Schaff: Don’t ignore the risks of blowing bubbles

Whenever the economy screeches to a halt, society, seeing wealth, income and tax revenues plummet, proceeds to re-evaluate its financial obligations. Whenever the economy screeches to a halt, society, seeing wealth, income and tax revenues plummet, proceeds to re-evaluate its financial obligations. And as Pitt students know all too well, education often falls among these scrutinized obligations.

Specifically regarding higher education, people across many walks of life — from young Occupy Wall Street protesters to graying presidential candidates — are aiming their sights at college degrees. But as we continue to weigh budget realities against educational ideals, we need to remember that questions about the higher-ed system deserve prudent, well-vetted answers. Given the risks that major changes pose, we cannot accept best guesses and half-cocked policies.

Nevertheless, Republican presidential candidate Ron Paul makes haste. Last week, he promised to use the Oval Office to scrap all federal student-aid programs, charging that they have “failed” to cultivate quality higher education. Effectively, Paul would direct the government to foreclose on tens of millions of students who rely on these programs.

Sure, the representative’s radicalism makes him about as likely to become president as Greece is to become solvent. But Paul’s views could predict broader incoming sentiment. Other candidates — cue Herman Cain and Michele Bachmann — are already starting to downplay their commitment to higher ed. So before more people in high places accept Paul’s premise, let’s examine the arguments more closely.

Paul is among the growing crowd of pundits who believe in a higher-ed “bubble.” That’s the idea that, compared to their returns, college degrees have become increasingly overpriced thanks to artificially inflated demand, and that inevitably, following the housing bubble in 2006, something’s set to “pop.” Bubble thinking captivated the nation in 2010 and has periodically made recent headlines: Consider PayPal founder Peter Thiel’s offering to pay students to drop out on “bubble” grounds and Wall Street Journal editor James Taranto’s making the housing-education comparison on Oct. 20. The steam-gathering of bubble thinking is dangerous. But before I get to why, let’s consider its appeal.

The comparisons between the college cost structure and the housing mess are unavoidable. Like houses once were, a college education has long been understood as a ticket to the middle class that comes at a premium so expensive that millions of college consumers finance their investment on credit. Reminiscent of the subprime mortgage mess, the federal government makes this credit easy to acquire, providing loans and grants and backstopping firms that issue private loans. And although speculators haven’t started trading student loan-backed securities, demand for college education has recently unambiguously increased: According to the National Association for College Admission Counseling, college applications received by four-year institutions increased 70 percent between 2001 and 2008.

Some people look at these observations and scream, “Bubble!” But there are serious flaws in the premise, and, even without the flaws, the adverse consequences of a bubble-based policy — like reducing public appropriations or, in Paul’s case, removing federal credit entirely — seem overlooked, perhaps intentionally.

The sharpest fact that threatens the bubble premise is returns. That is, while college prices have risen faster than inflation for 50 years, studies have repeatedly concluded a positive return on investment (i.e. graduates end up with more accumulated income than non-college-goers). And what does the Bureau of Labor Statistics report will protect you from the 9.1 percent unemployment rate? A college degree, which endows its bearers with less than half that rate. Bubble thinkers need hard evidence to make the “overvaluing” claim — and they don’t have it, at least not now.

Also, to contend that federal loans artificially inflate college demand and tuition price is misleading. Yes, the absence of federal credit would price millions out of the higher-ed market, and with a slump in applicants, tuition would probably fall. But that doesn’t mean the high school student passed up for financial reasons would drop his desires for a college experience; the internal value Americans now hold for education is not dependent on loan availability.

But let’s say this is a bubble after all. After the bubble’s identified, pulling the federal rug from underneath the higher-ed system — in whatever gradation — could prove disastrous. First, academic research departments are often supported by tuition dollars, and denying loans to students could mean a huge blow to scientific progress. More importantly, a higher-ed market without easily attainable loans would discriminate against low-income families, by definition. If that could get any worse, colleges, hesitant to take a hatchet to their payroll to make up for falling revenues, would have a strong incentive to judge the applicants that remain in terms of payment potential, perhaps at the expense of merit. Frankly, it’s hard to see how a solution like Paul’s would pan out any better than letting a so-called bubble run its course.

Granted, American higher education is far from adequate. Only 56 percent of all students in four-year programs graduate in six years or fewer, and less than 60 percent of those who actually graduated in 2009 landed jobs that require a degree. Add to that the likelihood a college-for-all attitude won’t reverse technology’s hollowing out of middle-class jobs — think automated legal services and computer-aided diagnoses — and a major re-evaluation of college’s role in society is most definitely overdue. It’s just that, given the stakes, we can’t let carelessness infect our decision-making.

Write Matt Schaff at matthew.schaff@gmail.com.