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higher-education bubble

06 Feb

Education is a bubble in a classic sense. To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the ’90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned — you had to own a house in 2005, and you had to be in an equity-market index fund in 1999.

Probably the only candidate left for a bubble — at least in the developed world (maybe emerging markets are a bubble) — is education. It’s basically extremely overpriced. People are not getting their money’s worth, objectively, when you do the math. And at the same time it is something that is incredibly intensively believed; there’s this sort of psycho-social component to people taking on these enormous debts when they go to college simply because that’s what everybody’s doing.

It is, to my mind, in some ways worse than the housing bubble. There are a few things that make it worse. One is that when people make a mistake in taking on an education loan, they’re legally much more difficult to get out of than housing loans. With housing, typically they’re non-recourse — you can just walk out of the house. With education, they’re recourse, and they typically survive bankruptcy. If you borrowed money and went to a college where the education didn’t create any value, that is potentially a really big mistake.

via Back to the Future with Peter Thiel – National Review Online.

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Posted by on February 6, 2011 in economy, education, money, politics, technology, think

 

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