The Higher Education Bubble

by Glenn Harlan Reynolds

In the first decade of the new millennium we saw the dot-com bubble and housing bubble end badly. In this concise 48-page booklet, University of Tennessee law professor Glenn Harlan Reynolds explains why higher education will be the next bubble to burst. “Bubbles burst when there are no longer enough excessively optimistic and ignorant folks to fuel them.”

Just as the housing bubble was fueled by loose lending practices, the higher education bubble is enabled by government subsidies and guaranteed student loans. “As with any subsidized product, prices rose to absorb the subsidy.”

People talk about education being invaluable, but “when the investment runs well into the six figures, students would be crazy not to worry about the return.” Reynolds points out that if there’s no reasonable expectation of return on investment, then tuition is an expensive consumption item rather than an investment.

Students presumably go to college to enable a higher standard of living, but taking on excessive student loans can have the opposite effect. “It’s hard to get a mortgage, for example, when you’re already in effect paying one in the form of student loans… These people may wind up living in their parents’ basements until they are old enough to collect Social Security, which may wind up being garnished—no joke—for unpaid student loans.”  The author also points out that a large number of people taking out student loans never graduate.

Many people may be better off not going to college.  “Bureau of Labor Statistics predicts that 7 of the 10 fastest growing jobs in the next decade will be based on on-the-job training rather than higher education.”

Colleges and universities will need to adapt by delivering better value. “The first step is to ensure that students are actually learning useful things.” STEM majors (science, technology, engineering, and math) will be prepared for well-paying jobs, but many others are difficult to justify. Online education may offer some opportunity to reduce costs. “Sure, there’s not a lot of one-on-one interaction that way—but how much is there in a 200-student lecture class, really?”

If there’s a silver lining in this dark cloud, it is that disruption to the status quo may create new opportunities. Reynolds suggests “there’s a need for an alternative credentialing system. Filling that need will make someone rich.”

In conclusion, “the higher education bubble isn’t bursting because of a shortage of money. It is bursting because of a shortage of value. The solution is to improve the product, not to increase the subsidy.”

Reynolds, Glenn H. The Higher Education Bubble. New York: Encounter, 2012. Buy from