Friday, May 23, 2014
Is college a bubble?: LISTEN TO THIS BEFORE YOU GO TO COLLEGE!
Glenn Roynolds, author of the popular instapundit blog thinks higher education, and college in particular, shares characteristics of an asset bubble: rapid price increases and borrowing to finance it.
His advice for students: (i) do not borrow; and (ii) major in something that will pay (engineering or nursing, not women's studies or art history)
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Seeing as though I am currently enrolled in an MBA program, this post and podcast caught my attention right away. I immediately agree with him. With my undergraduate degree I had enough grants and scholarships to graduate without any debt. I also did not need to take out any loans. Fast forward six years and now being towards the end of my MBA program I am neck deep in debt. Instead of being happy about graduating in six months I am freaking out that I will have to start paying back my loans! My income has been increasing over the past few years but not because of the education I have been receiving. How will it pay off when I graduate? Will my income/opportunities increase due to my degree? As Glenn Roynolds stated, “college shares the characteristics asset bubbles: rapid price increases and borrowing to finance it.” In this case (podcast) the administrators of the colleges are the market makers. We the students take the risk. There was a great article on time.com however that feels the complete opposite. It does probably all depend on how much money you borrowed and what are your prospects when you graduate. Here is a section from that article:
ReplyDeleteAgain, let’s go back to the definition of a bubble: They’re a result of over-valued assets. And while there’s been a lot of talk lately questioning the value of a college education, the truth is that purchasers of college degrees are still by and large making out like bandits. A recent Georgetown University study estimated that college graduates, on average, earn $2.8 million more over their lifetimes than they would if they had just graduated high school. And this earnings differential has actually grown since 1999, by 12%. Even if you end up paying the full sticker price of $250,000 for a degree from one of the most elite institutions in the country, the investment still makes a ton of sense.
That’s not to say we don’t need higher education and student loan reform. Far too many young Americans are taking out loans for degrees they never complete. Others are far too optimistic about their future earning potential and take out mountains of debt for a degree that isn’t worth it in the end. And the attitude that every American child should strive to graduate from a four-year liberal arts school is probably misguided.
But at a time when the American worker’s wages are stagnant, and he is beset from competition from all sides, shouldn’t we be extolling education as one of the few ways one can invest in oneself — and not labeling it a dangerous boondoggle?
Matthews, C. 2013. Viewpoint: Stop Calling Student Loans a “Bubble”! Time.com. http://business.time.com/2013/03/07/viewpoint-stop-calling-student-loans-a-bubble/