December 29, 2010

HIGHER EDUCATION BUBBLE UPDATE: Kenneth Anderson: 21st Century Jobs 1: Higher Ed ROI Planning?

The higher education bubble — both undergraduate and professional education — has raised issues of whether the academy has priced itself out of the earnings power, now and into the future, of its customer base. The basic phenomenon has been described at length, on both supply and demand. Federal subsidies accrue mostly to universities to raise prices rather than subsidize and lower effective prices to students; the shift to loans, however, meant in large part that the federal government became not a subsidy so much as an intermediary that subsidizes the higher ed cartel on the front end, but in the end largely intermediates the cost as future loan payments by consumers. One has to wonder whether the inability to discharge student loan in bankruptcy, if properly priced as a regulatory adjustment on the risks and interest rate of a loan, might swallow any remaining implicit federal subsidy to students, at least for important sectors.

Beyond the funding subsidy and federal intermediation, numerous articles and analyses have appeared seeking to quantify the earnings power of various degrees, career tracks, etc., set against the costs of such education. These studies are important in raising the social issue of the “four c’s” of financial bubbles: conflicts (of interest), complexity (of pricing information), complacency (of easy money) and, not least, cupidity. They raise the questions of social over-investment in higher education — over-investment for several possible and overlapping reasons .

Read the whole thing. Interesting discussion in the comments, too.

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