9 Striking Similarities Between the Housing Bubble and The Higher Education Bubble

[DesMoinesDem]

With the collapse of the housing bubble and corresponding financial crisis of 2008 occuring just six years ago as of this writing (2014), concerns over a bubble in higher education are beginning to emerge. It's amazing how many similarities there are between what happened in housing and what's happening in higher education. Considering the causes and outcomes of the housing bubble may help inform what might happen in higher education.

1. Same Players

The same "players" that were in the housing "game" are also in the higher education game: lenders, student loan borrowers, producers, and, perhaps the biggest, government.

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2. Excess Capital

In both housing and higher education, easy access to debt capital at low rates and with lax borrowing requirements, encourages borrowing to purchase assets, which increases prices. In both cases, banks are essentially ensured by the government and it's taxpayers, incentivized to make risk loans, and/or prevented from refusing to make risky loans. In additon, interest rates set by the Federal Reserve are at record lows.

3. Universal Belief

Per the definition of an economic bubble, bubbles are often created as a result of a universally held belief about an asset's value.

In housing the belief was something along the lines of "I have to buy even if I can't afford it because owning house is the american dream and it's a great investment because prices will always keep going up." The fact that amateur investors ("average people&quot were "flipping" houses was a sign that there was a near universal belief about housing prices.

In higher education, the belief is something along the lines of "I have to get a college degree, regardless of the cost, because a college degree is the only path to prosperity, and I won't be able to succeed without it." The fact that if you tell the average person not go to college they look at you like a crazy person is a sign that there is near universal belief about higher education.

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http://www.huffingtonpost.com/michael-b-fishbein/9-striking-similarities-b_b_5062840.html

[Orrex]

1. The higher education bubble is no big deal to the media

Since a victim of student loan debt can't realistically escape that debt, the crushing burden is borne by the individuals, rather than by the market.

The housing bubble was incovenient for banks, so it's been front-page news for years on end.

[lumberjack_jeff]

2. "bubbles are often created as a result of a universally held belief about an asset's value"

Exactly. The value of a bachelor's degree in social networking is... what?

"But no one will hire me without the degree"

The whole system is dependent on agreement about the value of the education between employer and employee.

A shrewd employer will develop a testing regimen that evaluates an applicants ability independently, without relying upon the seal of approval that the college confers. That employer can offer 10% less and the employee would still be better off with the additional four years of earning and without the capital investment that the degree required.

Cut out the middleman.

Four years after graduating HS, my wife and I had three cars, trivial debt, a 401k and cash in the bank for the down payment on a house. It took a long time for my peers who chose full time college to catch up. Most never did.