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How to Pop The Higher-Ed Bubble

05.29.12 6:20 PM ET

Here's the latest in our series, "Ask me a Question, Win a Book."

Mark Gibbens: Recently, there has been a great deal of discussion among market-players and economists surrounding a possible student loan debt bubble.  As a graduate student that holds tens of thousands dollars of student loan debt, I was wondering how you would structure an affordable solution to the ever-increasing cost of higher education?

Let's break this problem into two pieces: (1) what to do about existing student debt and (2) how do we make higher education less crazy expensive in future?

Part (1) is easy to answer. It is possible for government to devise a policy that—over time—reduces the burden of debt across the board with a minimum of bureaucracy and intrusiveness. That policy is called inflation, and in the 1950s and 1960s, a mild dose of it hugely helped the United States to pay down the burden bequeathed by World War II. A 4% inflation rate now would do equal good alleviating the burden of mortgage and student debt. Where is William Jennings Bryan when we need him?

Part (2) is trickier. Market pressure will be a big part of the solution. As is, universities cope with market pressures like railway monopolies in the 1880s: secret rebates to customers with the most options, etc. That solution will become untenable as the return on education spending continues to fall—and as students (and their parents) become more skeptical of the value of debt-financed schooling. We've already linked here to Jed Graham's reporting on how for students over age 24, quitting college before finishing leads to worse outcomes than being satisfied with a high-school diploma.

As this information spreads, community colleges and institutions of higher learning will have to refashion themselves.

It's obvious to everybody but the universities themselves that they have built administrative bureaucracies of absurd complexity and cost. Teaching methods are still (literally) stuck in the middle ages. And vocational education proceeds with way too little employer input.

Consumer resistance will force radical changes. And as your email indicates, that consumer resistance is building now.


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