Bubbles, Malinvestment, and Higher Education

Bubbles, Malinvestment, and Higher Education por Steven Horwitz:

.. College costs have strongly outpaced the inflation rate, and the debt students are racking up is crippling. So what is driving this process and what consequences does it have for students? ..

.. One factor fueling the rising cost of higher ed–and it’s not the only one–is government provision of student loans at artificially low interest rates; this encourages borrowing, especially for the long term. As a result, too many people spend too much time in college, and more people attend college than should. One can think of this as malinvestment in human capital caused by distorted interest-rate signals.

Another way to look at this is that the low rates lead people to invest in the general human capital (knowledge and skills) associated with higher education rather than the more specific human capital that comes from workforce experience and on-the-job training. No matter how much of a “knowledge economy” we have, we still need cars repaired, septic systems fixed, and meals cooked at restaurants.

The real way out of the higher education bubble is twofold. First, stop subsidizing the demand side through artificially low rates of interest on government loans .. Second, we need to unleash real competition on the supply side by ending the government mandates and opening up higher education to new institutions, curricula, and pedagogies .. Getting government out is the only sure way to stop the boom before the coming bust gets any worse.