page_title: Higher education bubble in the United States
section_title: Controversy
hierarchical_section_title: Higher education bubble in the United States / Controversy
caption_attribution_description: English: First-year U.S. college degree returns for select majors, by type of student. Assumes 2011 average out-of-pocket costs for U.S. public universities.
context_page_description: The higher education bubble in the United States is a highly controversial claim that excessive investment in higher education could have negative repercussions in the broader economy. According to the claim, generally associated with fiscal conservatives, although college tuition payments are rising, the supply of college graduates in many fields of study is exceeding the demand for their skills, which aggravates graduate unemployment and underemployment while increasing the burden of student loan defaults on financial institutions and taxpayers. The claim has generally been used to justify cuts to public higher education spending, tax cuts, or a shift of government spending towards the criminal justice system and the Department of Defense.
  Most economists reject the notion of a higher education bubble, noting that the returns on higher education vastly outweigh the costs.
context_section_description: The view that higher education is a bubble is highly controversial. Most economists do not think that returns to a college education are falling but instead believe that the benefits far outweigh the costs. Yet, the returns for marginal students or students in certain majors, especially at costly private universities, may not justify the investment. It has been suggested that the returns to education should be compared to the returns to other forms of investment such as the stock market, bonds, real estate, and private equity. A higher return would suggest underinvestment in higher education, but lower returns would suggest a bubble. Studies have typically found a causal relationship between growth and education, although the quality and type of education matters, and not just the number of years of schooling.
  In a financial bubble, assets like houses are sometimes purchased with a view to reselling at a higher price, and this can produce rapidly escalating prices as people speculate on future prices. An end to the spiral can provoke abrupt selling of the assets, resulting in an abrupt collapse in price –  the bursting of the bubble. Because the asset acquired through college attendance –  a higher education –  cannot be sold but only rented through wages, there is no similar mechanism that would cause an abrupt collapse in the value of existing degrees. For this reason, this analogy could be misleading. However, one rebuttal to the claims that a bubble analogy is misleading is the observation that the 'bursting' of the bubble are the negative effects on students who incur student debt, for example, as the American Association of State Colleges and Universities reports that "Students are deeper in debt today than ever before.... The trend of heavy debt burdens threatens to limit access to higher education, particularly for low-income and first-generation students, who tend to carry the heaviest debt burden. Federal student aid policy has steadily put resources into student loan programs rather than need-based grants, a trend that straps future generations with high debt burdens. Even students who receive federal grant aid are finding it more difficult to pay for college."
  However, the data actually show that notwithstanding a slight increase in 2008–2009, student loan default rates have declined since the mid-1980s and 1990s. During both periods of growth and recession, those with college degrees are much less likely than those without to be unemployed, even though they earn higher wages.
  Ohio University economist Richard Vedder has written in The Wall Street Journal that:
  A key measure of the benefits of a degree is the college graduate's earning potential –  and on this score, their advantage over high-school graduates is deteriorating. Since 2006, the gap between what the median college graduate earned compared with the median high-school graduate has narrowed by $1,387 for men over 25 working full time, a 5% fall. Women in the same category have fared worse, losing 7% of their income advantage ($1,496). A college degree's declining value is even more pronounced for younger Americans. According to data collected by the College Board, for those in the 25–34 age range, the differential between college graduate and high school graduate earnings fell 11% for men, to $18,303 from $20,623. The decline for women was an extraordinary 19.7%, to $14,868 from $18,525. Meanwhile, the cost of college has increased 16.5% in 2012 dollars since 2006, according to the Bureau of Labor Statistics' higher education tuition-fee index.
caption: First-year U.S. college degree returns for select majors, by type of student.
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