The higher education bubble in the United States is the possibility that excessive investment in higher education could have negative repercussions in the broader economy. Although college tuition payments are rising, the supply of college graduates in many fields of study is exceeding the demand for their skills, which aggravates graduate unemployment and underemployment while increasing the burden of student loan defaults on financial institutions and taxpayers. Moreover, the higher education bubble might be even more serious than load of student debts. Without safeguards in place for funding and loans, the government risks creating a moral hazard in which schools charge students expensive tuition fees without offering them marketable skills in return. The claim has generally been used to justify cuts to public higher education spending, tax cuts, or a shift of government spending towards law enforcement and national security. There is a further concern that having an excess supply of college graduates exacerbates political instability, historically linked to having a bulge in the number of young degree holders.
Some economists reject the notion of a higher education bubble, noting that the returns on higher education vastly outweigh the cost, while others believe that the number of institutions of higher education in the United States will fall in the 2020s and beyond, citing reasons of demographic decline, poor outcomes, economic problems, and changing public interests and attitudes. According to the U.S. Department of Education, by the late 2010s, people with technical or vocational trainings are slightly more likely to be employed than those with a bachelor's degree and significantly more likely to be employed in their fields of specialty. The United States currently suffers from a shortage of skilled tradespeople. The Federal Reserve Bank of St. Louis noted in 2019 that investment in higher education has reached a point of diminishing marginal returns. Undergraduate and graduate enrollments have both been in decline, while trade schools continue to attract growing numbers of students. White men are a major group opting for alternatives to higher education. Many faculty members are leaving academia, especially those from the humanities. At the same time, university graduates are likely to regret having studied the humanities and liberal arts. While academics maintain that certain subjects are worth studying for their own sake, students are more concerned with increasing their earning potential. So far this century, numerous institutions of higher learning have permanently closed, especially community colleges, and for-profit institutions.
It is possible that the bubble will not burst, but rather deflate.
Discussion
Thanks to the GI Bill and the population boom after World War II, demand for higher education grew significantly during the late twentieth century, making it one of the major sectors of growth in the economy of the United States. Historically, high schools separated students on career tracks, but all this changed in the late 1980s and early 1990s, when the mission of high schools became preparing students for college. In 1987, U.S. Secretary of Education William Bennett suggested that the availability of loans may be fueling an increase in tuition prices and an education bubble. This "Bennett hypothesis" claims that readily available loans allow schools to increase tuition without regard to demand elasticity. College rankings are partially driven by spending levels, and higher tuition is also correlated with increased public perceptions of . From the 1980s to the 2010s, demand has increased despite the business cycle as institutions improved facilities and provided more resources to students. In the aftermath of the Great Recession of 2007-2009, Americans flocked back to school in order to adapt to the new economy. A 2011 study from the Labor Department found that a bachelor's degree "represents a significant advantage in the job market." In 2011, The Chronicle of Higher Education ran an article saying that the future is bright for college graduates. The data also suggests that, notwithstanding a slight increase in 2008–09, student loan default rates have declined between the mid-1980s and 1990s and early 2010s. The management consulting firm McKinsey & Company projected in 2011 that a shortage of college-educated workers and a surplus of workers without college degrees, which would cause the wage premium to increase and cause differences in unemployment rates to become even more dramatic.