Professor Discusses Higher Education Bubble

Skyrocketing tuition costs and a sluggish labor market have left many college graduates struggling to earn enough money to pay off enormous student loans. This mismatch between the cost of college and the likely return on that investment has created what legal scholar Glenn Reynolds calls "the higher education bubble."

Glenn Reynolds, Beauchamp Brogan Distinguished Professor of Law, University of Tennessee

"College tuitions have been rising at a rate that vastly exceeds the rise in family income, or the general rise in the consumer price index, or pretty much any general economic measure you want to choose," said Reynolds, the Beauchamp Brogan Distinguished Professor of Law at the University of Tennessee and featured speaker at a March 13 Public Affairs Forum at the Atlanta Fed. "As they have done that, people have made up the difference with debt."

For many graduates, the debt is so large it takes years to repay it. Making matters even worse, many recent graduates are struggling to find high-paying jobs, further complicating their financial position.

This bubble has not yet burst, but air is seeping out. One of the first places showing seepage is legal education. As of mid-January, the number of applicants to American Bar Association–accredited law schools was down 20 percent from a year earlier, after falling 14 percent in 2012, according to the National Law Journal. Consequently, Reynolds said, law schools face a dilemma: shrink their class size and forgo revenue, or relax admission standards and risk damaging their academic reputation. The University of Tennessee's law school is downsizing its incoming class next year, Reynolds said. So too are even some of the nation's most prestigious law schools such as Northwestern University.

Change coming slower to undergrad schools
So far, the impact at the undergraduate level is less dramatic. Change there will come more slowly because many people still view a bachelor's degree not only as essential to a prosperous life but also as a badge of prestige, Reynolds explained.

Yet change is likely coming to undergraduate schools, too, he predicted.

As more young people see friends and relatives with degrees serving coffee and living in their parents' basements, the idea of borrowing tens of thousands of dollars to attend a traditional university will become less appealing. More focused skills training will probably become more common, and growing numbers of students and parents will opt for less costly online classes, Reynolds said. And new education models will probably emerge, he added. For example, students might take lecture classes online but physically gather with others to discuss the academic subject matter.