I just thought of something rather depressing while reading about all the mess the sub prime mortgage crises has caused. It would seem to me that the next big bubble to burst will be the education market.
Like the housing market problem-caused by people buying houses they could not afford and then not getting the expected raise or job they needed to pay their now newly adjusted mortgages-people have for years now been buying educations they cannot afford-by borrowing on future earnings that are way less than certain.
Unlike houses however, banks will not be able to foreclose the brains of people they made loans to. Further, even if people are not deemed by bankruptcy law to meet the 'undue hardship' standard required to discharge student loans in bankruptcy (mortgages and credit card debt are much easier to discharge when you qualify for bankruptcy), that doesn't mean banks will collect money that doesn't exist.
Furthermore, education has all the signs of traditional bubbles. Tuition for higher ed has grown at a rate faster than inflation for the last several decades, and doubled adjusted for inflation in the last 10 years.
Wages for college graduates and professionals have not grown nearly as fast.
Of course, nobody knows what the future holds when this bubble bursts. What we could see is another bank panic as banks are unable to raise capital when huge amounts of their assets are trapped up in "toxic" student loan assets. In such a scenario, because of the precedent this bailout will set, banks will expect another bailout.
Just a thought.
commenter Noah Goldman writes:
"They cannot repossess people's brains, but they can and will repossess everything else that's not nailed down.
This is why college should only be for the smarter kids and should only boast academic majors such as science, philosophy, and the like instead of all of these B.S. (no I don't mean Bachelor's of Science) degrees where they taught you nothing useful or that could have been taught in a trade school. Higher degrees should only be for those fields that truly need it, and university is HIGHER education."
That reminds me to suggest what could be done about this problem.
I tend to agree with Noah that more people could go to trade schools than do go to trade schools. I remember meeting quite a few people in college who got liberal arts degrees and then ended up becoming store managers or auto mechanics. We also might consider letting people go right to law school or medical school out of college.
I also think we could use more sunlight in (public) university budgets. I'm sure an awful lot of undergraduate tuition goes to things like academic research-things that most students do not really benefit from by just attending the undergraduate portion of the school. This not only unfairly drives up the price of tuition for the students, it also artificially gives academic research more funding than people would otherwise pay to fund it. This artificial way of funding research in public universities is really form of education tax on the real price of tuition. This may pay for research-but much research can be funded more efficiently by research and development companies rather than by the public. Further, using tuition as a tax revenue source to pay for the research is a pretty regressive tax when you consider the income of college students.
It's also not clear why state universities need state of the art gymnasiums, swimming pools, or housing. College graduates do not live with such amenities, and college students do not need to either.
Ironically, another thing that contributes to the tuition cost is that no matter how high the costs get, people are able to get huge loans to pay for it. Because of this availability of funding, it seems no matter how high prices get, universities are not seeing a decline in enrollment. In fact, more people are getting degrees today than ever before. Of course that brings us back to square one....