For years, governments have been trying to increase the enrollment rate at our nation’s colleges. Why? Well, if you trust the government, you see it as a way to invest in our young people. After all, they’re the future. And as technology advances, the available jobs will become more technical and reliant on skills.

If you don’t trust the government, you see higher college enrollment as a way to line the pockets of greedy universities. Universities have been charging students more and more money every year. And as the costs rise, so too do student debts. At some point the system has to break, doesn’t it?

It’s an interesting question. And one that has attracted the attention of some of the most curious minds. Is college education in a bubble? Let’s have a look first at how we got into the present position. Back in the 1970s, students didn’t take out loans to go to college. Heck, their parents didn’t even have to save up for the cost of education. In fact, most students could pay for their tuition by working a part time job at the weekend during term time or working a full-time job during the summer.

College education bubble

en.wikipedia.org

But colleges realized that they could make more money from students. Ever since the Higher Education Act of 1965, students didn’t have to pay market rates of interest. They could take out enormous loans, knowing that the government would subsidize their repayments. This meant that colleges could start upping their asking prices. Price rises were modest to begin with. Even by the 1990s, college was still relatively affordable.

But lower interest rates soon led to problems. Colleges figured out that they could start charging pretty much whatever they wanted. Sure, students would have to go into debt to pay for it. But that didn’t matter since none of them would ever be refused credit. After all, the government was backing all the loans.

Whereas the cost of student apartment rentals remained reasonable, tuition fees soared. Yet, for many students, it still seemed like a good deal. Although they were in the hole for tens of thousands of dollars, they at least had the promise of a good job once they got out. They might be over $100,000 in debt, but that was the investment that would secure over a million dollars in additional earnings in the future.

But that isn’t what is happening. Right now in the US, the number of coveted middle-class jobs is shrinking. The whole point of going to college is disappearing. And all the while college is becoming more expensive. This disconnect between the cost of entry and the reward from attending is the reason that college is in a bubble.

Just like the housing crisis was caused by teaser rate loans, low interest rates for student loans have enticed students to go to college. As more students go to college, degrees become less valuable. Ultimately, that means that people will stop demanding them. And once that happens, it’s game over for colleges.