Higher Education Bubble Will Burst

Something has to give in this era of continually escalating college prices, college insiders say.

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Are we stuck in a higher-ed bubble?

Some college insiders are offering persuasive arguments that we are.

Reminiscent of the recent stock market and real estate bubbles, escalating college prices are continuing to reach new heights. According to the National Center for Public Policy and Higher Education, average tuition in the past 2 ½ decades has risen by 440 percent, which is more than four times the rate of inflation.

While higher-ed costs remain untethered to economic realities, students with college loans to pay off continue to graduate into abysmal job markets.

Under the circumstances, it's easy to make the case that something has to give.

Here are some of the reasons why higher-ed critics think that colleges and universities will soon be struggling with the type of threats that the steel, car, music, and publishing industries­—to name a few—have faced.

1. High prices do not mean high quality. The higher-ed world was rocked earlier this year when a new academic blockbuster book suggested that many undergraduates are learning little, if anything, in college.

According to the authors of Academically Adrift: Limited Learning on College Campuses, 45 percent of students make no gains in their critical reasoning and thinking skill, as well as writing ability, after two years in college.

More findings—just as alarming—from the book: more than one out of three college seniors were no better at writing and thinking than they were when they first arrived at their campuses, and what's more, many students registered only modest academic gains.

[See the schools with the highest four-year graduation rates.]

2. Online learning will be a game changer. There is a growing amount of college courses available online, including iTunes U and MIT's OpenCourseWare, which represents the most famous example of a university sharing its classes with the world. While outsiders can't earn credit for taking advantage of MIT's free classes, I think it's inevitable that someday Americans will be able to pick and choose the classes they want to take for credit from a mix of different institutions.

Online learning is going to be far more economical than attending brick-and-mortar campuses and this should put pressure on traditional colleges and universities to change the way they do business.

[Get more information in U.S. News's online education guide.]

In a thoughtful essay on the TechCrunch website, two online entrepreneurs, including the founder of eduFire, which provides online classes and tutoring, argue that low-cost online educational opportunities will force dramatic change:

"The days of jamming 500 students into lecture halls supervised by graduate students and charging them several hundred dollars per credit hour for the 'privilege' of learning in this fashion may be numbered."

3. There's a national push to get more Americans to attend college. One of President Obama's top education goals is to increase the number of Americans who attend college. It's an admirable goal, but it also reminds industry critics of other bubbles that occurred after everybody had jumped into the pool. The dot-com bubble provides one example. And do you remember the big push to expand homeownership in this country that worked until the subprime mortgage fiasco?

[Read about how schools can achieve Obama's education goals.]

4. Nearly everyone believes a college degree is essential. Peter Thiel, who is the PayPal founder and early Facebook investor, could be the most colorful expert to predict that the higher-ed world is going to get rocked off its foundation. Thiel is offering $100,000 each to 20 students under 20 to leave college and start their own businesses.

In an interview at TechCrunch, Thiel made this observation:

"A true bubble is when something is overvalued and intensely believed. Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It's like telling the world there is no Santa Claus."

Thiel clearly thinks the bubble is real. Do you agree with him?