Preventing the Higher-Education Bubble



As our economy recovers from the bursting of the “housing bubble”, some warn that another is looming on the horizon.

The phrase “higher-education bubble” was first popularized by Glenn Reynolds, a distinguished professor of law at the University of Tennessee. In his book, he defines the term:

“Bubbles form when too many people expect values to go up forever.”

How do we properly value education against the cost? We all know that tuition prices across the nation are rising and have been for years. Diving into the data, on the other hand, can be a daunting task. Simple “hockey-stick” graphs ignore the normal increase in prices that would come with inflation.

Additionally, data from College Board’s Trends in Student Aid, one of the most comprehensive sources of statistics on college pricing, indicate that financial aid per student in constant (inflation-adjusted) dollars has been consistently rising as well.

Because salaries for highly educated professionals have risen rapidly in recent years, an increase in college pricing is justified to some degree. Robert Archibald, chancellor professor of economics at the College of William and Mary, elaborates on the difficulties of lowering tuition prices:

“Everyone has three objectives for higher education: lower tuition, higher quality, and less government spending on subsidies. The unfortunate truth is that we can have any two of these, but we can’t have all three. If we mandate low tuition, we have to give on one of the other two.”

Tamar Lewin of the New York Times takes a different position, attributing much of the rising education cost to unnecessary increases in administrative staff in colleges across the country.

Regardless of the policy causes, students have a responsibility to make smart decisions in order to sustain the value of education. College is still worth it, and we can achieve a great return on our investment. However, if we are not careful, we can make the mistake of overvaluing our education. Maximizing the future benefit requires more than sitting through classes.

We are not entitled to a job offer or high salaries once we graduate. In order to deserve these things, we must continue to work hard in classes and focus on enriching ourselves outside the classroom, building time management and communication skills.

According to multiple studies, students at colleges across the country spend less time studying today than 60 years ago. Social development is a crucial aspect of the college experience, but it is not the reason tax dollars are funding federal student loan and grant programs.

Nor is enrolling in college an automatic guarantee to future success. According to the American Enterprise Institute,

“Data from the National Center for Education Statistics show that only 58 percent of new college students who began in 2004 had graduated six years later.”

The 42% of students who dropped out (roughly 2/3 of which cited reasons non-related to tuition prices) are left holding thousands in student loans with no diploma to show for it. For these people, it may have been better if they had considered an alternative to college. For those of us that are already here, we need to continually strive to merit the generosity we have been given and work to achieve the success we dream of.

A variation of this article was first published in the Baylor Lariat on 1/23/13.

21 responses to “Preventing the Higher-Education Bubble

  1. Pingback: The Higher-Education Bubble |·

  2. One passage in your article particularly caught my eye: “Tamar Lewin of the New York Times takes a different position, attributing much of the rising education cost to unnecessary increases in administrative staff in colleges across the country.”

    A university’s costs are about 85% from personnel salary, and 15% from facilities and supplies. It’s not just administrative staff positions that are bloating the cost of higher ed. The salaries and benefits for the faculty is exploding too. How else can you explain the consistent rate of growth of higher ed that’s more than double the rate of inflation?

    For an inside view of the cushy life of the higher ed faculty, please read this rare public disclosure revealing their sweet set up: Fat City.

    – Jeff

    • Interesting article link. However, I still hesitate to make my own determinations for who “deserves” what pay. As a free-market advocate, I try to stay away from assuming I have the knowledge to determine what pay is “fair”.

      I’m also curious what the percentage spent on professors/facilities is over time. Honestly, it doesn’t even seem alarming to have 85/15. Donors (it seems) pay for building projects. And if we want to focus on education, why wouldn’t we invest more in professors than nicer classrooms?

      • I guess I’d say that unchecked growth in tuition and in the salaries of elite faculty are directly related to each other. You yourself called it a bubble. Something must be pumping the bubble up, right? I’d encourage you to not turn away from researching the trends of higher ed faculty pay at public universities so quickly. It’s not a “free market” when you’re talking about government-subsidized (or more correctly: taxpayer-subsidized) state colleges. Those are essentially government jobs, and so their salaries don’t deserve a laissez-faire tolerance, in my opinion. Private colleges are a different story, of course. I agree with you there.

        Thanks for the dialogue. Best wishes.
        – Jeff

  3. Good essay. I’ve heard that the increase in financial aid today may be toward a higher percentage of one’s costs, but that the percentage of grant vs loan aid is quite different than years ago. That is, today the percentage of aid that is loan-based is higher; grant-based aid is lower. I’m also wondering, aren’t for-profit colleges the places which have the lowest graduation rates and the places where students are left with the greatest debt with the least bright future? Does capitalism not work for higher ed? (wink, wink)

    • Correlation does not imply causation. Are these for-profit schools (primarily serving low-income or low-achieving students who could not attend another college) to be criticized for giving the kids a chance at opportunity? I hesitate to jump to that conclusion. But perhaps I’ll add a specific look at “for-profit” schools to my future post list. 🙂

      • I’ve heard not-so kind things about them. Such things as eager to get them financial aid, but then low on the kind of support that may help keep low-income students enrolled. Yes, it may make a good future blog entry.

  4. The whole education thing is a loop.

    1. People perceive a college education as necessary to open the doors for better employment,
    2. since the most ambitious people go to college the workforce perceive a college education necessary to find good employees.
    3. thus ambition people go to college
    4. the result is constantly higher tuition.

    I suppose eventually this loop will collapse, but the cost of a college education will have to greatly outweigh the value of it before that changes. In the mean time culture will have to change – is it the college education the employers are after or the type of people they get from colleges – and is there a better way to find those people?

    • I think your points are good, but I still would argue that college is a transformational and highly educational experience. Yes, there may be some “false perception”, but much of it is rooted in a reality – that college significantly increases one’s ability to be independent and educated.

      • Oh – I totally agree. There certainly is some value derived from college. It totally changed me. I think a lot of those people who go to college would be successful either way though.

  5. Pingback: Is higher education really in crisis? « Cogitating Duck·

  6. I’ve taken up your invitation to comment. It seems I had enough thoughts to make a full blown post! The gist though is that the bubble is real, the higher ed crisis is illusory, and we need to separate the necessary task of making of a good citizen worker from the option of pursuing an enhancement of one’s own labor marketability. For historical and practical reasons, land grant universities are especially incapable of satisfying these two things simultaneously.

    • So you mean you’re writing an entire post on this in the future? Because I’d enjoy that.

      Don’t quite follow yet – by the “illusory higher ed crisis”, you mean the “rising tuition” that is over-dramatized? I guess my argument is that students should enhance their own labor marketability and not rely on their universities to do it for them. Because, like you said, it won’t happen.

      • Rising tuition is real. But the free market still avails the prospective student a lot of options to choose from. Even the state of California is wising up. To relieve students of costs, Gov. Brown has proposed the state universities switch to open-source textbooks. This of course will upset professors greatly. And its kind of a joke. But the fact remains, there are plenty of options. No one is forcing any one student to pay exorbitant sums for something he doesn’t value. In that sense, the crisis is illusory.

        • Makes sense. The whole concept of universities “taking advantage” of students graduating with “crushing debt” seemed not to hold up for me. Like you said, no one is forcing these students to go to expensive colleges. The NYT keeps doing stories about these students, further exacerbating the sense of entitlement. As if they should be automatically rewarded for spending so much money by getting their dream job.

  7. Good post. Definitely agree college students need to make the most of their time at school and not waste it away and they will see the benefits later in their careers. Curious on your source for salaries for professionals rising rapidly though…haven’t seen that in any businesses that I’m close to!

    • It seems I forgot to link to his quote. Adding that in now. His quote I took that fact from is thus: “In the last quarter of the last century, economic forces generated rapidly increasing wages for highly educated, highly skilled workers.” Hosted at if you want to read more. Not sure where his sources are for the facts, but I imagine it’d be relatively easy to find a graph.

      • So my research capabilities aren’t as good as yours since I haven’t found a good graph. But the last quarter of the last century means 1975 – 2000. Sure…wages probably did decrease a lot during that time. But recent years to me would be more like 2005 – 2012…and while I’ve been involved in corporate pay increases for highly educated workers during those years I’ve seen most pay increases averaging 1-2%, which for most years was less than inflation.

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