A true bubble is when something is overvalued and intensely believed. Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.
The excesses of both college and homeownership were always excused by a core national belief that, no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.
I disagree with French–there’s a bubble, but it hasn’t popped yet. And there are a few things that make it different from the housing bubble. First, the market will have a hard time dictating when the bubble has popped. Most student loans are financed by the government, and the government will have a difficult time justifying any drastic pullback in higher education funding. Most likely, they’ll pull funding for schools with high student loan default rates. For-profit universities have some of the highest default rates, so they’re likely to get hit hard in the pocketbook.
Second, you can’t just walk away from student debt like you can from a house. Student debt is non-dischargeable in bankruptcy, except in unusual circumstances that don’t apply to the vast, vast majority of graduates. This is important because it makes lenders more willing to loan to students at “attractive rates.” Those rates really aren’t so attractive when factoring in the lack of risk that the lender takes. If students default, investors can squeeze students–forever.
Finally, if it’s any indication, look at what ad popped up in my Google Reader feed in connection with this article:
- Pwn (v.) Slang term derived from the verb own, as meaning to appropriate or to conquer to gain ownership. The term implies domination or humiliation of a rival.