A Higher Education Bubble?

Recently, the Huffington Post reported on Peter Thiel’s belief that a college bubble exists – explaining why prices for higher education have increased so drastically in the past few years. Thiel, a co-founder of PayPal, argues that a bubble – similar to what happened with the housing market – now threatens the higher education sector. Thiel argues that because higher education is the only thing that Americans still believe in, citizens have overvalued it and intensely believe in it.

However, few people have backed Thiel’s beliefs. A college education is not a tradable asset like real estate or a financial instrument; instead, it is a means to increase the value of human capital.  Furthermore, increasing competition in the education industry may have the effect of dampening the rise in tuition prices.  Thus, a number of critics have argued that higher education cannot be compared to the real estate and financial crisis that we have recently experienced.  And price increases are probably not due to a demand-based bubble.

It is likely, however, that demand will fuel price increases unless there is a substantial increase in the supply of higher education institutions or new student opportunities from existing institutions.  President Obama has correctly assessed the increasing need for education beyond high school – whether in the form of a liberal arts degree, professional education or technical education.  I believe he has also assessed correctly the global competition for human capital and the threat to the U.S. represented by countries that raise their post-secondary education participation rates and increase their human capital.

The President’s goal for 2020 of having the U.S. be the country with the highest percentage of its students graduating from college may have the impact of increasing demand for higher education – a good thing, I believe, in the face of changing needs for  labor and global competition – and thus raising further the price, i.e., higher tuition.  But it also may have the effect, if government policies are carefully devised, of expanding programs and encouraging new entrants into the higher education market – both from traditional colleges and universities and the newer, often more working-adult, friendly for-profit universities.  What we need from the U.S. Department of Education and state governments are policies that encourage growth in supply, and that is another reason why many have expressed concern with recent DoED policies.  All recognize that educational programs must, of course, represent quality and be committed to assurance of learning in their assessment, and that applies to traditional colleges and universities as well as non-profit ones.

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