Higher education = bubble

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The higher education bubble is a speculative boom and bust = phenomenon=20 in the field of higher = education.=20 According to the theory, while college tuition = payments are=20 rising, the rate of return = of a=20 college degree is decreasing,^{[1]=20
and the soundness of the student loan =
industry may=20
be threatened by increasing default rates.^{[2]=20
College students who fail to find employment at the =
level=20
needed to pay back their loans in a reasonable amount of time have been =
compared=20
to the debtors under sub-prime =
mortgages=20
whose home are worth less than what is owed to the bank.^[3]}}

In 1987, U.S. = Secretary=20 of Education William = Bennett first=20 suggested that the availability of loans may in fact be fueling an = increase in=20 tuition prices and an education bubble.^{[4]=20
This "Bennett hypothesis" claims that readily available loans allow =
schools to=20
increases tuition prices without regard to demand=20
elasticity. Col=
lege=20
rankings are partially driven by spending levels,^{[5]=20
and higher tuition prices are correlated with increased public =
perceptions of prestige.^{[6]=20
Over the past thirty years, demand has increased as institutions =
improved=20
facilities and provided more resources to students.^{[7]=20
Additionally, schools tend to enroll fewer students as they improve =
student=20
offerings and increase prices. This suggests that it is in schools' best =

interest to increase tuition prices as much as possible, so long as =
financial=20
aid ensures an ability to pay on the part of students and parents.}}}}

A 2009 article in T= he=20 Chronicle of Higher Education related concern from parents = wondering=20 whether it is worth the price to send their children to college.[8]=20 The = Economist in turn=20 hypothesized that the bubble bursting may make it harder for colleges to = fill=20 their classes, and that some building projects will come to a halt.[9]=20 The Boston = Herald further=20 suggested the possibility of mergers,=20 closures and even bankruptcies of smaller colleges that have spent too = much and=20 taken on too much debt.^[10]=20 The National=20 Review proposed that the bubble bursting may also bring down = higher=20 education prices.^{[11]=20
Glenn Reynolds =
wrote in=20
the Washington=20
Examiner that those who have financed their educations with debt =
may be=20
particularly hard-hit.^[12]}

Further speculation as to the higher education bubble was the focus = of a=20 series of articles in The = Economist in=20 2011.^[13]

1 Controversy=20
- 1.1 Alternatives to bubble=20 theory
- 1.2 Additional=20 factors
- 1.3 Recommendations
2 See = also
3 References and=20 notes
4 External=20 links

Controversy

=20

Study comparing college revenue per = student by=20 tuition and state funding in 2008 dollars.^[14]

The view that higher education is a bubble is controversial. Most economists do=20 not think the returns to = college=20 education are falling.^{[15]=20
In a financial =
bubble,=20
assets like houses are sometimes purchased with a view to reselling at a =
higher=20
price, and this can produce rapidly escalating prices as people =
speculate on=20
future prices. An end to the spiral can provoke abrupt selling of the =
assets,=20
resulting in an abrupt collapse in price =E2=80=94 the bursting of the =
bubble. Because=20
the asset acquired through college attendance =E2=80=94 a higher =
education =E2=80=94 cannot be=20
sold (only rented through wages), there is no similar mechanism that =
would cause=20
an abrupt collapse in the value of existing degrees. For this reason, =
many=20
people^[who?]=20
find this analogy misleading. However, one rebuttal to the claims that a =
bubble=20
analogy is misleading is the observation that the 'bursting' of the =
bubble are=20
the negative effects on students who incur student debt, for example, as =
the American=20
Association of State Colleges and Universities reports that =
"Students are=20
deeper in debt today than ever before...The trend of heavy debt burdens=20
threatens to limit access to higher education, particularly for =
low-income and=20
first-generation students, who tend to carry the heaviest debt burden. =
Federal=20
student aid policy has steadily put resources into student loan programs =
rather=20
than need-based grants, a trend that straps future generations with high =
debt=20
burdens. Even students who receive federal grant aid are finding it more =

difficult to pay for college."^[16]}

Alternatives to=20 bubble theory

A different proposal for the cause of rising tuition is the reduction = of=20 state and federal appropriations to colleges making them rely more on = student=20 tuition. Thus, it's not a bubble rather a form of shifting costs = away from=20 state and federal funding over to students.^[17]=20 This has mostly applied to public universities which in 2011 for the = first time=20 have taken in more in tuition than in state funding,[17]=20 and had the greatest increases in tuition.^[14]=20 Implied from this shift away from public funding to tuition is privatization, = although=20 The New York=20 Times reported that such claims are exaggerated.[17]

Another proposed cause of increased tuition is U.S.=20 Congress' occasional raising of the 'loan limits' of student loans, = in which=20 the increased availability of students to take out deeper loans sends a = message=20 to colleges and universities that students can afford more, and then, in = response, institutions of higher education raise tuition to match, = leaving the=20 student back where he began, but deeper in debt. Therefore, if the = students are=20 able to afford a much higher amount than the free market would = otherwise=20 support for students without the ability to take out a loan, then the = tuition is=20 'bid up' to the new, higher, level that the student can now afford with = loan=20 subsidies.^{[18]=20
One rebuttal to that theory is the fact that even in years when loan =
limits have=20
not risen, tuition has still continued to climb.^{[19][20]=20
However, that may not disprove this proposed cause: It may simply mean =
that=20
other factors besides 'loan limit' increases played a part in the =
increases in=20
tuition.}}

A third, novel, theory claims that the recent change in federal law = removing=20 all standard consumer protections (truth in lending, bankruptcy = proceedings,=20 statutes of limits, etc.) strips students of the ability to declare = bankruptcy,=20 and, in response, the lenders and colleges know that students, = defenseless to=20 declare bankruptcy, are on the hook for any amount that they borrow = -including=20 late fees and interest (which can be capitalized and increase the = principal loan=20 amount), thus removing the incentive to provide the student with a = reasonable=20 loan that he/she can pay back.^{[21][22]=20
Under this theory, it would be more profitable for the lender if the =
student=20
defaulted (due to the increases in the amount of the loan after fees and =

interest are capitalized), and thus there is no free market =
pressure-type=20
motive for the lender or the college to help the student avoid default. =
This is=20
especially true because the government, if it is the lender or guarantor =
of the=20
loan, has the ability to garnish the borrower's wages, tax return, and =
Social=20
Security Disability income without a court order. ^{[23]=20
Some have called the Federal Government 'predatory' for making loans =
which will=20
have such a high default rate, since the default rate for Student Loans =
is=20
projected to reach 46.3% of all federal loans disbursed to students at=20
for-profit colleges in 2008.^[24][25]}}

Additional = factors

Other factors^{[26]=20
that have been implicated in increased tuition include the =
following:}

The practice of 'tuition discounting,' in which a college awards = financial aid from its own funds. This assistance to low-income = students by=20 the college or university means that 'paying' students have to 'make = up' for=20 the difference: Increased tuition. This factor becomes more = pronounced in=20 modern times, since more students nowadays are going to college, = which means=20 that there are less State and Federal grant funds available per=20 student.

According to Mark Kantrowitz, a recognized expert in this area, = "The=20 most significant contributor to tuition increases at public and = private=20 colleges is the cost of instruction. It accounts for a quarter of = the=20 tuition increase at public colleges and a third of the increase at = private=20 colleges."

Kantriwitz' study also found that "Complying with the increasing = number=20 of regulations =E2=80=93 in particular, with the reporting = requirements =E2=80=93 adds to=20 college costs," thus contributing to a rise in tuition to pay for = these=20 additional costs.

Recommendations

Based on the available data, a number of recommendations to = address rising=20 tuition have been advanced by both experts and consumer and students' = rights=20 advocates:

Colleges and universities should look for ways to reduce costs = of=20 instructor and administrator expenditures (e.g., cut salaries and/or = reduce=20 staff).^[27][28]

State and Federal governments should increase appropriations, = grants,=20 and contracts to colleges and universities.^[29][30][31]

Federal, state, and local governments should reduce the = regulatory=20 burden on colleges and universities.^[32]

The Federal Government should enact partial or total loan = forgiveness=20 for students who have taken out student loans.^{[33][34][35][36]}

Federal Lawmakers should return standard consumer protections = (truth in=20 lending, bankruptcy proceedings, statutes of limitations, etc.) to = Student=20 Loans which were removed by the passage of the Bankruptcy Reform Act = of 1994=20 (P.L. 103-394, enacted October 22, 1994), which amended the FFELP = (Federal=20 Family Education Loan Program).^[37][38][39]

Cut lender subsidies, decrease student reliance on loans to pay = for=20 college, and otherwise reduce the 'loan limits' to limit the amount = a=20 student may borrow.^[40][41][42]

Regulatory or legislative action to lower or freeze the tuition, = such as=20 Canada's tuition = freeze model,=20 should be enacted by federal lawmakers:^[43]

More research should be done: Recognized financial expert, Mark=20 Kantrowitz, issued the following recommendations^[44]:

"The National Center for Education Statistics should increase = the=20 frequency of the National Postsecondary Student Aid Study to = annual, from=20 triennial, in order to permit more timely tracking of the factors=20 affecting tuition rate increases. Likewise, NCES (National Center = for=20 Education Statistics) should take steps to improve the efficiency = of the=20 data collection and publication for the Digest of Education = Statistics, so=20 that all tables will include more recent data. The most recent = data listed=20 in some tables is five years old."

"The US Department of Education should study the relationship = between=20 increases in average EFC (Expected Family Contribution) figures = and=20 average tuition rates. In addition, it would be worthwhile to = examine how=20 historical average EFC figures have changed relative to family = income when=20 measured on a current and constant dollar basis for each income=20 quartile."

Lastly, in order to offset the costs of tuition, some colleges = help=20 students in job searches and job placement after graduation.[45]

References and=20 notes

^=20 Bursting the Higher Ed Bubble, The Week, May = 27,=20 2009, http://theweek.com/article/index/96989/Bursting_the_Higher= _Ed_Bubble<= SPAN=20 style=3D"DISPLAY: none">
^=20 Monica=20 Brady-Myerov and Sonari Glinton, The=20 Education Bubble, wbur.org, http://www.wbur.org/specials/education-bubble
^=20 Bell, Steven = (05/06/2010),=20 As=20 the higher ed bubble nears bursting what is the potential impact on=20 libraries?, Library Journal, http://www.libraryjournal.com/article/CA6728003.html
^=20 Our Greedy Colleges, The New York Times, = Feb. 18,=20 1987, http://www.nytimes.com/1987/02/18/opinion/our-greedy-colle= ges.html=
^=20 How U.S. News Calculates the College = Rankings, US News = and World=20 Report, 2010, http://www.usnews.com/education/articles/2010/08/17/how-us= -news-calculates-the-college-rankings
^=20 Estimating the Payoff to Attending a More Selective = College:=20 An Application of Selection on Observables and Unobservables, = Dale, S.=20 B. and Krueger, A. B., NBER, 1999, http://www.irs.princeton.edu/pubs/pdfs/409.pdf<= /SPAN>
^=20 The Credits that Count: How Credit Growth and = Financial Aid=20 Affect College Tuition and Fees, Ley, K. and Keppo, J., SSRN,=20 2011, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=3D17665= 49
^=20 Joseph Marr Cronin and Howard E. Horton (May 22, = 2009), Will Higher Education Be the Next Bubble to = Burst?,=20 The Chronicle of Higher Education, http://chronicle.com/article/Will-Higher-Education-Be-the/= 44400
^=20 The higher education bubble, The Economist, = June 11,=20 2009, http://www.economist.com/blogs/lexington/2009/06/the_highe= r_education_bubble
^=20 Fitzgerald, = Jay (May 31,=20 2009), Higher-education bubble could burst next, = Boston=20 Globe, http://news.bostonherald.com/business/general/view.bg?arti= cleid=3D1175836
^=20 Popping the Higher-Education Bubble, = National Review,=20 March 15, 2010, http://article.nationalreview.com/427786/popping-the-highe= r-education-bubble/dan-lips
^=20 Glenn = Harlan Reynolds=20 (August 8, 2010), Further thoughts on the higher education = bubble,=20 Washington Examiner, http://www.washingtonexaminer.com/opinion/columns/Sunday_R= eflections/Glenn-Harlan-Reynolds-Further-thoughts-on-the-college-tuition-= bubble-100216064.html
^=20 Higher Education, The Latest Bubble? The=20 Economist, April 13, 2011
^ ^{a=20
^{b=20
"Trends in College Spending 1998-2008" (PDF) Delta =
Cost=20
Project}}
^=20 Claudia Goldin, Lawrence F. Katz (2008). = The=20 Race Between Education and Technology. The Belknap Press of = Harvard=20 University Press.
^=20 Hillman, Nick (2006). "Student Debt=20 Burden, Volume 3, Number 8, August 2006". American=20 Association of State Colleges and Universities. http://www.aascu.org/media/pm/pdf/v3n8.pdf.
^ ^{a=20
^{b=20
^{c=20
"Public Universities Relying More on Tuition Than State=20
Money", The New York=20
Times 2011/01/24}}}
^=20 "Federal Student=20 Loans: Patterns in Tuition, Enrollment, and Federal Stafford Loan = Borrowing Up=20 to the 2007-08 Loan Limit Increase". gao.gov. 2011.=20 http://www.gao.gov/products/GAO-11-470R.=
^=20 "Student Loans in Bankruptcy". lawyers.com. = 2011. http://bankruptcy.lawyers.com/consumer-bankruptcy/Student-= Loans-In-Bankruptcy.html.
^=20 "Student Loan Bankruptcy Options". money-zine.com. = 2011. http://www.money-zine.com/Financial-Planning/College-Loan/= Student-Loan-Bankruptcy-Options.
^=20 "Student Loan Bankruptcy Options". money-zine.com. = 2011. http://www.money-zine.com/Financial-Planning/College-Loan/= Student-Loan-Bankruptcy-Options.
^=20 "Student Loans in Bankruptcy". lawyers.com. = 2011. http://bankruptcy.lawyers.com/consumer-bankruptcy/Student-= Loans-In-Bankruptcy.html.
^=20 Dvorkin, Howard (2010). "Student Loan Debt Surpasses Credit Card Debt-What to = Do?".=20 foxbusiness.com. http://www.foxbusiness.com/personal-finance/2010/09/20/stu= dent-loan-debt-surpasses-credit-card-debt.
^=20 "46 Percent Of Federal Loans Paid To For-Profit = Institutions Will=20 Go Into Default". huffingtonpost.com/AOL.com. 2010.=20 http://www.huffingtonpost.com/2010/12/23/46-percent-defaul= t-rate-o_n_800283.html.
^=20 Turner, Katrina (2010). "Subject: Default Rates for Cohort Years = 2004-2008".=20 ifap.ed.gov. http://ifap.ed.gov/eannouncements/122010CDRlifetimerate201= 0.html.
^=20 Kantrowitz, Mark (2002). "Research Report: Causes of faster-than-inflation = increases in=20 college tuition". FinAid. http://www.finaid.org/calculators/tuitionanalysis.pdf<= /SPAN>.
^=20 Kantrowitz, Mark (2002). "Research Report: Causes of faster-than-inflation = increases in=20 college tuition". FinAid. http://www.finaid.org/calculators/tuitionanalysis.pdf<= /SPAN>.
^=20 Watts, GordonWayne (2011). "Higher-Ed Tuition Costs: The = =E2=80=98Conservative=E2=80=99 view is not on=20 either extreme". ThirstForJustice.net. http://thirstforjustice.net/Higher-Ed-Tuition-Costs.html.
^=20 Kantrowitz, Mark (2002). "Research Report: Causes of faster-than-inflation = increases in=20 college tuition". FinAid. http://www.finaid.org/calculators/tuitionanalysis.pdf<= /SPAN>.
^=20 "Affordable Higher=20 Education: Student Debt". U.S. PIRG. 2011. = http://www.uspirg.org/higher-education.<= SPAN=20 class=3DZ3988=20 = title=3Dctx_ver=3DZ39.88-2004&rft_val_fmt=3Dinfo%3Aofi%2Ffmt%3Akev%3A= mtx%3Abook&rft.genre=3Dbookitem&rft.btitle=3DAffordable+Higher+Ed= ucation%3A+Student+Debt&rft.atitle=3D&rft.date=3D2011&rft.pub= =3DU.S.+PIRG&rft_id=3Dhttp%3A%2F%2Fwww.uspirg.org%2Fhigher-education&= amp;rfr_id=3Dinfo:sid/en.wikipedia.org:Higher_education_bubble>
^=20 "Fight=20 to Protect Students and Taxpayers Moves to Senate! - House Voted to = Slash Pell=20 Grants and Block Gainful Employment Rule". = ProjectOnStudentDebt.org.=20 2011. http://projectonstudentdebt.org/update_3711.vp.html.
^=20 Kantrowitz, Mark (2002). "Research Report: Causes of faster-than-inflation = increases in=20 college tuition". FinAid. http://www.finaid.org/calculators/tuitionanalysis.pdf<= /SPAN>.
^=20 Applebaum, Robert (2009). "The=20 Proposal". ForgiveStudentLoanDebt.com. http://forgivestudentloandebt.com/content/proposal.
^=20 Watts, GordonWayne (2011). "Higher-Ed Tuition Costs: The = =E2=80=98Conservative=E2=80=99 view is not on=20 either extreme". ThirstForJustice.net. http://thirstforjustice.net/Higher-Ed-Tuition-Costs.html.
^=20 "Real Loan Forgiveness". ProjectOnStudentDebt.org. = 2011. http://projectonstudentdebt.org/initiative_view.php?initia= tive_idx=3D8.
^=20 "Take=20 Action for Real Loan Forgiveness!". ProjectOnStudentDebt.org. = 2009. http://projectonstudentdebt.org/update_61909.vp.html.
^=20 Collinge, Alan (2011). "Private=20 Student Loan Bankruptcy Bill... The 4th Attempt".=20 StudentLoanJustice.org. http://studentloanjustice.org/action-room.htm.<= /SPAN>
^=20 Watts, GordonWayne (2011). "Higher-Ed Tuition Costs: The = =E2=80=98Conservative=E2=80=99 view is not on=20 either extreme". ThirstForJustice.net. http://thirstforjustice.net/Higher-Ed-Tuition-Costs.html.
^=20 "Bankruptcy Relief for Private Student Loan Borrowers=20 Advances". ProjectOnStudentDebt.org. 2010. = http://projectonstudentdebt.org/update_91610.vp.html.
^=20 "Affordable Higher=20 Education: Cutting Lender Subsidies". U.S. PIRG. 2011. http://www.uspirg.org/higher-education.<= SPAN=20 class=3DZ3988=20 = title=3Dctx_ver=3DZ39.88-2004&rft_val_fmt=3Dinfo%3Aofi%2Ffmt%3Akev%3A= mtx%3Abook&rft.genre=3Dbookitem&rft.btitle=3DAffordable+Higher+Ed= ucation%3A+Cutting+Lender+Subsidies&rft.atitle=3D&rft.date=3D2011= &rft.pub=3DU.S.+PIRG&rft_id=3Dhttp%3A%2F%2Fwww.uspirg.org%2Fhighe= r-education&rfr_id=3Dinfo:sid/en.wikipedia.org:Higher_education_bubbl= e>
^=20 Watts, GordonWayne (2011). "Higher-Ed Tuition Costs: The = =E2=80=98Conservative=E2=80=99 view is not on=20 either extreme". ThirstForJustice.net. http://thirstforjustice.net/Higher-Ed-Tuition-Costs.html.
^=20 "Commission: Private Loans are Not the Solution!".=20 ProjectOnStudentDebt.org. 2006. http://projectonstudentdebt.org/update_8706.vp.html.
^=20 "Commission Calls for "Reduced Debt Burden" -- Time for = Education=20 Department to Act". ProjectOnStudentDebt.org. 2006.=20 http://projectonstudentdebt.org/update_81806.vp.html.
^=20 Kantrowitz, Mark (2002). "Research Report: Causes of faster-than-inflation = increases in=20 college tuition". FinAid. http://www.finaid.org/calculators/tuitionanalysis.pdf<= /SPAN>.
^=20 "Top 10 Job Placement Colleges: INFORMATION AND TIPS ON = INTERNSHIPS AND PAID INTERNSHIP". CollegeTips.com. 2011. http://www.collegetips.com/college-money/college-job-place= ment.php.

External = links

"College, Inc.", PBS FRONTLIN= E=20 documentary, May 4, 2010
U.S. Dept.=20 of Education

This article relating to education is a stub. You = can help=20 Wikipedia by expanding it.v = =C2=B7 d = =C2=B7 e

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Higher education = bubble

Contents

Controversy

Alternatives to=20 bubble theory

Additional = factors

Recommendations

See also

References and=20 notes

External = links

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