<p>Peter Thiel, best known as the venture capitalist who helped support "The Facebook", talks about the higher education "bubble" in an interview. Intriguing reading, with some things I hadn't considered before. Like this:</p>
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[quote]
One important difference between the housing bubble and the education bubble is that there was sort of a class aspect to the housing bubble: upper-middle-class people in the U.S. tend to be invested in equities, and middle-class people tend to be invested in housing, so there was a way in which the housing bubble was a way of making fun of the middle class for various sophisticated elites that ran all the way through the housing bubble. It was sort of like, Look at those dumb people and beatniks in suburban America who are doing this crazy housing thing. So even though it was a crazy bubble, there was at least a kind of counter-narrative; you had a bit of a dissenting narrative. Education is an upper-middle-class thing, and so something that is not questioned by elites at all, and thats why the education market is more likely to be distorted.
<p>Yes, well, this has seemed pretty clear to me for a while. </p>
<p>People seem unconcerned because it won’t “effect” the economy the way that the housing bubble did, which is true. But, it has certainly impacted college pricing, for sure.</p>
<p>selling a product or a means of financing based on false or just misleading premises is a bad thing, I agree.</p>
<p>but thats not what the term “bubble” implies. Bubble means a speculative frenzy - an asset is sold, its price goes up, people are tempted to buy in order to resell quickly, people try to buy before prices skyrocket further “get in while there is still time/before you are priced out” etc, so high prices feed on themselves - and thus a SMALL decrease, or even a stop to rapid price increase, deflates the bubble, leading to collapse. Thats the way its been since the tulip bubble and South Seas bubble. That is what the housing bubble to a considerable extent was.</p>
<p>It does not apply to higher education. People do NOT buy degrees to resell them. No one that I know of pays for college because the price will be higher next year. The financial returns to college in terms of salaries have NOT been increasing, and are not creating a get rich quick attitude on the part of buyers.</p>
<p>At some level words have to have meaning. Perhaps every bubble involves a product that is sold unethically, but NOT every product that is sold unethically involves a bubble. </p>
<p>The implication of a bubble, is that its going to pop. That, for example, the levels of financial distress currently observed among borrowers are significantly below what they soon will be. IE that there is a collapse around the corner, like the housing bubble in 2005. But if there is a reason to expect more distressed student loans in 2011, than in 2010, I dont see it (other than perhaps the increasing numbers of attendees of FOR PROFIT schools using loans, but I dont think THATS the crisis being addressed here)</p>
<p>“But, it has certainly impacted college pricing, for sure.”</p>
<p>I doubt that . At most of the elite privates that seem to lead the price increase bandwagon, the numbes of - A. High income people who can pay out of pocket without loans and B. The numbers of moderate income people who get few if any loans other than federal loans - is pretty large IIUC. I really wonder if the end of PLUS loans, etc would really dramatically effect the ability of most of the 50k+ COA schools to charge what they charge.</p>
<p>“Though hes primarily a businessman, Thiel has dabbled in libertarian activism”</p>
<p>Ironic that one whose ideology helped lead to the housing bubble is being cited as a source on bubbles. But is NR, so I shouldn’t be surprised. Sorry if that comes off as ad hominem, but it does seem that he is being cited as an authority because of who he is, and when someone is cited not for their argument, but as an authority, ad hominem is not an illogical response.</p>
<p>“Education is an upper-middle-class thing, and so something that is not questioned by elites at all,”</p>
<p>straw man alert - Education loans are highly questioned in numerous articles in the main stream media (which we see quoted here all the time).</p>
<p>it would seem that those most aggresively pushing the higher ed bubble meme are Glenn Reynolds (libertarian blogger) and Michael Barone (conservative columnist) </p>
<p>No I don’t. Which is why I only said I doubt it, not that I am pretty sure one way or the other. I would suggest that those asserting that PLUS loans are driving prices might perhaps bring forward some data. </p>
<p>I do recall seeing info here some time back about how relatively inexpensive the Harvard/Columbia/etc no loan policies are because so many families at those schools are above 250k income anyway. I am sure there are some schools, like say NYU or Lehigh, where the numbers in the most PLUS dependent income classes could be higher. I am skeptical that those schools are setting the market price, but I havent really seen a full analysis.</p>
<p>The price of a college education is not in line with what the student could afford if the government did not make it impossible to discharge student loans. It is an artificially inflated price, riding on the backs of student borrowing.</p>
<p>Yes, we have seen the sl debt exceeding credit card debt posted here many times.</p>
<p>As the article you point to indicates, that is in part due to reduction in credit card debt. </p>
<p>And as you point out, federal student loan debt, which maxes out at a relatively modest level per student, is the vast majority of that. </p>
<p>The amount of federal originations in the last 4 years (and I thought it was PRIVATE loans that were the bubble problem) could be for several reasons. A. Vast increases in the proportion of non-profit attendees using student loans B. Student loans being paid off early in general, so that most loans are of much shorter duration than we think C. expanding market in FOR PROFIT colleges</p>
<p>B would not indicate a bubble. C WOULD indicate a “bubble”, but a far different kind of bubble than our libertarian friends are focused on</p>
<p>"Well, that is like saying that home prices aren’t over-valued because the high end housing market is holding up pretty well. "</p>
<p>Home prices today are probably not overvalued, because of the decline in prices. </p>
<p>However high end housing and lower end housing are related in particular ways. High end housing prices are impacted by move up buyers from lower end houses. </p>
<p>Do people sell their state U degrees to get cash to buy an Ivy degree? </p>
<p>And if the crisis is in state U degrees, are PLUS loans all that relevant? </p>
<p>What class of bubbly colleges do you consider equivalent to the exurban SFHs that were bought with subprime loans?</p>
<p>College costs can’t suddenly drop without a collapse in the overall economy. College costs rise faster than inflation because their “production” costs can’t be outsourced offshore, like most everything Walmart sells; a college degree is labor-intensive.</p>
<p>"The price of a college education is not in line with what the student could afford if the government did not make it impossible to discharge student loans. It is an artificially inflated price, riding on the backs of student borrowing. "</p>
<p>Operative phrases are “the price” and “the student” There are thousands of colleges, and a diverse body of students. </p>
<p>I am not convinced that the non dischargeability of private student loans is making a huge difference in the price.</p>
<p>heres an interesting response to the bubble talk. While I dont agree with all he has to say, he makes some good points, I think, in discussing the differences within the market</p>
<p>historically offshore med and vet schools are driven by the way professional orgs have successfully limited the opening of new med and vet schools in the States, not so much by search for cheaper labor, IIUC.</p>
<p>Not to say that offshoring for price reasons is absolutely impossible (though I think the international marketplace in hiring for profs and TAs makes the labor market differentials smaller than otherwise) but I dont think the carib med schools are evidence of that.</p>