Don’t Let College Professors Tell You There Is No Diploma Bubble

The cost of college education is climbing into the heavens and the employment prospects and wage rates for college graduates are not keeping up. Many have pointed out that the student loan bubble is going to crash. No one can know when it will happen (Any formula for predicting a crash would cause economic actors who had the formula to alter their behavior and this would change the timing of the crash). But sooner or later the education industry is going to experience a decline or collapse.

But just like CNBC in 2006 and 2007, there are plenty of people out there ready to assure us that all is well. Consider the words of Robert Archibald, the co-author of Why Does College Cost So Much? (and also a college economics professor):

“‘I don’t understand the analogy [to a bubble] at all,’ he tells The Daily Ticker’s Lauren Lyster. ‘A bubble is about a financial asset increasing unreasonably in value and people then recognizing it’ he explains. Archibald does not see the payoff of going to college falling dramatically. ‘It’s not like the price of an asset that can just do that, so I just don’t think the analogy works.’”

Yes it does. The analogy works fine. The asset is the diploma. The diploma supposedly has value in your future job prospects. In most cases that is true, but its value to some degree depends more on a license than as a proof of ability. Diplomas are skyrocketing in price while the income stream of college graduates is not.

Another guest on the Daily Ticker, Jeff Selingo, author of “College Unbound” and editor-at-large for The Chronicle of Higher Education, tried to assuage fears by saying, “We really have to look over the lifetime. There are many different measures of this, but you’re going to make much more over the course of your lifetime if you have a college degree.” So the all-important question is: How much more will you make? And is it enough to make up for: Four lost years, the money spent on tuition that could have been spent in some other way to help start your career, and/or the debt load?

Not all diplomas are the same. I happen to think a liberal arts college degree can be a good thing for a young adult, so that if I had the money I would spend it on my kids to allow them to earn such degrees. But I can’t see justifying debt for that purpose.

Some diplomas are for highly skilled degrees that are truly necessary for the job. In those cases, the debt may remain a worthy risk.

Other diplomas are frankly more like licenses. They are valued because employers expect you to have one, not because you really need one to learn the job.

In many cases, there are probably more efficient ways to get trained for a job than spending four years in school.

But our “education complex” depends on a rising price for all diplomas, along with access to student loans. The evidence we are in an education bubble is overwhelming. So naturally, all the experts are denying it, and the government is doing all it can to induce more students to thoughtlessly hock their lives.