Ivory Tower Teetering

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The bubble isn’t quite ready to burst, but it’s getting perilously big. I’m referring to the college-loan bubble, which is, to quote The New York Times, an “eerie echo” of the housing crisis.

We are seeing the price of a college education rise to stratospheric heights (some schools are charging $55,000 a year), at a time when many people are starting to question whether a college education can possibly be worth all that. Fueling this reconsideration are college graduates’ difficulties getting jobs and the rising debt load they face once they graduate (on average, around $20,000 per student).

My Pope Center colleague George Leef and a few others have been warning for years that college education has been oversold. This notion still shocks some, but it has gathered steam since 2008 when Charles Murray published his book “Real Education.” The iconoclastic author of “The Bell Curve” and “Losing Ground” suggested that only 10 to 15% of all people are capable of the intellectual endeavor required by a proper college education. He recommended that everyone else eschew four-year degrees and develop certifiable skills.

Not a happy message, but Murray’s challenge to the conventional wisdom kicked off a wider reexamination of whether everyone should aim for college. After all, only about 56% of the students who start college actually end up with a degree after six years. The topic has been picked up by the Chronicle of Higher Education, The New York Times, and even a Public Broadcasting Service-National Press Club debate (in which George was an invited participant) on whether more American students must go to college to keep the nation competitive.

The most recent manifestation of concern was an article, printed May 29, by Ron Lieber, the “Your Money” columnist for The New York Times. He delved into the history of a New York University graduate who is trying to pay off $97,000 in loans with a job (in San Francisco) as a photographer’s assistant.

Nearly everybody involved in Cortney Munna’s debt problem, including NYU and CitiBank, received blame from Lieber — except, sadly, the federal government, which subsidizes many college loans. (Munna’s initial loans were subsidized, but she went on to get entirely private loans as well.) Government subsidies create artificial demand for college, which pushes up colleges’ costs; they make students think that college is cheaper than it is — and even free, since they don’t have to pay a cent as long as they are going to school. But all this costs taxpayers (and everyone who pays students’ tuition bills) a lot.

The Times story, posted online Friday afternoon, had attracted 525 comments by Monday morning. At least in the sample I read, the commenters primarily criticized the student and her mother. They faulted the Munnas for thinking that getting an NYU degree with a major like religious and women’s studies justified a $100,000 debt. But a bigger message came across: college costs too much, and some people might be better off either not going or going to a cheaper school.

Back to the “housing bubble” comparison. The analogy is not precise, since a college education, unlike a house, is not collateral. It is also difficult to appraise. Nor can a college loan be discharged through bankruptcy, in the way a home mortgage can be. But when the perceived value of a product (a house or a college education) is lower than what it cost, demand for similar products is going to fall, and the prices that can be charged for them will go down.

The ramifications of a burst bubble could be huge, especially for colleges and universities. For decades, most higher education institutions have been able to pass along increased bills for tuition and fees, allowing their costs to rise. And their governance structure makes cost-cutting nearly impossible under normal circumstances. But the period of “normality” may be approaching its end. To the benefit of students, but not of college faculties or administrators, George Leef and his allies in this debate are being taken more seriously than ever.

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