyone is being properly valued.
      - sprout 16y ago
        That's a tautology though. You're using the method of apportioning contribution to GDP (wages) to prove that GDP is being properly apportioned. There's evidence of your position, but it's hardly obvious. Personally I believe it to be incorrect.
        yummyfajitas 16y ago
        I'm not asserting that wages are being properly apportioned - I'm just pointing out that the fact that the top x% get a greater portion of GDP is not evidence that talent is underpaid. It could easily be the case that the top 10% is the most talented, and the talent gap/rewards for talent have increased. Income inequality is simply not evidence either for (or against) the claim that talent is underpaid, at least not without information on the distribution of talent.
TravisLS 16y ago
From the end of the article: "I haven't found a way to short higher education as a whole. If you can think of one, let me know." Any ideas?
- kenjackson 16y ago
  Actually there's a pretty simple way. Start a guaranteed tuition plan. Parents can pay you today's tuition cost for their child to go to college in 5-18 years. If higher education drops then you make money. If they continue to go up, then you lose money. You probably need to set aside a pretty sizable chunk though in the very possible scenario that college costs continue to rise.
  - byrneseyeview 16y ago
    Wouldn't you want to take the opposite trade? To guarantee someone else's tuition at a flat rate (or a flat rate plus interest) and then pay for their classes at the market rate once they get to school?
    - AGorilla 16y ago
      That's not the opposite, that's the same.
    - wake_up_sticky 16y ago
      That's what he said. The parents would pay you a flat rate (today's tuition) and you would pay their kid's tuition 10-15 years from now. Assuming the bubble burst before then, you would make the difference in price between today's tuition and the tuition of the future.
      - byrneseyeview 16y ago
        Yes, you're right; I misread it. Thanks!
sliverstorm 16y ago
So long as sciences and social sciences are lumped together as 'a college degree', the advantage and profit associated with a science degree will prop up the expectations of a social sciences degree. It really does make sense for an experimental physicist to go to college. No matter how bubble-y it may be right now, there aren't many with just a high school degree.
- lsc 16y ago
  ah, but i would argue that if you are trying to maximize your income, becoming an experimental physicist is a horrible idea. You need a whole lot of education, and if you drop out before your PhD, it's all pretty much wasted. I've got a guy who does work for me sometimes who has both a math and a physics undergrad... neither of those degrees gets you a job. My understanding is that even if you do make it to a PhD you are looking at making about as much as a computer programmer or sysadmin with an undergrad or no education.
  - yummyfajitas 16y ago
    Not in my experience. In general, employers seem to view my math degree as more or less equivalent to a CS degree. I know for a fact that "PhD dropout" is good enough to get you in the door for quant jobs at many banks/hedge funds. Tech startups don't seem to mind either if you demonstrate that you actually like to code and aren't ivory tower (i.e., use grep rather than build your own regex parser).
    - lsc 16y ago
      well, this one datapoint is that this guy is starting out where I started out (I didn't go to school.) Now, he's obviously a really bright kid and I'm sure he'll do fine eventually, but for now, he's certainly not in the place he'd be in if he spent as much effort on work as he has spent on school.
    - nkassis 16y ago
      Not my experience either considering I have a Math degree and had no issue finding a job as a software developer. In fact, I've noticed that the Math degree makes managers think of you as smarter. There is a perception of Math degrees as being harder than most other degrees. (I personally think EE is the hardest one out there.)
gyardley 16y ago
Tuition is rising because loans are heavily-subsidized by the government, and universities (especially for-profit universities) are taking advantage. It's a simple business model - spend a ton on ROI-positive marketing (especially online CPA marketing), get people who can't really afford it to take out huge student loans which they only qualify for thanks to Title IV, get the vast majority of your revenue directly from the government. Saddled with massive debt and useless degrees, the students increasingly default, but that's not the universities' problem - the risk lies solely with the students and the government. If you want to short education, you could short companies like Apollo Group and ITT Educational Services, as well as the online marketing companies that service them, like Quinstreet. But this is risky, because the bubble's only going to burst when the government gets around to changing policies.
- byrneseyeview 16y ago
  Steve Eisman has written a very compelling presentation on why for-profit schools will likely have a sudden, drastic loss in earnings due to new government policies: http://www.marketfolly.com/2010/05/steve-eisman-frontpoint-partners-ira.html http://www.marketfolly.com/2010/05/steve-eisman-frontpoint-p... But the risk is priced in. What's not properly priced is the risk that for the average person getting a marketing degree from Local State U, it would have been a better use of their time to work in retail or something.
- rdtsc 16y ago
  > But this is risky, because the bubble's only going to burst when the government gets around to changing policies. Out of curiosity, how would the govt change their policy to improve the situation? Should they just stop subsidizing the loans? Or should they let students declare bankruptcy if their promised dream job doesn't matterialize when they graduate? I think regulating the deceptive marketing should also be considered. There is a huge discrepancy between the advertised ROI and actual ROI. People should be made aware of the actual ROI of a college degree. Then a lot less will be willing to spend $100K to get a piece of paper after 4 year that turns out not to help them much after all.
  - 16y ago
dugmartin 16y ago
I think government subsidized four year research universities will be overtaken in the US by the community college system which will start to offer four year degrees. We can't afford to pay for professors that might teach one or two classes per semester. In non top tier private colleges more and more non alumni revenue generating study areas will close. It won't make sense to anyone to spend $200k to get an undergraduate degree in education where you can expect to make $40k per year. Very top tier private colleges won't be hit as hard as their student bodies trust funds will absorb the cost.
deleted 16y ago
[deleted]
lsc 16y ago
Fewer and fewer people have been going to school for the money for a while now. My sister has a degree in fine art. I don't think anyone rationally expected that to raise her earning power.
- wmf 16y ago
  That's fine, but the problem appears when people borrow money to finance such a hobby, not realizing (or not caring) that they'll never be able to repay.
GrandMasterBirt 16y ago
We need difficult college courses which yield degrees. Its quite simple, really. If the course is hard and fruitful, very few unmotivated people will get through it. And a motivated person is sure to succeed (at least much much much more likely). This way having a degree REALLY will mean something. If 10/1000 graduate from this program, you graduating means that you really did accomplish something great. Also we need a way to snapshot your success. In other words if the school dies, it should not diminish what you did in school. There should be a way other than the name of the school to indicate that you passed through the blazes of academic hell and came out triumphant.
- wake_up_sticky 16y ago
  I agree, with the caveat that it shouldn't be done on a curve. College should be much harder than it is, but it should be theoretically possible for everyone in a class (of super-geniuses) to graduate.
timwiseman 16y ago
This article make some very interesting points, but I think it speaks a little too broadly at points. It does not sound like there is an overall education bubble, but rather a bubble in liberal arts education and particularly liberal arts education from lower tiered schools. Even the article points out that engineering majors, especially those from highly ranked schools are doing quite well and that does not appear to be changing. Even on his point in signalling, it may be that having "a degree" will come to mean less and less, but it is unlikely that having "a degree from Harvard (or other prestigious school)" will mean less anytime soon.
gojomo 16y ago
Is there a business opportunity providing a new signaling credential/certification that hasn't been as diluted as "a college degree"? (An organization providing such a service would face a lot of temptations to get in on the traditional higher ed gravy train, while it lasts, but its ultimate success through the crash would depend on it staking out a different identity. It would probably also need a strong culture of elitism -- drawing a lot of detractors, and possibly lawsuits once its certifications get used in employment decisions.)
- byrneseyeview 16y ago
  There are professional accreditations that work something like that. e.g. the CPA, CFA, bar exam, etc. Those tests usually require you to get some kind of education before you take them, but the actual qualification is granted based on test scores.
nphase 16y ago
I hate to sound callous, but this is just an effect of more people going to college today than in decades before. Yes, obviously I want everyone to succeed in life and have a college degree and do well, but obviously this can't be the case. In decades past income disparity (since we're speaking in terms of ROI) existed partly because of the availability and accessibility of the college degree. Back when degrees were scarce, they were rewarded. Now that everyone and their dog is getting one, it doesn't mean very much. Friends of mine are graduating college and going straight back home to live with their parents. And this is happening in droves. The degree is no longer a differentiating element of their resume. Don't get me wrong, I'm glad that on a whole, are becoming more educated (let's ignore the fact that this statement has no evidence behind it, and is purely an assumption). That is a good thing. But inflation rarely goes unpunished. Disclosure: I'm a college dropout, and happily so.
nkassis 16y ago
Maybe they could make the schools partly responsible for false advertising and high costs. Also, there is a serious lack of oversight of universities. Accreditation is a joke now days. There is such a divergence of curriculum amongst reputable schools and it gets worse for the new profit schools. I'm glad I only had to pay 5K a year compared to others dealing with 10-20K tuition cost for school no even close to the top tier universities in the US. Harvard charging 20K is ok considering the rep you get just having a degree from there. But random private school X? not so much.
krschultz 16y ago
This argument is increasingly common, but it misses the actual truth. Sure the difference in salary shrinking will increase the amount of time it takes to pay off the degree, but that is not the whole story. 1) Unemployment rates are inversly propertional to education level. The worst hit by the recession were those without college degrees. Who is going to bet that trend reverses in the near future? If anything the college grads are just going to suck up high school grad jobs they are overqualified for. 2) Type of job/ceiling. A lot of times you can get the same job with or without a college degree (see: Sales Representative), but the college degree usually means a better compensation structure and pathways up in the organization, even if the salary is not a huge difference for the first 10 years eventually the HS degree will reach a ceiling. I've even seen this in accounting between those that are CPAs and those that just have accounting degrees, or at upper level executives who have MBAs vs those that don't. 3) The cost numbers in these articles are invariably screwed up. $200,000 for a college degree? If you are actually price sensative go to a county college for 2 years and then a state school for 2 years. Total cost would be <$60,000 for the whole thing. In most states you would even have your choice of multiple schools. My theory was that you should go cheap on the undergrad, if the name of the school matters so much, just go there for graduate school. I'd hire a guy with a grad degree and a state school over a really top shelf undergrad (hence, state school for me and I just got hired at my job along with a bunch of guys who paid 4x or more for private engineering schools)
- timwiseman 16y ago
  My theory was that you should go cheap on the undergrad, if the name of the school matters so much, just go there for graduate school. I'd hire a guy with a grad degree and a state school over a really top shelf undergrad& In technical fields, I agree with you. Having a degree often matters to get in the door and avoid hitting ceilings, as you pointed out. But skill in your actual job and (for better or worse) skill in networking and relationships will win out over pedigree in the long run without problem. It seemst that the situation is different in liberal arts fields though. My wife is a history major and because of her I have many acquantances in the liberal arts. They are all very worried about pedigree, and it sounds like employers looking for that type of employee is also very worried about pedigree. I suspect this is because it is harder (not impossible but harder) to measure productivity and skill in liberal arts than it is in engineering and related technical fields.
pneill 16y ago
What’s the purpose of an education? I ask this because it’s central to the topic. Is it to get a job or is it just to learn? If it’s the former, then we can have an ROI conversation, but if it’s the later then ROI doesn’t really apply. FWIW, I worked in higher education for over 10 years, and I can assure you that universities don’t think it’s their mission to train students for the workplace.
- byrneseyeview 16y ago
  To the extent that a degree doesn't have some kind of return, it's irresponsible to lend people money as if it works as collateral. Imagine someone with an income of $25,000, borrowing $150,000 to buy art.
jdavid 16y ago
"But what we can change are the policies that subsidize college. Student loans should be drastically curtailed, especially for the "at-risk" groups (which are also the fastest-growing). Loans to students at for-profit schools have an appalling 40% default rate. While I can't find data for degrees, I suspect that hard science graduates default more rarely than social science graduates (except for education, where the compensation is nothing if not reliable)." Are you really suggesting that we take away this opportunity from the dis-advantaged? I may not be willing to give 99% of bumbs money, even for food, but i am completely willing to give money to the government no-matter the cost to make sure that everyone has a chance to seek knowledge. I am almost of the opinion that there is no greater thing a country can do, than to provide a proper education to everyone within it's boarders. ( regardless of race, creed, gender, nationality, or citizenship ) let the world come here to learn, let the world compete to come here to get an education. yes, we need to make hard decisions in the coming years, but limiting access to knowledge is not one of them.
steveplace 16y ago
Everytime someone talks about college being a bubble, people get offended because they think the thesis says their degree is not as valuable. That is not the point-- you've got 3 different angles: the opportunity cost vs future income, the actual market price of college debt (think mortgages), and uni tuition vs. overall demand. I know this because I talked about this last year and caught a lot of flak for the argument. My thesis can be seen here: http://bit.ly/bUCfec http://bit.ly/bUCfec
- byrneseyeview 16y ago
  Excellent post.
neutronicus 16y ago
Universities certainly seem to employ a lot more people outside of the businesses of education and research than they used to. Correct me if I'm wrong, but I don't think college used to have "diversity programs coordinators," "counseling and psychological services," and a paid intramural sports infrastructure, to say nothing of steadily larger dorm rooms and increasingly common private bathrooms. My parents teach at a small liberal arts school, and they say that landscaping has skyrocketed out of nowhere into a pretty expensive part of their budget. They also say that they are under constant pressure to hire more "diversity professionals" from regulatory bodies. A university is a meal ticket for a lot of people, not necessarily just professors, and once some people find a meal ticket, especially one as intertwined with the public sector as higher education, good luck getting them out.
absconditus 16y ago
I thought that this was going to be about a slightly different topic. "Though students at for-profit schools accounted for less than 10 percent of U.S. higher education students overall, they soaked up almost 25 percent of federal student aid in 2008-2009 and contributed 44 percent of the federal loan defaults, according to both Eisman and an independent report by Senator Tom Harkin, Chairman of the Health, Education, Labor and Pensions Committee." "The Apollo Group, for instance, parent company of the familiar University of Phoenix and the largest for-profit education company, received $1.1 billion in federal loans and grants in 2009, Eisman said in his written testimony to the committee. However, of that total, only 99 million -- or, about 10 cents on the dollar -- went towards instructional costs. The rest, Eisman claimed, was spent on marketing and executive salaries." http://www.3quarksdaily.com/3quarksdaily/2010/07/is-forprofit-education-the-next-subprime-mortgage-crisis.html http://www.3quarksdaily.com/3quarksdaily/2010/07/is-forprofi...

58 points by byrneseyeview 16y ago

Bubbles are not visible when you are in them. So I guess it is a good bet that when many are saying something is bubbling, it probably isn't.

byrneseyeview 16y ago
They are, almost by definition, invisible to the participants. But you can call a bubble during the bubble, as many people did during the tech bubble or the real estate bubble. It stays a bubble as long as they (or at least their financial bets) are in the minority.
- Ardit20 16y ago
  I do not think anyone predicted the 2007 crash besides whoever is in the business of predicting crashes. The Prime Minister of the United Kingdom then declared that he had eradicated the cycle of boom and bust. We all felt that it could only get better. Now if some guy is so smart, then perhaps there is something very wrong with our system of selecting the top banker, which is the governor of the Bank of England in this country. I would like however to suggest that higher education is very different from estate or technology. Higher education is slightly more like electricity or clean water. It is a necessity. The universities may charge however much they like, as may companies which provide electricity, because people simply have to bear it. Someone who is interested in exploring the world, even if that may be through such a low field as you suggest of sociology or psychology or indeed philosophy, will still be willing to take the grants that states provide in order to fulfil such desire. They think and so they may be right that they will indeed die and the aim as long as they live is to explore the reality of the life that they do choose to live. What is the nature of people, how could we be governed better.... What I am suggesting is simply that there is no bubble in education nor can there be. Whatever the number of people that are educated so the better it is. Education you see is very different to an eighteen year old than to someone who has gone through life so well perhaps and has the freedom to provide us his wisdom through the internet. That eighteen year old perhaps your have forgotten does not actually quite know yet who he is or the nature of reality. Higher education provides him a good grasp of that. What I would be much more worried of is the hierarchy in education, the only place where it is feasible and desirable for a communist system to be implemented in as far as providing all with the same standard of teaching and holding them all to the same standard. As for bubbles, there are no bubbles here. Nor will there ever be. Bubbles happen in the for profit sector. Not in the most basic service besides food and water that humans require.
  - byrneseyeview 16y ago
    No, there were lots of people who don't explicitly predict crashes, who still called this one. Michael Lewis' The Big Short is a fun overview. The Greatest Trade Ever is also good; the protagonist of that one is a merger arb, not a doom-sayer. And of course, countless people sold when they found prices too high. It seems very obvious to me that the establishment has to buy into it for a bubble to exist. Prices peak when optimism peaks, so you'll necessarily be able to point to people in authority who were too optimistic. The only alternative to that is a) for prices to undershoot rhetoric (arbitrage opportunity!) or b) for prices to never go down (result: buying is a safe bet, causing a bubble, leading to a crash). What I am suggesting is simply that there is no bubble in education nor can there be. Whatever the number of people that are educated so the better it is. This is what we call a "Bubble mentality". No P/E too high; it's the Internet! No collateral too poor; it's the ownership society! You clearly don't believe that; you would not be happy if, e.g., we were starving because every farmer decided to finish his Masters in English lit. There is a right amount of education, and it is not an arbitrarily large amount. What I'm pointing out is that by every measurable quantity, we're paying more and more for something of less and less value. Education you see is very different to an eighteen year old than to someone who has gone through life so well perhaps and has the freedom to provide us his wisdom through the internet. That eighteen year old perhaps your have forgotten does not actually quite know yet who he is or the nature of reality. Higher education provides him a good grasp of that. Not sure what you're trying to say. I'm 23. Education is beneficial. That doesn't mean it's worth trading anything of value for any extra amount of it. It is precisely this kind of thinking that leads to other bubbles.

chime 16y ago

> 1. The price of college is continuing to rise faster than the rate of inflation. Then maybe inflation isn't taking everything into account? My health insurance cost is rising faster than inflation too. So is health care cost and nearly every service that requires labor and cannot be imported/outsourced. Doesn't that tell you that the true rate of inflation could be much higher than the publicized rate? Rate of inflation includes lots of goods that can be cheaply imported. But you cannot import enough cheap labor with PhD degrees. And these are not included in calculating the rate of inflation.

byrneseyeview 16y ago
Education is one component of inflation. Different components are rising faster or slower than the general rate of inflation. For example, housing used to inflate faster--not so much, lately. And medical care is still growing fast. But food, clothes, and especially electronics are getting cheaper.
- yummyfajitas 16y ago
  Actually, housing didn't inflate much either. Owner equivalent rent increased at a rate of only 1.4%/year between 1987 and 2008. http://www2.standardandpoors.com/spf/pdf/index/House_Price_Rent.pdf http://www2.standardandpoors.com/spf/pdf/index/House_Price_R... (I took 130% as the mean increase from exhibit 2 on page 5, but that's just an eyeball estimate.)
  - byrneseyeview 16y ago
    That's very surprising! Housing prices obviously went up, so how did this not show up in a higher cost of living?
    - yummyfajitas 16y ago
      The cost to purchase a home went up, but that isn't the same thing as the cost of housing, since home purchases have a strong component of speculative investment. An analogy to make it more obvious: imagine I sell packages consisting of 1 banana + 1 share of Chiquita stock. If Chiquita stock goes up, does that mean we had food price inflation?

brlewis 16y ago

Better returns might come from ensuring that everyone gets a good kindergarten education.

Legion 16y ago
A good idea, but giving children new parents is both expensive and legally sticky.
protomyth 16y ago
Technically, better money spent is testing children for developmental disabilities in the pre-kindergarten years (0-5) and spending the money to "fix" at that time is a better first step. A problem found in kindergarten might end up costing the government in excess of a million dollars can sometimes be fixed for less than $100,000 if known about earlier. For example, hearing problems can be worked around earlier in life to allow proper development.

sprout 16y ago

Personally I think looking at higher ed is looking at the wrong side of the equation. We're not in an education bubble, but a "bunge"[1] if you will - the opposite of a bubble - with regard to labor prices. In other words, people aren't overpaying for education, businesses are underpaying for human talent. [1] http://www.johnkay.com/2008/07/02/metaphors-in-free-fall-the-anti-bubble-named/ http://www.johnkay.com/2008/07/02/metaphors-in-free-fall-the...

yummyfajitas 16y ago
Why do you believe talent is underpaid?
- sprout 16y ago
  The top 10% of Americans hold an ever-increasing share of American GDP. So I suppose to be a little finer-grained, upper echelons of society overpay themselves and underpay the majority of the labor market, even as they benefit from the fruits of a highly educated labor market.
  - yummyfajitas 16y ago
    How does the top 10% receiving an increasing share of GDP imply that the bottom 90% are underpaid? If the top 10% are also creating an increasing share of GDP, then that would imply that everyone is being properly valued.
    - sprout 16y ago
      That's a tautology though. You're using the method of apportioning contribution to GDP (wages) to prove that GDP is being properly apportioned. There's evidence of your position, but it's hardly obvious. Personally I believe it to be incorrect.
      - yummyfajitas 16y ago
        I'm not asserting that wages are being properly apportioned - I'm just pointing out that the fact that the top x% get a greater portion of GDP is not evidence that talent is underpaid. It could easily be the case that the top 10% is the most talented, and the talent gap/rewards for talent have increased. Income inequality is simply not evidence either for (or against) the claim that talent is underpaid, at least not without information on the distribution of talent.

TravisLS 16y ago

From the end of the article: "I haven't found a way to short higher education as a whole. If you can think of one, let me know." Any ideas?

kenjackson 16y ago
Actually there's a pretty simple way. Start a guaranteed tuition plan. Parents can pay you today's tuition cost for their child to go to college in 5-18 years. If higher education drops then you make money. If they continue to go up, then you lose money. You probably need to set aside a pretty sizable chunk though in the very possible scenario that college costs continue to rise.
- byrneseyeview 16y ago
  Wouldn't you want to take the opposite trade? To guarantee someone else's tuition at a flat rate (or a flat rate plus interest) and then pay for their classes at the market rate once they get to school?
  - AGorilla 16y ago
    That's not the opposite, that's the same.
  - wake_up_sticky 16y ago
    That's what he said. The parents would pay you a flat rate (today's tuition) and you would pay their kid's tuition 10-15 years from now. Assuming the bubble burst before then, you would make the difference in price between today's tuition and the tuition of the future.
    - byrneseyeview 16y ago
      Yes, you're right; I misread it. Thanks!

sliverstorm 16y ago

So long as sciences and social sciences are lumped together as 'a college degree', the advantage and profit associated with a science degree will prop up the expectations of a social sciences degree. It really does make sense for an experimental physicist to go to college. No matter how bubble-y it may be right now, there aren't many with just a high school degree.

lsc 16y ago
ah, but i would argue that if you are trying to maximize your income, becoming an experimental physicist is a horrible idea. You need a whole lot of education, and if you drop out before your PhD, it's all pretty much wasted. I've got a guy who does work for me sometimes who has both a math and a physics undergrad... neither of those degrees gets you a job. My understanding is that even if you do make it to a PhD you are looking at making about as much as a computer programmer or sysadmin with an undergrad or no education.
- yummyfajitas 16y ago
  Not in my experience. In general, employers seem to view my math degree as more or less equivalent to a CS degree. I know for a fact that "PhD dropout" is good enough to get you in the door for quant jobs at many banks/hedge funds. Tech startups don't seem to mind either if you demonstrate that you actually like to code and aren't ivory tower (i.e., use grep rather than build your own regex parser).
  - lsc 16y ago
    well, this one datapoint is that this guy is starting out where I started out (I didn't go to school.) Now, he's obviously a really bright kid and I'm sure he'll do fine eventually, but for now, he's certainly not in the place he'd be in if he spent as much effort on work as he has spent on school.
  - nkassis 16y ago
    Not my experience either considering I have a Math degree and had no issue finding a job as a software developer. In fact, I've noticed that the Math degree makes managers think of you as smarter. There is a perception of Math degrees as being harder than most other degrees. (I personally think EE is the hardest one out there.)

gyardley 16y ago

Tuition is rising because loans are heavily-subsidized by the government, and universities (especially for-profit universities) are taking advantage. It's a simple business model - spend a ton on ROI-positive marketing (especially online CPA marketing), get people who can't really afford it to take out huge student loans which they only qualify for thanks to Title IV, get the vast majority of your revenue directly from the government. Saddled with massive debt and useless degrees, the students increasingly default, but that's not the universities' problem - the risk lies solely with the students and the government. If you want to short education, you could short companies like Apollo Group and ITT Educational Services, as well as the online marketing companies that service them, like Quinstreet. But this is risky, because the bubble's only going to burst when the government gets around to changing policies.

byrneseyeview 16y ago
Steve Eisman has written a very compelling presentation on why for-profit schools will likely have a sudden, drastic loss in earnings due to new government policies: http://www.marketfolly.com/2010/05/steve-eisman-frontpoint-partners-ira.html http://www.marketfolly.com/2010/05/steve-eisman-frontpoint-p... But the risk is priced in. What's not properly priced is the risk that for the average person getting a marketing degree from Local State U, it would have been a better use of their time to work in retail or something.
rdtsc 16y ago
> But this is risky, because the bubble's only going to burst when the government gets around to changing policies. Out of curiosity, how would the govt change their policy to improve the situation? Should they just stop subsidizing the loans? Or should they let students declare bankruptcy if their promised dream job doesn't matterialize when they graduate? I think regulating the deceptive marketing should also be considered. There is a huge discrepancy between the advertised ROI and actual ROI. People should be made aware of the actual ROI of a college degree. Then a lot less will be willing to spend $100K to get a piece of paper after 4 year that turns out not to help them much after all.
- 16y ago

dugmartin 16y ago

I think government subsidized four year research universities will be overtaken in the US by the community college system which will start to offer four year degrees. We can't afford to pay for professors that might teach one or two classes per semester. In non top tier private colleges more and more non alumni revenue generating study areas will close. It won't make sense to anyone to spend $200k to get an undergraduate degree in education where you can expect to make $40k per year. Very top tier private colleges won't be hit as hard as their student bodies trust funds will absorb the cost.

deleted 16y ago

[deleted]

lsc 16y ago

Fewer and fewer people have been going to school for the money for a while now. My sister has a degree in fine art. I don't think anyone rationally expected that to raise her earning power.

wmf 16y ago
That's fine, but the problem appears when people borrow money to finance such a hobby, not realizing (or not caring) that they'll never be able to repay.

GrandMasterBirt 16y ago

We need difficult college courses which yield degrees. Its quite simple, really. If the course is hard and fruitful, very few unmotivated people will get through it. And a motivated person is sure to succeed (at least much much much more likely). This way having a degree REALLY will mean something. If 10/1000 graduate from this program, you graduating means that you really did accomplish something great. Also we need a way to snapshot your success. In other words if the school dies, it should not diminish what you did in school. There should be a way other than the name of the school to indicate that you passed through the blazes of academic hell and came out triumphant.

wake_up_sticky 16y ago
I agree, with the caveat that it shouldn't be done on a curve. College should be much harder than it is, but it should be theoretically possible for everyone in a class (of super-geniuses) to graduate.

timwiseman 16y ago

This article make some very interesting points, but I think it speaks a little too broadly at points. It does not sound like there is an overall education bubble, but rather a bubble in liberal arts education and particularly liberal arts education from lower tiered schools. Even the article points out that engineering majors, especially those from highly ranked schools are doing quite well and that does not appear to be changing. Even on his point in signalling, it may be that having "a degree" will come to mean less and less, but it is unlikely that having "a degree from Harvard (or other prestigious school)" will mean less anytime soon.

gojomo 16y ago

Is there a business opportunity providing a new signaling credential/certification that hasn't been as diluted as "a college degree"? (An organization providing such a service would face a lot of temptations to get in on the traditional higher ed gravy train, while it lasts, but its ultimate success through the crash would depend on it staking out a different identity. It would probably also need a strong culture of elitism -- drawing a lot of detractors, and possibly lawsuits once its certifications get used in employment decisions.)

byrneseyeview 16y ago
There are professional accreditations that work something like that. e.g. the CPA, CFA, bar exam, etc. Those tests usually require you to get some kind of education before you take them, but the actual qualification is granted based on test scores.

nphase 16y ago

I hate to sound callous, but this is just an effect of more people going to college today than in decades before. Yes, obviously I want everyone to succeed in life and have a college degree and do well, but obviously this can't be the case. In decades past income disparity (since we're speaking in terms of ROI) existed partly because of the availability and accessibility of the college degree. Back when degrees were scarce, they were rewarded. Now that everyone and their dog is getting one, it doesn't mean very much. Friends of mine are graduating college and going straight back home to live with their parents. And this is happening in droves. The degree is no longer a differentiating element of their resume. Don't get me wrong, I'm glad that on a whole, are becoming more educated (let's ignore the fact that this statement has no evidence behind it, and is purely an assumption). That is a good thing. But inflation rarely goes unpunished. Disclosure: I'm a college dropout, and happily so.

nkassis 16y ago

Maybe they could make the schools partly responsible for false advertising and high costs. Also, there is a serious lack of oversight of universities. Accreditation is a joke now days. There is such a divergence of curriculum amongst reputable schools and it gets worse for the new profit schools. I'm glad I only had to pay 5K a year compared to others dealing with 10-20K tuition cost for school no even close to the top tier universities in the US. Harvard charging 20K is ok considering the rep you get just having a degree from there. But random private school X? not so much.

krschultz 16y ago

This argument is increasingly common, but it misses the actual truth. Sure the difference in salary shrinking will increase the amount of time it takes to pay off the degree, but that is not the whole story. 1) Unemployment rates are inversly propertional to education level. The worst hit by the recession were those without college degrees. Who is going to bet that trend reverses in the near future? If anything the college grads are just going to suck up high school grad jobs they are overqualified for. 2) Type of job/ceiling. A lot of times you can get the same job with or without a college degree (see: Sales Representative), but the college degree usually means a better compensation structure and pathways up in the organization, even if the salary is not a huge difference for the first 10 years eventually the HS degree will reach a ceiling. I've even seen this in accounting between those that are CPAs and those that just have accounting degrees, or at upper level executives who have MBAs vs those that don't. 3) The cost numbers in these articles are invariably screwed up. $200,000 for a college degree? If you are actually price sensative go to a county college for 2 years and then a state school for 2 years. Total cost would be <$60,000 for the whole thing. In most states you would even have your choice of multiple schools. My theory was that you should go cheap on the undergrad, if the name of the school matters so much, just go there for graduate school. I'd hire a guy with a grad degree and a state school over a really top shelf undergrad (hence, state school for me and I just got hired at my job along with a bunch of guys who paid 4x or more for private engineering schools)

timwiseman 16y ago
My theory was that you should go cheap on the undergrad, if the name of the school matters so much, just go there for graduate school. I'd hire a guy with a grad degree and a state school over a really top shelf undergrad& In technical fields, I agree with you. Having a degree often matters to get in the door and avoid hitting ceilings, as you pointed out. But skill in your actual job and (for better or worse) skill in networking and relationships will win out over pedigree in the long run without problem. It seemst that the situation is different in liberal arts fields though. My wife is a history major and because of her I have many acquantances in the liberal arts. They are all very worried about pedigree, and it sounds like employers looking for that type of employee is also very worried about pedigree. I suspect this is because it is harder (not impossible but harder) to measure productivity and skill in liberal arts than it is in engineering and related technical fields.

pneill 16y ago

What’s the purpose of an education? I ask this because it’s central to the topic. Is it to get a job or is it just to learn? If it’s the former, then we can have an ROI conversation, but if it’s the later then ROI doesn’t really apply. FWIW, I worked in higher education for over 10 years, and I can assure you that universities don’t think it’s their mission to train students for the workplace.

byrneseyeview 16y ago
To the extent that a degree doesn't have some kind of return, it's irresponsible to lend people money as if it works as collateral. Imagine someone with an income of $25,000, borrowing $150,000 to buy art.

jdavid 16y ago

"But what we can change are the policies that subsidize college. Student loans should be drastically curtailed, especially for the "at-risk" groups (which are also the fastest-growing). Loans to students at for-profit schools have an appalling 40% default rate. While I can't find data for degrees, I suspect that hard science graduates default more rarely than social science graduates (except for education, where the compensation is nothing if not reliable)." Are you really suggesting that we take away this opportunity from the dis-advantaged? I may not be willing to give 99% of bumbs money, even for food, but i am completely willing to give money to the government no-matter the cost to make sure that everyone has a chance to seek knowledge. I am almost of the opinion that there is no greater thing a country can do, than to provide a proper education to everyone within it's boarders. ( regardless of race, creed, gender, nationality, or citizenship ) let the world come here to learn, let the world compete to come here to get an education. yes, we need to make hard decisions in the coming years, but limiting access to knowledge is not one of them.

steveplace 16y ago

Everytime someone talks about college being a bubble, people get offended because they think the thesis says their degree is not as valuable. That is not the point-- you've got 3 different angles: the opportunity cost vs future income, the actual market price of college debt (think mortgages), and uni tuition vs. overall demand. I know this because I talked about this last year and caught a lot of flak for the argument. My thesis can be seen here: http://bit.ly/bUCfec http://bit.ly/bUCfec

byrneseyeview 16y ago
Excellent post.

neutronicus 16y ago

Universities certainly seem to employ a lot more people outside of the businesses of education and research than they used to. Correct me if I'm wrong, but I don't think college used to have "diversity programs coordinators," "counseling and psychological services," and a paid intramural sports infrastructure, to say nothing of steadily larger dorm rooms and increasingly common private bathrooms. My parents teach at a small liberal arts school, and they say that landscaping has skyrocketed out of nowhere into a pretty expensive part of their budget. They also say that they are under constant pressure to hire more "diversity professionals" from regulatory bodies. A university is a meal ticket for a lot of people, not necessarily just professors, and once some people find a meal ticket, especially one as intertwined with the public sector as higher education, good luck getting them out.

absconditus 16y ago

I thought that this was going to be about a slightly different topic. "Though students at for-profit schools accounted for less than 10 percent of U.S. higher education students overall, they soaked up almost 25 percent of federal student aid in 2008-2009 and contributed 44 percent of the federal loan defaults, according to both Eisman and an independent report by Senator Tom Harkin, Chairman of the Health, Education, Labor and Pensions Committee." "The Apollo Group, for instance, parent company of the familiar University of Phoenix and the largest for-profit education company, received $1.1 billion in federal loans and grants in 2009, Eisman said in his written testimony to the committee. However, of that total, only 99 million -- or, about 10 cents on the dollar -- went towards instructional costs. The rest, Eisman claimed, was spent on marketing and executive salaries." http://www.3quarksdaily.com/3quarksdaily/2010/07/is-forprofit-education-the-next-subprime-mortgage-crisis.html http://www.3quarksdaily.com/3quarksdaily/2010/07/is-forprofi...