US building higher education bubble

Carl Minzner in Global Times, October 10, 2013

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In the US, tuition has soared. Americans now owe more on their student loans (over $ 1 trillion) than on their credit cards or auto loans. But new graduates face poor job prospects that would enable them to repay these debts.

Government student loan programs allow students access to credit lines for tuition. Since 2006, these programs have been virtually unlimited for graduate degrees. They impose few conditions on the rates schools charge. This has allowed American schools to steadily increase tuition at rates well above that of inflation.

But the existing student loan system has traditionally provided weak incentives to students and schools to discriminate between programs that generate paying jobs commensurate with the cost (nursing) and those where they do not (many law programs). Increasingly large subprime educational loans are being made to many student borrowers who have no reasonable chance of ever paying them back. This resembles the early 21st century bubble in the American housing market.

The author is Carl Minzner, an associate professor of law at Fordham Law School.