Is Education Overvalued? - by Vikram Mansharamani

College graduation is a time of great joy, of optimism, of forward-looking enthusiasm. Indeed, the very term “commencement” implies a positive new beginning. Unfortunately, this is not universally the case in America. Many students this year will graduate with questionable educations and mountains of debt; as more students go off to college and borrow money to do so, student loan debt in the United States is likely to top $1 trillion this year, exceeding credit card debt for the first time in history.

Might our strong belief in the value of an education be misguided? Is higher education in America a bubble about to burst? As a student of booms and busts, I have developed a framework for identifying unsustainable price dynamics, which are as applicable to higher education as they are to tulips, Japanese real estate, and Internet stocks.

Two primary dynamics seem to telegraph bubbly price action regularly through history’s great speculative eras. First, an unquestioning faith in the asset’s value leads to an ever-increasing universe of buyers, despite price increases. Second, the availability of “easy money” or “loose credit” is often driven by policies that generate significant moral hazard. Higher education in America today exhibits both of these warning signs.

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