The U.S. economy has seen a number of bubbles expand and pop over the past decade. Two big ones that we’ll never forget are the Dotcom bubble burst in 2000 and the housing bubble burst in 2007. Unfortunately, these occurrences are not particularly uncommon, simply because the nation’s financial system often overvalues the worth of a product or service. So are your student loans worth more than the education you’re receiving as well?
Many fear that higher education is currently overvalued when comparing tuition costs to the education received and financial opportunities available after graduation. Is it possible that higher education is in the midst of its own bubble? If so, is there a way to get out of it before it bursts?
Cost of College on a Steady Incline
If you’ve been paying attention to tuition costs for colleges and universities for the past several years, you’ve probably noticed that the price of higher education has increased dramatically.
According to the IES National Center for Education Statistics, while the average cost of tuition in current dollars at all universities in the 1990-91 school year was $6,562, it nearly tripled to an average cost of $17,143 by the 2008-09 school year.
As noted by a report from the nonprofit College Board, costs for public four-year institutions in 2010 increased 7.9 percent to an average of $7,605, while private nonprofit colleges and universities jumped 4.5 percent over the previous year to an average cost of $27,293.
The steady rise in tuition over the past few decades has left many wondering whether the cost of college matches the payoff for graduates once they receive their diplomas.
When looking at data alone, it’s easy to answer “no” to this question. This is because, according to the IES, the average income of male bachelor’s degree recipients in 1995 was $49,300 while in 2009 it had only increased to $51,000. As for women, the average income was $39,400 in 1995 and only increased to $40,100 by 2009.
To see that average incomes for bachelor’s degree recipients haven’t increased much over the past couple of decades but tuition has skyrocketed over roughly the same period makes some question whether higher education is actually worth the cost.
What’s interesting is that a recent study conducted by Country Financial revealed 26 percent of Americans surveyed believe a college education isn’t a good financial investment. The main reason respondents felt this way is because college costs have increased too much and there simply aren’t enough job prospects available once students actually earn their degrees.
However, according to the authors of Academically Adrift: Limited Learning on College Campuses, there is even more reason to believe college isn’t a good investment.
This problem is leaving some to believe that attending college is worth much less than institutions claim, possibly placing it in the midst of a higher education bubble.
Is Higher Education a Bubble?
The concept of the bubble is one that dates back several centuries. It means the cost of a product is inflating for no justifiable reason–based on nothing but air.
In recent times, we’ve seen various bubble bursts that have resulted in prices tumbling down. Some fear that higher education is now in its own bubble with tuition costs rising, student loan debt and delinquencies increasing and the value of what tuition and student loans are funding–an education–remaining flat or even possibly decreasing.
What makes the situation more complicated is unlike the mortgage loans many borrowers found were too difficult to pay off once the housing industry’s bubble popped, student loans cannot be discharged in bankruptcy court.
In other words, once a student loan is borrowed, regardless of whether the education received in return pays off through a good job, the borrower is responsible for paying the debt no matter what.
Experts have said for years that the value placed on being a credit-based economy has directly influenced the push from colleges and even some lawmakers to attend college, whether or not students can afford it, or have the potential to find high-paying jobs upon graduation.
This has been proven by the recent practices discovered at for-profit universities where students have been encouraged to default on loans because the institutions profit so generously from the government funding.
It doesn’t help that the U.S. economy is in a very tough place right now. Many individuals who worked at the same company for decades have been let go from jobs since 2008. Many are still unemployed. In fact, according to the Economic Cycle Research Institute in 2010, 7 million jobs are gone forever.
How can college graduates fit into the mix when there aren’t enough jobs for workers with years of experience? Unfortunately, it seems we’ve reached a place where higher education in and of itself has the potential to be a great value because of the life experiences and possible job opportunities it could bring. But as a tangible investment for the future, it appears to be overvalued and already in a bubble that is likely to burst, if it hasn’t done so already.
Student Loan Debt: Next Bubble to Burst?
MK Consulting President Mark Kantrowitz discusses the rising cost of higher education (Fox Business)
To Attend College or Not to Attend College? That Is the Question…
So how should a high school student hoping to find a good job approach the idea of attending college? This is truly a tough question to answer because suggesting a person should not attend college simply because of the cost is truly taboo—and actually may not be the right answer.
The fact of the matter is, there are still good jobs out there. They are tough to acquire with more competition than ever, no doubt about it, but they do exist. Plus, there is absolutely a lot to gain from attending college, even if the quality job doesn’t appear right away.
In the end, it seems that each student, with the help of their parents, school counselors and anyone else with knowledge, should take a good look at their own situation to determine whether to attend college, and if so, where they should attend.
It’s a good idea to create as long-term a plan as possible. Look at the career you want to pursue, how much education is required to obtain the training necessary and what schools provide great values for the education received.
Also, you want to look at ways to finance your education. Of course, the best route is to acquire scholarships, grants or other sources of funds that allow you to pay for college without student loans. Also, you could consider working on- or off-campus to help finance your education. You might even be able to take advantage of tuition reimbursement from your company.
However, if you find that you must finance college through student loans, make sure student loans match earning potential to avoid debt you will be required to pay off for up to 30 years.
The fact that we are likely in a college bubble doesn’t have to be the end of the world, but it does mean students will have to work hard to compete in this tough job market despite the education they acquire. By minimizing personal debt and planning career prospects as thoroughly as possible, students could increase their chances of surviving what seems to be a higher education bubble.