Glenn Reynolds: Credit-Driven Education Bubble Creates Debt, Not Necessarily Value

To make college a good value again, today’s parents and students need to be skeptical, frugal and demanding. There is no single solution to what ails higher education in the U.S., but changes are beginning to emerge, from outsourcing to online education, and they could transform the system.

Glenn Reynolds, better known as the Instapundit, has a new book out titled “The New School: How the Information Age Will Save American Education from Itself“. Today excerpts have been released at the Wall Street Journal.

Though the GI Bill converted college from a privilege of the rich to a middle-class expectation, the higher education bubble really began in the 1970s, as colleges that had expanded to serve the baby boom saw the tide of students threatening to ebb. Congress came to the rescue with federally funded student aid, like Pell Grants and, in vastly greater dollar amounts, student loans.

Predictably enough, this financial assistance led colleges and universities to raise tuition and fees to absorb the resources now available to their students. As University of Michigan economics and finance professor Mark Perry has calculated, tuition for all universities, public and private, increased from 1978 to 2011 at an annual rate of 7.45%. By comparison, health-care costs increased by only 5.8%, and housing, notwithstanding the bubble, increased at 4.3%. Family incomes, on the other hand, barely kept up with the consumer-price index, which grew at an annual rate of 3.8%.

For many families, the gap between soaring tuition costs and stagnant incomes was filled by debt. Today’s average student debt of $29,400 may not sound overwhelming, but many students, especially at private and out-of-state colleges, end up owing much more, often more than $100,000. At the same time, four in 10 college graduates, according to a recent Gallup study, wind up in jobs that don’t require a college degree.

Read more at the Wall Street Journal.

This is an issue that has been garnering new attention in the last few years. It has become a given in society that the path to prosperity in America must by necessity lead directly though a college education. Yet the prohibitive costs and burdens imposed by such an education continue to outpace the potential rewards of the degree. Add to that general problem the more specific problem of unqualified students or those who pursue degrees that will have little payoff and you have a growing problem. Lots of students, lots of degrees, not enough jobs. (For my part, I think a great number of American students would have been better served joining the military straight out of college rather than rushing off for an advanced underwater basket-weaving degree or a Masters in Politically Correct Pandering.)

Says Reynolds:

The economist Herbert Stein once said that if something can’t go on forever, it will stop. The pattern of the last few decades, in which higher education costs grew much faster than incomes, with the difference made up by borrowing, can’t go on forever. As students and parents begin to apply the brakes, colleges need to find ways to make that stop a smooth one rather than a crash.

He makes a compelling case that new ways to look at higher education in the modern age can help produce a more effective system, and more equipped graduates and employees in the marketplace.

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