We’ve seen the sad results from the bursting of the national housing bubble. George Leef’s latest Forbes column warns readers about the dangers associated with another bubble.
The housing bubble was an artifact of government policy and so is another bubble that is still inflating – the college bubble. Let me draw the parallels between them.
Just as the federal government’s super-low interest rate policy made the cost of buying a home artificially low, thereby drawing in many Americans who wouldn’t otherwise have taken the plunge into mortgage debt and the costs of home ownership, so has it lured many Americans into college with grants and cheap loans. When government policies make it less expensive to buy something, more people will buy it. If those policies continue long enough, you get a bubble.
If it hadn’t been for federal grants and loans, many young Americans would have pursued some path after high school other than enrolling in college. But politicians felt that increasing the number of college-educated people would be a good thing and the student aid policies they fashioned worked — in just the same way that federal housing policies “worked” to get lots of Americans to buy houses who should never have done so. …
… Now think back to the old days in higher education, going back 50 years to put us just prior to the onset of federal intervention during LBJ’s Great Society. Back then, a college degree was not thought to be necessary for an individual to succeed in life, and few careers were closed off to people who didn’t have one. With the small exception of GI Bill college assistance for military veterans, the federal government had nothing to do with higher education. Politicians didn’t push college, either by trying to make it more affordable or by claiming that having more college graduates would be a big national economic benefit.
In those days, the relatively few Americans who thought that going to college made sense – that is, who estimated that the benefits they’d reap in human capital would exceed the costs (which were quite low, even at the best-known schools) – mostly saved for the expenses. Students whose families couldn’t afford the tuition and other costs often found help from scholarship organizations. Also, earnings from summer and part-time work defrayed a substantial amount of the cost.
Notice that, as with the old housing market, people had to look to their own efforts (and voluntary financial assistance, which could not be taken for granted) if they wanted a college education. Again, the system rewarded the virtues of striving: work, saving, foresight.