Is There a Financial Bubble?

by Amit Mrig, President, Academic Impressions

This article is an excerpt from our paper "The Other Higher Ed Bubble: The Bubble We Aren't Talking About." To read the rest of the paper, click here.

As government-subsidized debt continues to fuel higher ed’s growth, there is increasing speculation as to whether higher ed is the next bubble to burst—following the real estate burst of 2008 and the dot-com burst in 2000. Like those industries, higher ed cannot sustain its volume of customers without large infusions of subsidized debt and equity.

The financial bubble argument gained significant traction in 2010 when the total amount of student loan debt in this country surpassed credit card debt. Some have used this milestone, coming on the heels of the Great Recession, to imply that, like housing, higher education is another part of the American Dream that is going to be increasingly difficult to reach.

Why It's Not That Simple

One of the primary challenges with this argument is that it paints higher ed with a single brushstroke, and the reality is that the different sectors—community colleges, independents, publicly-supported, and for-profits (to say nothing of different competitive sectors)—graduate students with very different debt loads, job prospects, and core skills. The cost of a credit hour can vary dramatically—from less than $100 to over $600. Each sector’s and each institution’s value proposition varies significantly.


Most public speculation around the future viability of higher education revolves around the spectre of student loan debt, but the shape of debt looks very different across different sectors of the industry.

In 2007-2008, according to the College Board, the median debt for bachelor’s degree recipients was:

  • $17,700 for graduates of public, four-year institutions
  • $22,380 for graduates of private, nonprofit, four-year institutions
  • $32,650 for graduates of private, for-profit, four-year institutions

In the other “bubbles”—in both the tech and housing industries—values were inflated beyond what the market would bear and what could be justified against either historical or projected data. Tech companies were valued at irrational prices, and housing had inflated beyond what people could reasonably afford.

In the case of higher education, however, most measures continue to indicate that the investment pays off—even in a slow-growth economy. According to the Pew report “How Much Protection Does a College Degree Afford?” during the depth of the recession, the unemployment rate for those with bachelor’s degrees was half that of people with only a high school diploma—and never exceeded 5%. Life-time earnings for those with bachelor’s degrees will exceed high school diplomas by more than $1 million.

As wage inequality in this country continues to rise, higher education is the primary and increasingly exclusive gateway to the middle class. This fact, before all others, will continue to drive the political will, market demand, and philanthropic support for higher education. From the President’s college completion agenda to rebounding strength in giving, higher ed will benefit from important tailwinds. These tailwinds will continue to provide the necessary financial support, but only in the near term.

There is Still Time

This means that, contrary to the rush of public skepticism around the possible bursting of a "higher-ed bubble," there is still time to manage the significant challenges facing the higher-ed industry. There is still time for college and university leaders to act.

Yet if those institutions most at risk are to remain competitive and accessible in the years ahead, their leaders must heed the warning signs and push boldly for greater innovations that will simultaneously lower costs and improve quality. This will mean moving beyond incremental changes and fundamentally re-imagining who an institution serves and how.

Read more in our complimentary report "The Other Higher Ed Bubble."