A bubble occurs when, due to market hysteria or general irrationality, an asset is traded at a price that strongly exceeds the asset’s intrinsic value. A bubble bursts when the market snaps back to reality. The dot-com bubble grew in the late 1990s while investors eagerly bought shares in technology companies; it burst suddenly in March of 2000, as companies like Pets.com and Just For Feet shut down. Home prices rose sharply as the housing bubble grew in the early 2000s before the largest decline in home prices in American history amidst increased foreclosures and banks collapses. Now, some are raising the argument that the next big bubble to burst is in the higher education sphere. 

The sticker price of American colleges increased nearly 400 percent in the last 30 years, per a July 23, 2017 article in the Wall Street Journal, far outpacing the growth rate of household income; yet college enrollment has only risen. Between 2000 and 2015, the percentage of 18-24 year-olds enrolled in college rose from 36 to 41 percent, per the National Center for Education Statistics, and national student debt is over $1 trillion. 

The price of college has been rapidly increasing, yet more and more people are going to college. If you’re making a surface level analysis, it sure seems similar to that housing bubble, with prices rising at absurd rates and consumption rising in spite of it. There are some questions to ask here.

First of all: why are college costs going up so much in the first place? The standard narrative here is that government spending cuts are the problem. Public funding has fallen, and tuition has risen to make up for that drop, or so the story goes. This is misleading.

In inflation adjusted dollars, government funding to higher education increased from $11.1 billion in 1960 to $48.2 billion in 1975, per an April 4, 2015 article in the New York Times. It was $86.6 billion in 2009. It fell a bit during the Great Recession but has rebounded to $81 billion, not including the $34.3 billion a year Pell Grant program (which has increased from $10.3 billion in 2000). 

Articles tend to cite particular cuts in funding, like the cut following the Great Recession, but telling the story in that way ignores the reality that both government funding and college costs have been trending upwards for decades. Others point to the increasing percentage of tuition that families pay. This isn’t a disputed fact; government funding has risen more slowly than tuition costs have, and families are picking up the slack. Yet that point shifts the discussion slightly away from the core issue of college costs increasing as rapidly as they have. 

Prices certainly aren’t going up because of rising salaries for professors. According to a 2016 study from the National Center of Education Statistics, full-time professor salaries have been stagnant since 1970, and about half of faculty are part-time lecturers — up from only 22 percent in 1970. In inflation-adjusted dollars, universities are spending less money on academic faculty than they were in 1970.

One factor actually contributing to rising costs is the expansion of administration. According to the Department of Education, there were 60 percent more administrative positions at colleges in 2009 than in 1993, 10 times the rate of growth of tenured faculty positions.

This isn’t a problem in and of itself. As Sandy Baum, a senior fellow at the nonprofit Urban Institute, wrote in a April 7, 2015 Washington Post article, “You can't just have people in the classroom, you have to have people providing student support services or students don't succeed.” It’s not wasted money; academic advisors, diversity staff, wellness counselors, etc., all play a part in improving the college experience. 

There is a competitive aspect here as well. When one school creates a new department focusing on, say, helping incoming students transition academically, that puts pressure on other schools to do the same. These schools are competing for students, and every inch counts. The same can be said about facilities; renovations to student centers, for instance, are hardly necessary, but they can help attract incoming students. Keeping up with technology is a cost nightmare.

The education sector is essentially immune to the benefits of technological leaps,  at least as far as efficiency goes. For every class, you still need a professor working for a certain number of hours a week, maybe a teaching assistant or two and administrative staff. There is more depth to this concept, but it’s more a subject of a dissertation than of a newspaper article. Bottom line: economists are in general agreement that this cost disease not only prevents cost-cutting, but actually contributes to increasing costs. But is it a bubble?

Bubbles are historically difficult to predict. There are always signs, always economists shouting to the heavens that something bad will happen, but there’s no way to truly know a bubble exists before it pops. 

While the costs of education are increasing, college is still worth the cost people pay for it, despite what talk show pundits and drunk uncles might say. In an increasingly tech-dependent workforce, an education is increasingly important. A study from Georgetown’s Center on Education and the Workforce shows that 97 percent of so-called “good jobs” — which pay the median household income of $53,000 or more and offer benefits —  go to college graduates. That’s practically like saying a college degree is mandatory to get one of those jobs. Furthermore, the wage difference between college graduates and non-graduates nearly doubled, from 33 to 62 percent from 1980 to 2013, according to an Oct. 22, 2015 Time article. 

However, college is still a good investment. It is worth what students pay for it. But the housing bubble didn’t collapse simply because the market realized houses weren’t worth what they were being sold for; it collapsed amid a flurry of foreclosures as borrowers failed to pay the mortgages they were given. Student loan debt, already above $1 trillion nationwide, may eventually become crippling to students. And it’s tough to get out of; those declaring bankruptcy are often freed from their piled-up utility bills, personal loans, and even their credit card debt, but student loans fall into the special category of “priority” debt that is almost impossible to get out of. 

Furthermore, even if college is worth it when you do the math, prospective students could still be deterred. According to data from the Department of Education, total postsecondary enrollment has fallen every year since 2011 —  the first decline of that duration in modern peacetime American history. That, though, is due at least in part to decreasing number of college-aged people in general.

It is not impossible to imagine a sudden overflow of graduates defaulting on their student loan debt, triggering a massive drop in college enrollment as prospective students stay away in fear of joining their ranks. Yet it seems far more likely that this phenomenon, if it even occurs, takes place over many years. Derek Thompson of the Atlantic aptly wrote in a July 26, 2017 article that the college bubble will end “not with a pop, but a hiss.” 

Nobody can give a definitive answer where these trends are leading. It’s possible that college prices will drop, as the rate of growth has already started to slow down. We may reach a breaking point where exorbitantly priced schools face so much pressure to change that they have little choice. Or, prices could grow indefinitely, fueled by the increased demand for educated workers.