Double, Double College Bubble

. . . money burnt, and just more trouble.

There’s been a lot of talk about the higher-education bubble. But this chart is worth a thousand words (or more):

Dr. Mark Perry, a professor of finance and business economics at the University of Michigan, explains his graph here. He compiled data from the Census and Bureau of Labor Statistics, and tracked the relative changes in general prices (the CPI), the median home price, and college tuition, each from 1978 to today.

The contrast between the CPI data and tuition is stark enough. The cost of living has steadily risen, a bit more than tripling from 1978 to today. But tuition has multiplied more than tenfold in the same period, and the rise has accelerated over the past decade.

More telling is the comparison between the housing bubble and tuition. The peak of the housing bubble was in March of 2007, when the median home price was $262,600. That’s a five-fold increase from January 1978 price ($52,300). In the same period, the CPI rose by a factor of 3.27. This means that at the peak of the bubble, housing prices had outpaced the CPI by about 50 percent.

But from 1978 to today, college tuition has increased by a factor of 11.17. This means the rise in college tuition has outpaced the CPI by 241 percent. As Prof. Paul Caron notes, “The college tuition bubble makes the housing price bubble seem pretty lame by comparison.” 

Granted, these statistics by themselves don’t definitively prove that the college bubble is five times as bad as the housing bubble. The crucial variable is the real value of a college education — the increase in real prices doesn’t constitute a bubble if real value has risen equally.

Statistically measuring the real value of education is beyond my ken. But as a recent college graduate, I find it hard to believe that college is 3.5 times more valuable than it was in 1978, or more valuable at all, particularly with students studying so much less.

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