Monday, July 18, 2011

Is higher education a bad value proposition?

Two recent "finance/econ" type articles seem to take opposite sides in this debate. On the one hand Vikram Manasharmani argues that higher education exhibits all the tell-tale signs of a classic bubble (it is useful to keep the recent US housing crisis looming in the background).

These include, among others (a) an unquestioning faith in the "assets" value, (b)  availability of easy credit to buy the asset, and (c) increasing participation of value-insensitive buyers.

The net result has been that the price of higher education has outstripped inflation in recent years by more than 5% at public institutions. The total student loan debt is apparently on track to beat the total credit card debt this year.

The other side of the debate comes from unemployment statistics. Saj Karsan presents a chart which breaks down unemployment numbers by education level.

It is nearly 15% for people without a high-school diploma, and about 4.4% for people with bachelors degree. As he notes:
Note that the overall unemployment rate in 2007, when the American economy was booming, was 4.6%, which is higher than the current unemployment rate of 4.4% for those with Bachelor's degrees. This data suggests (although it does not prove) that there is a shortage of educated workers in the US.

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