Fall is in the air, and with it the return of America’s youth to college campuses. Eager young minds will be returning to the classrooms in the hopes (and in the hopes of their parents who are shelling out tens of thousands of dollars) that they will be able to land a “mega-job” that will make them wealthy (or at least not make them poor). While studies have shown that college degreed people make more over their lives than those who only graduate from high school, there is no doubt that the cost of college has exploded over the last four decades, while the financial benefit to a college education has not kept pace. Evidence of this is that over the last 25 years, roughly 1/3 of college graduates have eventually ended up in jobs that don’t require a college degree (http://www.ny.frb.org/research/current_issues/ci20-1.pdf). Although college graduates have historically had lower unemployment rates than the rest of the population, even during downturns, junior isn’t taking on astronomical amounts of debt in order to ensure that he won’t spend a few months of his life collecting unemployment, he is doing it so that he can obtain a well-paying job. Given that some college degrees cost as much as a house in some parts of the country, telling kids that their degree (even one in the abstract theory of dead languages) will make them more marketable and that they should saddle themselves with the equivalent of a small house payment upon graduation, is borderline fraud.

But what has caused this bubble? Well, for one it is artificially increased demand that resulted from a conscious policy decision several decades ago that it would be a good thing if everyone should go to college. Consequently, low-cost student loans, grants, etc were instituted to make it possible for anyone who wanted to do so to afford college. At the time the policy was decided upon back in the 1960’s, roughly 10% of the U.S. population had a bachelor’s degree or more. Today, more than 30% do, which is a success if you think that everyone having a college degree is a good thing. However, this has had a couple of effects. First, more than tripling the share of the U.S. population that holds a bachelor’s degree, all things being equal, is going to depress wages for college degree type jobs. When my mom and dad graduated from college in the late 60’s, having a college degree of any sort virtually guaranteed you a middle class job (at a time when typically middle class households had only one breadwinner). Today, that is clearly not the case. Secondly, college degrees have been dumbed down as colleges have adapted their standards to enable them to capture more of the federal money as well as pursue various perceived social justice goals by working overtime to pass people onto a degree whose special God-given skills simply aren’t the same ones that are conducive to academic success. Evidence of this can be found in that more and more employers are finding that their newly minted college graduate can barely read, can’t write, and can’t properly use the English language.

The second reason for the bubble is that the “cost” of the college degree has increased, according to some estimates, by a factor of 12 over the last 30+ years. While general inflation and increased demand would account for some of the increase, the astronomical increase is largely due to legacy costs; that is college administrators are “empire building” by adding additional (extremely lavish) administrative positions that don’t directly impact teaching and learning (Coordinator of Diversity and Social Justice anyone?), building new shiny buildings to show that they are doing something, adding a new football field, etc. etc. All of these increase the prices that colleges must charge, and yet they have little to no impact on the quality of the education.

Bubbles, by their very nature, consist of assets that increase price far beyond their actual value. Bubbles can go on for a long time until investors come realize that the true value of the asset is far below the current market price for it. When this happens, bubbles pop and deflate. The college bubble has gone on as long as it has because the American public has largely bought into the notion that a college degree will get you a good job. However, employers long ago caught on that simply having a “sheep skin” from a college does not mean that they are getting an employee that is necessarily more qualified for a specific job. The American public is starting to realize that college, while still a good investment for many, is not a good investment for everyone. The improved earning potential from a degree is not always commensurate with large cost at some institutions. As this perception continues to take hold, the college bubble will pop.