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Bubbles are no stranger to us. A decade ago, investment advisers were telling everyone the stock market returns 11% a year (more for tech companies). They told us companies shouldn’t be judged on earnings but on pageviews and that we are in a new era economy that made all of the old rules about investing obsolete. What happened to those that listened? If they invested late in the Nasdaq, they lost 80-90% of their money. Those that worked for many startups got the pink slip and a minor recession ensued.
In less than a decade later, we saw the housing bubble collapse. After being told that housing never substantially goes down, that paying rent is for suckers, and that leveraged housing appreciation is the key to wealth and happiness, people saw their homes drop 50% or even more in value. Many are now dealing with foreclosure and bankruptcy due to the pursuit of owning, rather than renting granite countertops.
While most people did not see these two bubbles occurring, there were those that warned of a bubble and consequent collapse. Marc Cuban sold his business, broadcast.com for a few billion and then shorted a bunch of tech stocks to hedge his position. John Paulson saw the housing and credit bubble for what it was and was able to make a 600% return off of it.
However, perhaps the biggest ‘investment’ bubble of our generation continues to brew. People continue to pursue advanced degrees, despite the cost and the debt involved, because they believe they are promised a better future. Like the housing bubble, which was precipitated by the government keeping interest rates low and subsidizing loans, the government is building the education bubble through subsidizing loans as well as .
With stocks, the bubble eventually ended when it became clear these companies were not making money. With housing, the bubble ended when people making $50,000 a year could no longer afford their payments on their $600,000 house.
With education, people are starting to wisen up and question whether the amount of money they paid for a degree and the lost wages from not working are worth it. People are tallying up that they essentially paid $200,000 for an English degree but still have no job, and wonder if they ever actaully get a job, if they will make more money because of that degree. However, as soon as people start to ask questions, the education establishment comes out in full force with deceptive statistics and emotion to convince people to pursue more and more education.
However, the only way this bubble will end is if the government stops subsidizing it. With housing, people who were overextended eventually lost their homes to foreclosure. While that was painful, they were able to discharge the debt. Student loans, however, cannot be discharged through bankruptcy. People have no way of escaping the debt once they are sucked in.
Not All Degrees Are Created Equal
I am not against college or higher education completely. Heck, I completed my undergraduate degree, so perhaps I am just one big hypocrite. But before I go further, I want to make it clear that I am not against college or education in general. I am against the idea that college and education is ALWAYS the answer. Yes, for some people, to get certain degrees at certain colleges is a good idea. I am not going to dissuade someone who enjoys science from getting an engineering degree at Cal Tech. I am not going to dissuade someone who wants to be a doctor from being a pre-med at John Hopkins.
However, I will tell someone to think twice about getting a political science degree at a private college. Someone who just graduated with an English degree and got a 147 on their LSAT should think twice before doubling down on education debt to go to a fourth tier law school. Not all degrees confer earning power. If you (or your children) are going to college (or graduate school) to make more money in the future, you should rationally analyze the costs of college versus the potential benefits of the degree you are pursuing.