The Higher Education Bubble

Tuesday, July 17, 2012

Glenn Reynolds, law professor at the University of Tennessee, InstaPundit blogger and the author of The Higher Education Bubble, joins us to argue that the U.S. is currently experiencing a higher education bubble that mirrors the housing bubble and that college tuition costs have vastly outpaced inflation and family income.


Glenn Reynolds

Comments [42]

Victor from Manhattan

I was surprised that your guest didn't mention two key points. First, if we are calculating the value of a college degree, what is the value of an educated citizenry? Somehow that factor gets left out of the equation and we only focus on what income a degree holder will earn, not how higher education multiplies various positive factors throughout society.

Secondly, the last thirty years have witnessed a precipitous decline in state support for higher education. The difference has been made up with ever higher tuition and ever higher loan debt. We are quite simply being penny wise and pound foolish as official educational policy.

To illustrate the point, economists did a survey of the City University of New York (my disclaimer, i work there) and found that the public subsidy of low tuition was paid back in triplicate. They calculated the difference between the earnings and lifetime economic activity of a high school diploma verses a Bachelors degree from CUNY and found that the increased earnings resulted in substantial increased tax payments to the city and state and substantial increases in overall economic activity that has a multiplying effect on the economy, like buying a house or a car or other goods and services.

How did we deal with this clearly convincing data? Governor Pitaki cut the state income tax and as a result most of us middle class New Yorkers cut a rebate check of about $250. Then the next year tuition at all the state colleges went up by $750. And that then became the base on which future increases were based and of course resulted in more student loan debt.

Jul. 17 2012 06:11 PM

@Katie from Brooklyn:

If your loans were designated higher education loans (i.e. Stafford, Signature, etc) then you will be able to deduct the interest from your tax return.

BUT if you used private bank loans to finance your education, then you can't deduct the interest.

Jul. 17 2012 12:13 PM

@gary from Queens - the "higher learning" elite crosses both parties. High tuition also affects conservative universities. Rev. Falwell's Liberty University charges $20K per year. Sound any different from those evil liberal universities you complain of?

Jul. 17 2012 12:07 PM

Thanks @ JM Livingston, my thoughts exactly. A liberal arts degree teaches one to write, to analyze critically, to debate effectively, and to solve problems. Skills that enhance every sphere of life, including vocation.

Our country should consider wealth not as a goal in itself, but as a means to the end of providing the highest quality of life for all.

Jul. 17 2012 11:56 AM
steve from Brooklyn

There is an elephant in the room. Outrageous tuition rates are being used to fund campus expansion plans in NYC. These institutional objectives are both self-serving and unsustainable. Whether it's Columbia's Manhattanville Expansion, Cornell's Roosevelt Island Development, or NYU's Downtown Expansion, student tuition is being usurped to facilitate physical growth (good for future school business) rather than to benefit current students. It doesn't stop there. Satellite campus's and foreign offices (including new extension programs) are also prioritized over current student needs. The branding, identity, and marketing desires of these educational facilities now exceed their obligation to educate.

Jul. 17 2012 11:53 AM
Sheldon from Brooklyn

Gary - so why did Republicans want to stop any reform of our student loan system, if they were concerned colleges turning young Americans into Marxists.

Because they, like many career democrats, got wads of cash from the banks to keep the student loan scam going.

To say that that college is some conspiracy of leftists elites is way off.

Jul. 17 2012 11:51 AM
cara from hudson, ny

I totally agree with Reynolds. Both the schools and the lenders need skin in the game. As it is, it's a perfect symbiotic relationship between the lenders and the schools. The lenders can give anyone a student loan, and know that the loan cannot be discharge in bankruptcy. What do they have to loose? The schools know that banks will lend students money, so why not raise the price of tuition? It's gotten out of control.

Jul. 17 2012 11:43 AM
thcatt from Bergen County, NJ

I appreciate th remark by Mr. Reynolds about liberal arts majors being being more adaptive to a changing jobs market, however as many of us have been saying over and over again, a dozen plus years ago we were having a much different conversation. th economy was so hot, and unemployment so low, that th future seemed wide open. so should we go back to th same economics formula that we were using back then? having more people pay more in taxes to strengthen our economic foundation? it wasn't that long ago, but we choose not to go back there; WE DON'T EVEN TALK ABOUT IT!

Jul. 17 2012 11:40 AM
katie from Brooklyn

195,000 is debt here. I make a living as freelance photographer and spend $1800 a month on my loans. Last year I put $21,000 into my loan and my principal dropped a whopping $6000 because of interest.

A) I won't be buying a house until the debt is gone

B) if people who buy homes can write off their interest then why can I not write off the $14,000+ interest my loans gained just for 2011? I can only write off $1500.

C) this year: loans, rent, IRS taxes ($18,000 total). I'm lucky I'm a damn good photographer. Thanks college.


Jul. 17 2012 11:40 AM

Despite Obama's rhetoric about wanting to make higher education more affordable, he's perpetuating the higher education bubble. As opposed to Bush's "No child left behind" policies, Obama policies have changed to "All students should be college ready". Neither is practical. What happens to vocational schooling and training, what happens to the students with disabilities? There's kids who can't write essays but can take an engine apart and make more money than any college graduate.

Jul. 17 2012 11:39 AM

@Charles Harris -

...and correct spelling will still be tough.

Jul. 17 2012 11:37 AM
gary from queens


so you agree with me, except where i allege that the college community is not lopsidedly supporting Obama?!

Look at any poll data!

Jul. 17 2012 11:35 AM
charles harris from island heights nj

Education will be onthe internet professors will be scrambling for jobs and education will be affrordable and there will be no industgry of loans

The bricks and mortar will succumb to ivy.

Education will be copius and virtually free. Available to all

By 2925 the unuversity will be asking for loans

Jul. 17 2012 11:33 AM

Would one rather be a waiter with a college degree or an unemployed waiter?

Jul. 17 2012 11:33 AM

Jgarbuz, good point. I don't understand why many have a consistent lack of respect for a healthy range of occupations. These same people determine one set of "profitable" degrees without considering what would happen if everyone decided to specialize in medicine, accounting, and engineering.

My film school education (a combination of classic liberal arts, film, and technical expertise) prepared me for 16 hour days, multiple roles, and last-minute critical thinking. It was ideal for necessary career adaptation and flexibility.

Jul. 17 2012 11:32 AM
JM Livingston from Brooklyn

Did I really just hear someone on this show equate investing in a higher education with buying a Ferrari? Seems to me, that in a democracy, learning to think -- about history, about politics, about how to live -- should be our highest value. How can we spend billions on foreign wars but accept that we simply lack the financial means to give a higher education to anyone and everyone who wants and needs one? The speaker has had the privilege of both an undergraduate and graduate education: why doesn't he use his own powers and privilege to figure out how a rich country like ours can work to give more people what he's enjoyed, rather than suggesting that education is a luxury item that it's reasonable to assume should be enjoyed by the few.

Jul. 17 2012 11:32 AM

Look, today anyone can learn anything they want, if they really have a burning desire and the talent/intelligence level to learn it. Never have we lived in a time with so much access to information for anyone who wants or needs it. There are even FREE online courses you can get off the internet.I personally often listen to lectures from Berkeley and Yale and Harvard professors in physics, electronics, programming, history, "social sciences," etc., online. Bill Gates, Steve Jobs and Wozniak only spent a year in college, and only got their degrees decades after they made their fortunes. If you have the talent, the drive and ambition, you can get all the knowledge and information without even stepping foot on a college campus.

Jul. 17 2012 11:29 AM
mary from Westchester

Many say that health care costs rose once insurance became widely available! that seems to be happening now to dental costs as insurance is more common.

So education -- definitely the availability of loans causes schools not to be lean, so more loans are needed as costs rise.

What about NYU itself as not just a bubble but a Ponzi scheme -- it has to keep growing or it won't be able to pay its debt!

Jul. 17 2012 11:27 AM

1. I wish people would stop using only averages. Give us at least standard deviation or some other measure of dispersion. Median is not a measure of dispersion.
2. Why are publicly available satisfaction surveys not common for universities? Why is there little quality control for such a high priced product?

Jul. 17 2012 11:26 AM
John from NYC

The compensation packages of these college presidents and college sports coaches are a component of this Higher Education bubble. I wonder how significant a part though? Is there a study as to where the use of these higher tuition funds are going?

Jul. 17 2012 11:26 AM
Amy from Manhattan

Prof. Reynolds hasn't mentioned that many student loans are structured so that the burden increases over time. If a graduate can't find a job, or one that pays well enough, & misses some loan payments, interest hikes & penalties are seriously onerous, as Anya Kamenetz revealed. A student who graduates w/$20,000 in debt may owe $80,000 15 years later. (Brian got calls from people in this situation on a segment not long ago.)

And does that $20,000 average include students who got scholarships? That might artificially pull the average figure down. What's the average if you restrict it to students who got loans?

Jul. 17 2012 11:25 AM
socrates from Westchester

Glenn Reynolds says students should be getting a rigorous traditional liberal arts education rather than one which will not prepare them for jobs. What in his view is the difference between the two?

Jul. 17 2012 11:25 AM
GW from Bronx

Lets eliminate this guy's job.... I think it's a good place to start... YOu either have a national jobs policy or not ... the society has to decide if it wants its members to be employed or left to fend for them selves against the vampire like wealthy ...
Student loans should be forgiven if they don't do what they are supposed to do .... pay for an education that enables the individual to pay for the loan...

Jul. 17 2012 11:21 AM
oscar from ny

i had to do 4 years in the marine corps was terrible for me, but at the end i could finance a cheap college, had a blast in school....
why are they trying to destroy the spirit of an education?...these ppl are truly evil for puting these kids thru hell...

Jul. 17 2012 11:21 AM

Scraping the bottom of the barrel here, Brian.

This expert on bubbles--so kindly as to inform us re: tulips, etc.--blitheringly cites electrical engineering as a profitable major--without the slightest idea that there was a HUGE bubble in electrical engineering degrees in the 70s.

Lord save us from self-educated economists "with a libertarian leaning."

Jul. 17 2012 11:21 AM

The bubble is not caused by inflated salaries of the faculty and staff...It is the disconnected salaries of the general population.

College tuitions have tracked pretty closely to the growth in the economy (about 25X over the last 50 years)....Yet the average hourly wage has only grown about a third of that...(8X-10X) which tracks to the CPI.

The fix? Higher AVERAGE salaries, which cannot be decreed. They must be earned. What do American workers produce that makes them worth it? Innovation and quality. That is the only fix available.

Jul. 17 2012 11:19 AM
Nick from UWS

The most important thing we can teach our kids today is basic economics. How to balance a checkbook, how credit cards work, how loans work, how to live within means, how to judge the wisdom of any financial transaction. Without these skills, people are lost in an ocean of sharks. Without a financially educated populace, we will continue to have a wrecked economy especially in the sphere of higher education, where parents and kids are making the stupidest decisions imaginable.

Jul. 17 2012 11:18 AM

The fact that can’t be spoken sometimes students use their student loans for living expenses

Jul. 17 2012 11:18 AM
DarkSymbolist from NYC!

"Return on investment", "Luxury good"........I guess he is saying the point of college is no longer to be educated but just a machine spouting out peoople for the SOLE purpose of getting grades and getting a job...great outlook

...and we wonder why our country is in decline and the culture is becoming dumber and dumber

Jul. 17 2012 11:18 AM
Sheldon from Brooklyn

Gary, you made sense up until the 2nd paragraph.

There is an SUV/Big Mac type commoditization of mostly liberal arts degree-type education.

There fact that colleges know that there is almost unlimited amount of financing available to well meaning suckers, colleges, like health insurance corps, will continue to raise their prices.

Jul. 17 2012 11:16 AM
MichaelB from Morningside Heights

Jarbuz, that's ENTITLED malcontents... (see Silicon Valley....)

Jul. 17 2012 11:16 AM
David from Fredericksburg, VA

We are absolutely in a higher education bubble.

1. There are many people going to college who have no business being there. Not everybody is college material - and not necessarily because they're not bright enough.

2. Many employers are incredibly lazy & require a college degree for jobs that simply do not call for them. Assuming a college graduate is higher quality than a non-graduate is a big mistake. I know many college graduates that are dumb as a post & many non-graduates who quite bright.

Jul. 17 2012 11:15 AM
MichaelB from Morningside Heights

It's not only about the fact that not everyone should go to college -- but many of those who should not being able to afford to go.

So, the country is being hurt on both ends -- graduates who can't get jobs and kids for whom college is totally appropriate who can't afford to go.

Jul. 17 2012 11:15 AM

"Plumbers and electricans," said dismissively, eh? I dare most "professors" to learn what it takes to become an electrician or a good plumber.

Jul. 17 2012 11:15 AM

Most of what college produces is malcontents and more college professors to teach more kids to hate society and go on to be professors to write books about how bad society is, etc.

Jul. 17 2012 11:12 AM
suzinne from bronx

Buying into higher education is like buying a house. It's just for some and not for everyone. But higher education has been promoted as the single ticket to success, and that just ain't so! The economy went bust, and now we have an excess of well educated young people either unemployed or working for insulting wages.

By the way, I'm in default on my student loan. I owe around $4,500, but the course I took yielded just one job interview. It was a con, plain and simple.

Jul. 17 2012 11:11 AM
MichaelB from Morningside Heights

Gary, what about how universities have been turning their institutions into vacation destinations, with all kinds of upscale lifestyle stuff? Fancy gyms, expensive food offerings (with high-class, high-paid chefs), and many other accoutrements?

Gone are the days of the stripped-down, bare-necessities living arrangements, cafeteria-quality food, (what will the graduates make fun of in retrospect?), fancy coffee bars, and the like.

It's all about luxury for the little darlings -- their Boomer parents taught them well!

And somebody at the universities are pocketing the tuition moneys -- which have been skyrocketing for decades now!

Jul. 17 2012 11:11 AM

Brian, the higher education bubble is just another part of the debt/securitization bubble that Wall ST has been pushing since Reagan.

It's just another part, like the S&L scandal, tech bubbles, Manhattan co-op/condoing of rentals, mortgage/foreclosure fraud, MERS, LIBOR, etc. They all involve taking loans and selling them as securities to anyone/anywhere. The loans with Government guarantees - certain mortgages, college loans which also cannot be changed under personal bankruptcy since GWB's bankruptcy "reform" continue the pattern of privatizing profit & socializing debt/loss.

Jul. 17 2012 11:11 AM
gary from queens

correction: Glenn Reynolds is not a liberal!
I was thinking of the other Glenn Brian has as a guest----Glenn Greenwald

Jul. 17 2012 11:10 AM

Pay college president and professors based on when students get jobs

Jul. 17 2012 11:08 AM

Bring back the draft, for both men and women, and then those who choose and qualify to go to college afterwards will be both more mature and know better what they may want to do. And then will be entitled to greater financial assistance. It's what we did in WWII and a few decades afterwards, and the way it works in Israel. First learn to do something, and then go to college.

Jul. 17 2012 11:06 AM
gary from queens

The "higher education bubble" is the SYMPTOM. The CAUSE of the high cost in education is the inflated salaries of the college elite, and greedy corporate-like institutions of "higher learning."

That also happens to be Obama's constituency.

It's very telling that instead of focussing on the "higher education bubble", Democrats and liberals like Reynolds focuss instead on public financing of the "higher education bubble."

Jul. 17 2012 10:52 AM

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