Lockport Union-Sun & Journal Online

Opinion

May 27, 2013

CONFER: When will the college bubble burst: Part 2

Lockport Union-Sun & Journal — Like the housing bubble and the internet bubble that preceded it, the higher education bubble will see its false prosperity come to an end in the coming years. Unlike them, it won’t pop with violence that will send the economy into a deadly tailspin. Instead, it will crack and its contents will escape gradually, having a collection of harmful — and even helpful — effects on the economy.

This can be said with confidence because we are dealing with an entirely different animal.

The housing and internet bubbles popped so powerfully because there were no controls in place – the bubbles behaved as they should have in a free market.

The student loan industry, on the other hand, is no longer a free or mixed market. Since nearly all loans are issued by the government, it used its power to change the game and protect its interests in 1998 by making it law that student loan borrowers could not declare bankruptcy and absolve themselves of their financial obligation unless they could make a case for undue hardship. This is quite unlike the housing crash when hundreds of thousands of mortgage holders declared bankruptcy and left financial intuitions and taxpayers on the hook for trillions of dollars. So, gone is the possibility of freefall that made the Great Recession so horrific.

Even so, there will be significant financial and fiscal repercussions in the long-term ... 18 years down the road to be exact.

Today’s students are participating in an outsized educational marketplace fraught with bloated price tags that has started to produce minimal return on investment. A significant portion of the under-35 workforce is claiming underemployment (citing a weak economy), when in reality, they are victims of over-competition (too many college educated workers), and a mix of over-qualification and under-qualification (too many degrees that don’t fit the needs of the economy).

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