My Take on the Bubble

by Jane S. Shaw

Jason: It may take a while, but the bubble has to deflate. It may or may not burst, but I suspect that will happen, too.

A bubble bursts when a lot of people realize that they are paying more for a product than it is worth. But first the market starts to go “sour” as some people in the market perceive the discrepancy. It takes time — maybe many years — for enough people to recognize the difference to change the market. But once they do, prices fall abruptly. (As a business-school professor, you can tell me if that’s an accurate description.)

People are beginning to recognize that the cost and the value of higher education are out of line. But, at the same time, the higher-education market is facing another threat that is intertwined with the bubble — the advent of online education. For-profit companies have been developing this technology, which has great potential because it is cheap and customizable. Most of the companies, though, have been selling their products for “what the market will bear,” which, at the moment, is a lot. 

But even with high prices, for-profits are beginning to abrade the markets of traditional schools. Those schools are responding with a frenzy of interest in online education, which they see as a source of revenue. More likely, however, the price of online education will drop when the education market starts to go bad. Some of those investments will be worthless.

When the market turns, the crash will be painful, but there will be new opportunities for low-cost schools, including small, Great Books–style schools. Teachers will get back to teaching . . . oh, well, now I’m moving into hopes rather than conviction. But, in summary, prices will not go up forever.

Phi Beta Cons

The Right take on higher education.