There is concern that the possible higher education bubble in the United States could have negative repercussions in the broader economy. Although college

tuition payments Tuition payments, usually known as tuition in American English and as tuition fees in Commonwealth English, are fees charged by education institutions for instruction or other services. Besides public spending (by governments and other public bo ...

are rising, the supply of college graduates in many fields of study is exceeding the demand for their skills, which aggravates

graduate unemployment Graduate unemployment, or educated unemployment, is unemployment among people with an academic degree. Aggravating factors for unemployment are the rapidly increasing quantity of international graduates competing for an inadequate number of suit ...

and

underemployment Underemployment is the underuse of a worker because their job does not use their skills, offers them too few hours, or leaves the worker idle. It is contrasted with unemployment, where a person lacks a job at all despite wanting one. Examples ...

while increasing the burden of

student loan A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest ...

defaults on

financial institution A financial institution, sometimes called a banking institution, is a business entity that provides service as an intermediary for different types of financial monetary transactions. Broadly speaking, there are three major types of financial ins ...

s and

taxpayer A taxpayer is a person or organization (such as a company) subject to pay a tax. Modern taxpayers may have an identification number, a reference number issued by a government to citizens or firms. The term "taxpayer" generally characterizes o ...

s. Moreover, the higher education

bubble Bubble, Bubbles or The Bubble may refer to: Common uses * Bubble (physics), a globule of one substance in another, usually gas in a liquid ** Soap bubble * Economic bubble, a situation where asset prices are much higher than underlying fundame ...

might be even more serious than the load of student debts. Without safeguards in place for funding and loans, the government risks creating a

moral hazard In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs associated with that risk, should things go wrong. For example, when a corporation i ...

in which schools charge students expensive

tuition fee Tuition payments, usually known as tuition in American English and as tuition fees in Commonwealth English, are fees charged by education institutions for instruction or other services. Besides public spending (by governments and other public bo ...

s without offering them marketable skills in return. The claim has generally been used to justify cuts to public higher education spending,

tax cut A tax cut typically represents a decrease in the amount of money taken from taxpayers to go towards government revenue. This decreases the revenue of the government and increases the disposable income of taxpayers. Tax rate cuts usually refer ...

s, or a shift of government spending towards

law enforcement Law enforcement is the activity of some members of the government or other social institutions who act in an organized manner to enforce the law by investigating, deterring, rehabilitating, or punishing people who violate the rules and norms gove ...

and

national security National security, or national defence (national defense in American English), is the security and Defence (military), defence of a sovereign state, including its Citizenship, citizens, economy, and institutions, which is regarded as a duty of ...

. There is a further concern that having an

excess supply In economics, an excess supply, economic surplus market surplus or briefly supply is a situation in which the quantity of a good or service supplied is more than the quantity demanded, and the price is above the equilibrium level determined by sup ...

of college graduates exacerbates political instability, historically linked to having a bulge in the number of young degree holders, a phenomenon known as

elite overproduction Elite overproduction is a concept developed by Peter Turchin that describes the condition of a society that has an excess supply of potential elite members relative to its ability to absorb them into the power structure. This, he hypothesizes, is ...

. Some economists reject the notion of a higher education bubble, noting that the

returns Return may refer to: In business, economics, and finance * Return on investment (ROI), the financial gain after an expense. * Rate of return, the financial term for the profit or loss derived from an investment * Tax return, a blank document or t ...

on higher education vastly outweigh the cost.Michael Simkovic
Risk-Based Student Loans
(2012)Thomas Lemieux, Postsecondary Education And Increasing Wage Inequality, 96 AM. ECON. REVIEW 195 (2006)Sandy Baum and Michael McPherson
Job-Skill Trends and the College-Wage Premium
Chronicle of Higher Education, Sept. 21, 2010 However, this does not account for survival bias, given that around 40% of students at four-year universities will not graduate. As of 2012, 29% of student debtors never graduated, and those who did could take decades to pay back the money they owed. Others believe number of institutions of higher education in the United States will fall in the 2020s and beyond, citing reasons of demographic decline, poor outcomes, economic problems, and changing public interests and attitudes. According to the U.S.

Department of Education An education ministry is a national or subnational government agency politically responsible for education. Various other names are commonly used to identify such agencies, such as Ministry of Education, Department of Education, and Ministry of Pub ...

, by the late 2010s, people with technical or vocational trainings are slightly more likely to be employed than those with a bachelor's degree and significantly more likely to be employed in their fields of specialty. The United States currently suffers from a shortage of skilled tradespeople. The

Federal Reserve Bank of St. Louis The Federal Reserve Bank of St. Louis is one of 12 Federal Reserve System, regional Reserve Banks that, along with the Board of Governors in Washington, D.C., make up the United States' central bank. Missouri is the only state to have two main ...

noted in 2019 that investment in higher education has reached a point of diminishing marginal returns. Undergraduate and graduate enrollments have both been in decline, while trade schools continue to attract growing numbers of students. White men are a major group opting for alternatives to higher education. Many faculty members are leaving academia, especially those from the humanities. At the same time, university graduates are likely to regret having studied the humanities and liberal arts. While academics maintain that certain subjects are worth studying for their own sake, students are more concerned with increasing their earning potential. So far this century, numerous institutions of higher learning have permanently closed, especially rural liberal arts colleges, community colleges, and for-profit institutions. It is possible that the bubble will not burst, but rather deflate.

Background

Due to the

GI Bill The G.I. Bill, formally the Servicemen's Readjustment Act of 1944, was a law that provided a range of benefits for some of the returning World War II veterans (commonly referred to as G.I.s). The original G.I. Bill expired in 1956, but the te ...

and the population boom after World War II, demand for higher education grew significantly during the latter half of the twentieth century, making it one of the major growth sectors for the American economy. Historically, high schools separated students on career tracks, but this changed in the late 1980s and early 1990s, when the mission of high schools shifted to preparing students for college. In 1987, U.S. Secretary of Education

William Bennett William John Bennett (born July 31, 1943) is an American conservative politician and political commentator who served as the third United States secretary of education from 1985 to 1988 under President Ronald Reagan. He also held the post of d ...

suggested that the availability of loans was fueling an increase in tuition prices and an education bubble. The "Bennett hypothesis" claimed that readily available loans allow schools to increase tuition without regard to demand elasticity. In addition,

college rankings College and university rankings order higher education institutions based on various criteria, with factors differing depending on the specific ranking system. These rankings can be conducted at the national or international level, assessing inst ...

were partially driven by spending levels, and higher tuition was also correlated with increased public perceptions of . From the 1980s to the 2010s, demand for higher education increased, especially after the Great Recession of 2007–2009 when Americans flocked back to school in order to adapt to the new economy. A 2011 study from the Labor Department found that a bachelor's degree "represents a significant advantage in the job market." In 2011, ''

The Chronicle of Higher Education ''The Chronicle of Higher Education'' is an American newspaper and website that presents news, information, and jobs for college and university faculty and student affairs professionals, including staff members and administrators. A subscription ...

'' ran an article which said that the future was bright for college graduates. The data also suggested that, notwithstanding a slight increase in 2008–09, student loan default rates had declined between the mid-1980s and 1990s and early 2010s. The management consulting firm

McKinsey & Company McKinsey & Company (informally McKinsey or McK) is an American multinational strategy and management consulting firm that offers professional services to corporations, governments, and other organizations. Founded in 1926 by James O. McKinse ...

projected in 2011 that a shortage of college-educated workers and a surplus of workers without college degrees, which would cause the wage premium to increase and cause differences in unemployment rates to become even more dramatic. As of 2018, 70% of high school graduates in the United States enrolled in

tertiary education Tertiary education (higher education, or post-secondary education) is the educational level following the completion of secondary education. The World Bank defines tertiary education as including universities, colleges, and vocational schools ...

. But only 60% of those students, that is 42% of high school graduates, will graduate within 6 years with at least a Bachelor's degree. Note that Bachelor's degrees in the United States are typically designed to be completed in four years of full-time study, and Master's programs in the US are normally two years (full-time) in length.

Discussion

During the early 2010s, whether or not the "higher-education bubble" existed became a topic of debate among economists. Data has shown that although the wage premium (the difference in incomes between those with a four-year college degree and those with only a high school diploma) has increased dramatically since the 1970s, so has the 'debt load' incurred by students due to the tuition inflation. By 2019, the total college debt exceeded US$1.5 trillion, and two out of three college graduates were saddled with debt.

Glenn Reynolds Glenn Harlan Reynolds (born August 27, 1960) is an American legal scholar who is the Beauchamp Brogan Distinguished Professor of Law at the University of Tennessee College of Law. He is known for his American politics blog, ''Instapundit''. Ins ...

argued in his book, ''The Higher Education Bubble'' (2012), that higher education as a "product grows more and more elaborate—and more expensive—but the expense is offset by cheap credit provided by sellers who are eager to encourage buyers to buy." Reynolds called university degrees a marker of

socioeconomic status Socioeconomic status (SES) is a measurement used by economics, economists and sociology, sociologsts. The measurement combines a person's work experience and their or their family's access to economic resources and social position in relation t ...

. Economists

Michael Spence Andrew Michael Spence (born November 7, 1943) is a Canadian-American economist and Nobel laureate. Spence is the William R. Berkley Professor in Economics and Business at the Stern School of Business at New York University, and the Philip H. Kn ...

and Joe Stiglitz suggest that much of the worth of a university degree lies not in the skills acquired, but rather market signaling. Because a university degree still had considerable value, higher education might be an example of a

Veblen good A Veblen good is a type of luxury good, named after American economist Thorstein Veblen, for which the demand increases as the price increases, in apparent contradiction of the law of demand, resulting in an upward-sloping demand curve. The hig ...

, albeit a subtle rather than a

conspicuous {{Short pages monitor