Reddit reviews The Race between Education and Technology

I'm going to go against the grain and say there is no student loan bubble - it doesn't even make sense. A bubble is when "asset prices that exceed an asset's fundamental value because current owners believe they can resell the asset at an even higher price" (source). This is impossible in this context - you can't resell your education and the debt is non-dischargeable (for good or ill).

Instead, it may be accurate to say college is overpriced, since bubble is makes no sense. I don't think this is accurate. Over the last 40ish years the college wage premium has increased. In 1974, an average college grad made 32% more than a high school grad, in 1999, the difference had risen to 80%. You can read more about it in this book. A college degree is still a really good investment. Maybe not as good as 10 years ago, but not negative.

Also, you can't evaluate returns to investment in college by looking at sticker price. Financial aid process lets schools do very precise price discrimination - they can basically just walk up the demand curve. Saying nominal tuition increased by X isn't very meaningful. College is pricey, dropping out is very pricey, but it is still worthwhile. The college premium is not just a selection effect.

I'll grant there is some signaling going on through the college process. But economists have shown pretty clearly that although a portion of college is signaling, not nearly all of it is signalling. And signaling isn't necessarily entirely wasteful, separating smart hard working people from smart lazy ones isn't easily achieved other ways.

This article suggests that online classes can replace college in some respects. Perhaps in some part, but not entirely. Lectures survived books and other recorded media, and learning with both was better than either alone. Plus, working with and around similar peers has real knock-on effects. And so far, the majority of for-profit universities have failed to produce the same graduation rates, quality of education, or lower costs than public and private universities - that could change, but we're not there yet.

We see articles about the collapse of a higher education bubble quite frequently - I've never understood why people buy into it:

1. A bubble is a term with a specific meaning - people are buying an asset with the expectation that they will be able to sell it for more later. There is no mechanism for which this can work in the education market.
   
2. The last 30 years have been characterized by a huge increase in the college wage premium. In 1979, a college educated worker made 35% more than an HS graduate on average, by 1999, they would be making 80% more. The Race Between Education and Technology is a great overview of this. A college education is still a really good investment. This isn't because of selection effects - see The Caual Effect of Education on Earnings.
   
3. Virtually no one pays market price for a college education. The financial aid process allows universities to practice almost-perfect price discrimination. They can effectively charge a different price for every student, so that the market just follows the demand curve up until their maximum tuition level.
   
4. The is definitely is a sheepskin effect - http://en.wikipedia.org/wiki/Signalling_(economics)#A_basic_job-market_signalling_model - for college diplomas. But this is extremely well understood (Spence shared the economics Nobel with Akerlof for signalling theory). I think that separating bright, talented and hard working 18 year olds from bright, talented and lazy 18 year olds is a non-trivial process.
   
5. Tons of articles imply that you don't need higher education, because you can take classes online. If this was the case, why did the university lecture have survived the invention of the printing press? Books reduced the cost to the diffusion of knowledge far more than the internet did, without ending the university system. This implies that there is something else going on to me.

>college is such a fucking scam these days

This misconception is so prevalent on reddit I have a comment saved just to address it. Link

>It may be accurate to say college is overpriced, since bubble is makes no sense. I don't think this is accurate. Over the last 40ish years the college wage premium has increased. In 1974, an average college grad made 32% more than a high school grad, in 1999, the difference had risen to 80%. You can read more about it in this book. A college degree is still a really good investment. Maybe not as good as 10 years ago, but not negative.

>Also, you can't evaluate returns to investment in college by looking at sticker price. Financial aid process lets schools do very precise price discrimination - they can basically just walk up the demand curve. Saying nominal tuition increased by X isn't very meaningful. College is pricey, dropping out is very pricey, but it is still worthwhile. The college premium is not just a selection effect.

So yes, college can be expensive, but for most people it is a great investment and becoming more so over time as our economy becomes increasingly knowledge-based.

To put student indebtedness in perspective, some information:

>About 60% of students who earned bachelor’s degrees in 2011-12 from the public and private nonprofit institutions at which they began their studies graduated with debt. They borrowed an average of $26,500.

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>In 2012, 40% of borrowers with education debt owed less than $10,000 and another 30% owed between $10,000 and $25,000

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Compared to the substantial benefits associated with going to college, it's just not that much debt. For example, in 1974, an average college grad made 32% more than a high school grad; in 1999, the difference had risen to 80%. You can read more about it in this book. A college degree is still a really good investment. (and before the inevitable "correlation is not causation" response, there are literally hundreds of papers studying the returns to education -- it's a very well developed field).

Are there some outliers who incurred large amounts of debt while earning a degree with low labor market payoffs? Sure. But let's not pretend they are representative of the population of students who rely on loans to pay for college. Access to loans opens the door to a college education for millions of students.

Turning to the article:

>And [they] found that while students with ... and without college debt start off at similar levels of income, by the time they're 40 they have less income if they have student debt

Note that this is taken from a blog post that makes a billion assumptions (see methodology) and as far as I can tell doesn't actually use individual-level data to estimate anything.

>If we know that people aren't accumulating assets and that the wealth gap is growing, partially because of student loans

Huge [citation needed] on that one.

>Why should one person go to college, take on all kinds of amounts of debt, and through their work and effort, be one of the better people in their field — and still not be able to earn as much as other people earn because of all this debt?

Did I miss the part where wages shown to be linked to debt?

> The student loan issue is a trillion dollar bubble

How are student loans a bubble? Who's reselling degrees?

>whose effects are going to change the future of the US for the worse, and no one is taking any responsibility for it. Instead it's easier to simply blame the debtors.

Having student loan debt payments is obviously bad, and ideally there'd be none for anyone. However (shamelessly stolen from badecon):

1. The last 30 years have been characterized by a huge increase in the college wage premium. In 1979, a college educated worker made 35% more than an HS graduate on average, by 1999, they would be making 80% more. The Race Between Education and Technology is a great overview of this. A college education is still a really good investment. This isn't because of selection effects - see The Causau Effect of Education on Earnings.
   
2. Virtually no one pays market price for a college education. The financial aid process allows universities to practice almost-perfect price discrimination. They can effectively charge a different price for every student, so that the market just follows the demand curve up until their maximum tuition level.
   
3. The is definitely is a sheepskin effect - http://en.wikipedia.org/wiki/Signalling_(economics)#A_basic_job-market_signalling_model - for college diplomas. But this is extremely well understood (Spence shared the economics Nobel with Akerlof for signalling theory). I think that separating bright, talented and hard working 18 year olds from bright, talented and lazy 18 year olds is a non-trivial process.
   
   >These people who went to Europe are the smart people who got out of a country that is falling apart from the inside out.
   
   ok