What would it mean for the "Higher Education Bubble" to burst?

Speculation on long term assets as a bubble bursts?  No one gets that right.  Here's my wrong answer. A higher education bubble would effect two populations.  Consumers of the asset in question, higher education degrees - students, and producers of the higher education degrees, colleges and universities. In the former case, holders of higher education degrees will be left holding an asset that doesn't carry the wage premium they believed it would hold when they embarked on the endeavor of training for one of these degrees, but would be saddled with the outstanding debt obligations they took on to pay for this asset.  This looks a lot like the housing bubble in that it's basically impossible to liquidate the asset that you no longer (or perhaps never) needed, yet you have to make exorbitant payments for it.  Unlike the housing crises there will be 0 inventory movement, as you can't really trade yoru degree, and 0 bankruptcy - due to the infinite wisdom of Congress's decisions regarding student loan bankruptcy.  People caught in this position will be forced to work in jobs that are potentially ill-suited to their skills, and pay more than they can afford to service their debt obligations.  This will result in delaying maybe other decisions in life, including marriage, children, home-ownership.  Basically everyone starts to live like graduates of MFA programs. On the supply side, institutions have taken on massive capital expenditure programs in an effort to compete for talent on both student and professorial sides that are beyond the equilibrium point for the system.  Once it becomes apparent that higher education degrees aren't realistic financial instruments anymore, universities will have two choices, increase enrollment bases by charging a lower tuition, diluting the value of their professors, or liquidating very specialized capital assets in an already weak real estate market.  (Anyone want to buy a slightly used Chemistry building?  Anyone?)  Again, these capital expenditures are debt fueled obligations leveraged against the school's endowment.  In all likelihood the endowments will be drawn against in a highly accelerated fashion, causing universities to rely more on tuitions to cover their obligations, resulting in the need for expanded student bases in now smaller schools, further diluting the product. So both populations are well and good screwed, paying enormous debt payments and realizing less value then before, but like all bubbles, assets are left behind.  In one case, over-educated, financially motivated degree holders will have some skills that are general enough to transfer into other fields, allowing the development of new industries - arguably the lack of any "system" choices for these degree holders might also make them more entrepreneurial, since they'll have to carve their own way to realize the value of their specialized degrees in a market that no longer needs them.  Debt obligations tend to make people risk-averse though, so that fights against this idea. Universities will be left holding these overbuilt assets that they will sell at a discount.  Like the airline industry, new entrants into the education market could entry more cheaply then before buy acquiring the requisite assets to run a university on the cheap, and operate under cheaper, more future focussed models that aligned student and educator incentives better (no idea what that looks like). All this is caveat brand will still exist, and Harvard will continue to survive it's terrible choices in derivative investments and professor acquisition techniques. Or something.

The Nature of the Investment: As a higher ed consumer you are taking bets on three things: Quality of education (including experiential learning, internship opportunities, and student services related to learning) Quality of reputation (primarily with employers and recruiters) Quality of network Often this bet is taken in terms of time and risk in terms of a loan.  Given that its a loan, it provides universities with perhaps too much price flexibility. The Scenarios for the Higher Education Bubble Bursting: One or more of the six following take place: State officials de-fund ineffective investments higher education and shift them to effective (or the media or voters suggest such a scenario) Students and parents in mass vote with their dollars Students and parents in mass ask for their money back (aka a refund) Competitors (online colleges, certifications, community colleges, or free education becomes clearly better and more reputable among recruiters) Loan defaults Massive decrease in availability of college entry level jobs or the pay those jobs receive. I think the most likely scenario is: Online solutions or hybrid solutions become more viable to the traditional degree. For profit student debt goes relatively unregulated and unchecked. I worry that it would take a dramatic hiring freeze or recruiters walking the other way for a shift to take place.  On the other hand, I'm not sure how many times higher consumers will put up with 10% price hikes, be they in private or public education. There is a much higher threshold for a higher ed bubble burst than an investment or real estate one: Real estate was driven by bad loans Investments was unsound investment strategy (Basically lying about risk) The clarity of difference in value is far larger in areas like real estate and investments.  Also, those two have a unique: Speculation effect Cascading effect The value of a university degree arguably returns after 5 to 7 years of a 40 to 45 year career.  Certainly the loans are adjusted so its often 15 to 30 years, but the value of the money in strictly dollar amounts is returned much quicker. Greatest Risk of Bubble from For Profit Universities: If there is a problem, its primarily with for profit universities.  For instance, Tom Harkin wrote: For-profit colleges account for only 10 percent of students enrolled in higher education, but those students receive 23 percent of federal student loans and grants, and account for 44 percent of defaults. Wall Street money manager Steven Eisman told the committee that many for-profit colleges are "marketing machines masquerading as universities." I would also suggest looking at this related thread: Source: Tom Harkin article: http://www.huffingtonpost.com/sen-tom-harkin/for-profit-colleges-and-t_b_644570.html

In thinking about the question, consider what could be the sources of downward "price" pressure.  I use the grammatically tacky quotes (Will Saphire, may you rest in peace) because there is not a true price on an education once you enrolled for the semester.  But here we are trying to think about the wage premium of the typical degree holder? That wage drop would come from either people no longer needing fancy things like doctors, ATMs programmed, new mobile apps created for their new iPads or from lots of those services coming from somewhere else more cheaply.  I guess we will not have a great shift that brings the current developed economies from a consumer culture all the way to a puritanical shunning of material culture.  That leaves lots of fancy services coming from overseas.  So imagine one possible scenario -not a prediction or forecast: 1. To contain health care costs you go to a clinic with a nurse and the doctor (in a Low Wage Country-LWC) examines you remotely.  2. When you want to sue the doctor for mis-diagnosing, you retain a partner at a law firm with almost no associates in this country.  Instead they are in LWC, 3. To get home you take a cab that is built in Mexico and drives itself with software coded by coders in LWCs.  4. Your pension is run by portfolio managers overseas in LWCs, and so are your hedge funds.  So where is all this skilled labor?  It is growing up in emerging countries that have a new middle class.  For the first time this new middle class can send their kids to university.  And that will lead to hundreds of millions of college degrees.  There will certainly will be folks like Trump, Branson and Moore.  But even among the very rich there will be more like the first and fewer like the third.  Is it all bad?  If you know what Quora means, then mostly yes.  But if you are among the many poor kids in America in troubled schools who have about a 9% change of graduating college, then this all looks like a tremendous rise in the standard of living.  And if you want cheaper healthcare and lawyers (wow, what a mixed blessing) then it is a vision of progress.

Degrees will likely no longer be a guarantee of employment. There will be at least a generation long backlash against higher education in the US (Hard to tell kids college will get them a good job when it didn't get you one) Massive layoffs at universities A glut of unemployed and under-employed college grads may begin new political movements The federal government will have to create either amnesty program or an outright forgiveness of college loans as the repayment numbers drop severely.. stated no one gets the speculation on long term assets correct.

Interesting question - here's my perspective:   First, let's define bubble: a bubble occurs when the real value of something is lower than its estimated (market) value - essentially, when real ROI doesn't match expected ROI.  This can occur by virtue of the introduction of an abstraction (money), which decouples real value from estimated value. That said, I think the primary influence on the estimated value of a degree is positional - as a criterium in the hiring process.  If, indeed, higher education does not improve the quality of a potential employee substantially, companies will drop its priority as a criterium in the hiring process (which is evaluated constantly, for our purposes).  When companies drop the importance of a degree (which, by our earlier axiom, maps to student demand), the price of the degree will have to drop to meet it, lest students simply stop paying the imposed price and forego higher education (at least the ones that don't intrinsically value it at whatever the going rate is). What concerns me, however, is that the problem is not 'higher education' full stop - the problem is the direction of higher education today.  We would be hard-pressed to over-evaluate the importance of education that truly develops the fundamental skills of analytic reasoning and creative problem solving, as precisely such skills are the primary drivers of real innovation.  I'm only concerned that we as a culture are at risk of an overcorrection - wherein 'higher education' as a generalization becomes a dirty concept and isn't given sufficient opportunity to revitalize itself.