College Education Bubble Analysis

It is a common belief in today’s culture that a college degree is the key to financial freedom and prosperity, regardless of cost. But with the average price of tuition rising a staggering 440 percent over the past 25 years, more than four times the inflation rate, the question must be asked, is the college investment overvalued (O 'Shaughnessy)? As college tuition increases so does the amount that students are borrowing. The combination of ever-increasing tuition, growing student debt (rising from $53 billion in 2001 to $120 billion in 2012), and the devaluation of a college degree points towards the formation of a higher education bubble (Lucca 3). By first making the case for bubble like attributes by comparing it’s aspects to those to qualities …show more content…
These aspects are common themes of bubbles that have been studied previously. First, American society perpetuates the ideal that a college education is worth the cost regardless of college tuition or ability to pay back loans. A college education is synonymous with society’s definition of success and it has evolved into the new norm. This is one contributing factor to a relatively inelastic market demand curve prospective students face, which enables college institutions to raise the price year to year. According to Pew Research Center, only about 40% of college graduates feel that the money spent on tuition provides students with an “excellent” or “good” value for their dollar. With the satisfaction at such a relatively low rate, why is college so highly sought after? A recent report by Goldman Sachs listed that on average, college graduates in 2015 won’t break even from the college investment until age 31 and the projected break-even age for 2050 college graduates is 37. The report calls for a revolution in higher education, sighting the rising cost and increased availability of alternative education, such as online classes (Long). Before enrolling, many believe that a college education is their ticket to financial independence although the reality is that while a college degree increases earnings relative to someone without a degree, some may not have the ability to pay off substantial student loans which wreaks financial havoc on that individual and lags the economy. The second characteristic of tuition in the recent years that it is consistent with previous bubbles is the availability of wealth to increase the demand for a commodity. In the case of student loans, consumers are making a capital investment rather than purchasing a commodity,