Is College Worth the Cost?: A Data-Driven Analysis of the Student Loan Bubble
As of July 2013, total student loan debt reached $1.2 trillion, surpassing credit cards and auto loans as the largest non-mortgage form of household debt in the United States. Given the rise of student loan debt, there has been much concern as to whether the value of a college education is worth the costs in tuition, fees and interest paid on loans. This has led many individuals and media outlets to raise the possibility of the existence of a student loan bubble.
Ever since student loan debt surpassed the amount of credit card debt in the nation to the tune of $830 billion in June 2010, professional and consumer publications have speculated about the possibility of a student loan bubble. In August 2010, a Wall Street Journal article quoted one source as saying, “The growth in education debt outstanding is like a lobster…The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you’re already cooked.” In March 2012, the Washington Post reported that more than 80% of bankruptcy lawyers have seen a substantial increase in the number of students seeking relief for student loans. The topic has recently come to light in professional publications. In July 2013, Professor Mitchell Franklin of Syracuse University wrote in The CPA Journal that, “the student loan industry will be the next area of failure that will cost taxpayers significantly.” Lastly, in a scathing editorial in Rolling Stone magazine, Matt Taibbi criticizes the federal government for making it easy to borrow money for higher education “saddling a generation with crushing debts and inflating a bubble that could bring down the economy.”
Before going into the intricacies of the student loan bubble, we must first develop a definition. Ivana Kubicova and Lubos Komarek define a bubble as an “explosive and asymmetric deviation of the market price of an asset from its fundamental value, with the possibility of a sudden and significant reverse correction.” While this definition is good in its description, it is too specific in its explanation of the bubble’s correction. A bubble does not necessarily need to “pop” as Kubicova and Komarek imply when they talk about a “sudden and significant reverse correction.” Bubbles may also deflate slowly and softly so as to garner little attention. Additionally, Kubicova and Komarek include bubbles that do not collapse in their definition by opening up the “possibility” of a correction. Since a significant number of asset-price bubbles are truly discovered only after the correction sets in, we will only include bubbles that collapse in our definition. An alternate definition can be found in the work of Hans Lind, who writes, “There is a bubble if the (real) price of an asset first increases dramatically over a period of several months or years and then almost immediately falls dramatically.” He goes on to give specific measurements to what quantifies a “dramatic” change in prices. However, including “dramatic” in the definition widens a bubble to include such things as a country’s national debt, which can increase gradually but exponentially over a long period of time. For the purposes of this paper, we can combine Kubicova and Komarek’s and Lind’s definitions to create our own frame through which to see the student loan bubble. Thus, an asset-price bubble will be defined as an asymmetric deviation of the market price of an asset from its fundamental value over a period of several months or years, that inevitably leads to a significant reverse correction as seen by a fall in prices.
In Irrational Exuberance, Robert Shiller describes several characteristics of asset-price bubbles. Among them, he mentions that consumer culture and the news media oftentimes propagate bubbles by contending that the asset is a good buy. To apply Shiller’s analysis to student loans, the current generation may have the mindset that the high cost of college tuition will eventually balance out in the long-run due to expected future earnings. College degrees have become the new high school diploma due to the switch to a services economy, which requires a greater knowledge base in order to obtain a job.
Shiller also mentions that bubbles oftentimes have a feedback loop, describing the initial increase in prices leading to more price increases due to speculation that prices will increase. While this loop is not necessarily found in the student loan market, I will posit that it is caused by a general demand for college. Students see their peers paying high prices to attend college and believe that the investment is worth it as a result. “If everyone’s doing it, then it couldn’t be a bad idea!” Because of this, demand increases, pushing up prices even higher and causing even more students to attend college (because they see an even larger number of students going to college as well).
The “Fragility of Anchors” is a topic that Shiller bases an entire chapter of his book on. He describes a situation in which people have difficulty thinking ahead to contingent future decisions. Decisions are made based on how individuals feel rather than a logical assessment of the situation. This rings eerily similar to students making a decision on their major without having a clear idea of their career path. Even the decision to go to college is oftentimes made without weighing the costs and benefits associated with loans and tuition.
Currently, politicians are exploring proposals to alter student loan interest rates, which may inflate or deflate a possible bubble. The policies currently being debated are integral in determining the country’s long-term economic health. Policymakers must be aware of the potential for another asset-price bubble in the student loan market, if one exists, and should shape their stances on political issues around the possibility of a looming burst in the future. The “popping” of such a bubble would mean lower tuition prices, but demand for college would have to fall as well. A generation of students may deem college “not worth the cost” as the market price adjusts to the fundamental value of college. This would lead to lower enrollment in college and an undereducated population. In the long-term, this means a bout of structural unemployment and millions of students defaulting on their debt. This may cause bankruptcies from loan agencies and reduced confidence in the value of the American worker. Past bubbles, such as those mentioned previously, must be studied in order to gain a greater knowledge of the student loan bubble; however, examination of the peculiarities of the student loan market must also be taken into consideration in order to form policy proposals specific to the market. The purpose of this paper is to examine the possibility of a student loan bubble.
The two most recent bubbles in US history include the Dot-Com boom of the late 1990’s and the Housing Crisis of 2008-2009. The Dot-Com bubble was launched by the increasing popularity of the Internet and advent of start-up software companies that produced their products at a relatively low cost. Economists envisioned a “New Economy” in which inflation was virtually nonexistent. This is because the “Old Economy” was made of brick-and-mortar businesses in which the traditional rules of economics applied. The “New Economy,” which would consist mainly of virtual businesses and financial institutions, made economic data irrelevant to the success of these companies. IPO “squatters” bought names of typical addresses (www.business.com; www.loans.com) and trademarks (say, the World Wrestling Federation) for $50 to $100 dollars and waited for owners and investors to purchase them for exorbitant amounts. Venture capitalists saw claims for IPO addresses to be the wave of the future and invested heavily in start-ups with little experience and minimal business plans. The NASDAQ stock index exploded from 600 to 5000 points between 1996 and 2000 as dot-com companies raised billions of dollars overnight.
By early 2000, investors realized that the dot-com dream had devolved into a speculative bubble. The NASDAQ plunged from 5000 to 600 by 2002. Former start-ups such as Microstrategy went from $3500 to $4 per share. The “New Economy” concept became a fallacy. Investors were pouring money into the stock market and ignoring warning signs that the economy was going to head into a recession, losing millions of dollars as a result. Concurrently, accounting scandals erupted, adulterating consumers’ confidence in big businesses and the US stock market. While the Federal Reserve slashed interest rates in an attempt to stop the bleeding, the NASDAQ has never recovered to its 1996 level since.
The crisis in the US housing market has been seen as one of the largest speculative bubbles in economic history. Between 2000 and 2006 home prices rose dramatically (about 12% per year), fueling a home construction boom. The perceived value of houses can be measured in housing prices, while the fundamental value can be seen in the rental value of a home. The fundamental value of an asset equals the sum of its future payoffs. Rent can be used as the fundamental value of a house, because the payoff a house yields is in the form of the roof over the head of the occupant. Therefore, the present value of rentals in the future can be approximately measured by the rental value of the house. The “U.S. House Prices vs. Owner-Equivalent Rent” graph shows the deviation of housing prices from their fundamental value. The data was collected using the S&P/Case-Shiller measures for House Price Index and Owner-Equivalent Rent. 1999 was used as the base year to adjust home and rent prices to the Consumer Price Index. Dividing the house price index by the rent index, you would obtain a price-to-value ratio (see table). This ratio shows the overvaluation of housing prices compared to the fundamental value. If the price-to-value ratio is high, this means that housing is severely overvalued. The table indicates that the ratio peaked between 2006 and 2007, which was right before the bursting of the housing bubble. This eventually led to a correction in which housing prices became closer to rents, causing the ratio to drop and ultimately resulting in the “popping” of the bubble.
The crisis originated when credit for home loans became easier to come by, especially for low-income families. Between 2004 and 2005, the share of subprime (or risky) mortgages jumped from around 2% to 14% of all mortgage originations. Lenders eventually discovered that they could bundle up these subprime mortgages and sell them off to investors in a process known as securitization. Banks would gather thousands of these loans into a “pool,” divide this pool into shares and sell the shares as securities. Buyers of these securities would then gain the right to collect mortgage payments made by these homeowners whose mortgages have been pooled. These specific securities were called “mortgage-backed securities.” Investors underestimated the riskiness of these loans, believing that the value of these mortgage-backed securities was much higher than what it actually was. These beliefs were propelled by rating agencies such Standard & Poor’s, Moody’s, and Fitch, which gave many of these sub-prime mortgages a triple-A rating of very secure, causing investors to overlook how risky the loans actually were.
Eventually, the supply of houses exceeded demand. Defaults on mortgages began to increase due to a general decline in economic activity, pushing supply forward and causing prices to drop. As housing prices began to fall in 2007, a vicious cycle, or feedback loop, was created. Delinquencies increased as more people realized they could not pay back the loans they took out on their homes. As the default rate increased, the value of mortgage-backed securities fell, causing major losses for the banks that provided these loans. Banks tightened credit as a result, reducing household and business spending, which further caused housing prices to decline. Between October 2007 and April 2009, the financial sector’s mortgage-related losses went from $240 billion to $1.4 trillion as estimated by the International Monetary Fund. Confidence in the international banking system eroded as investors were fearful that what happened in the United States would happen at home. By the end of 2009, the Federal Reserve slashed the federal funds rate from 5% to nearly 0% in a last-ditch attempt to stimulate the economy. A global recession ensued nonetheless, bringing the unemployment rate over 10% by mid-2009.
Value of the Asset
The approach that was used in studying the housing bubble can also be used to study a bubble in student loans; however, there are certain complications with using a similar approach. This is because the value of a house differs significantly from the value of a college degree, which brings up an interesting point of comparison given our definition of an asset-price bubble. If a bubble means an asymmetric deviation of an asset from its fundamental value, this value can be determined by looking at what those earning a college degree get out of the asset: the present value of their future earnings as a result of the degree. The market price is easy enough to determine given the overall cost of college including tuition, room and board, and other college-related expenses (discounting for financial aid, scholarships etc.).
Also different from the housing crisis is the nature of the asset. Unlike a mortgage, there is no re-sellable asset associated with a student loan. The asset in this case is the certification one obtains in order to pursue a career in the form of a college degree. If the value of a house declines, the house is still there. The lender can repossess a house if the borrower fails to pay back the loan. A college degree cannot be repossessed, causing the lender to take on a majority of the risk. In housing, the use value one obtains from a house is shelter, which may differ from the market price of the house. In student loans, the use one obtains from a college degree is the prospect of a high-earning job, which also differs from the tuition one pays to receive a degree. Whether or not the use value and market price are connected in the student loans market as they are in the housing market is something to be further explored in the paper.
Additionally, going into debt to purchase a house is a one-step action. People do not need to go through a four-year process in order to obtain the asset and rarely fail to finish building or purchasing the house after a significant investment is made. Once the mortgage is awarded, the house is purchased and the asset obtained by the buyer. With student loans, individuals can put down a significant amount of money without ever obtaining a college degree if they fail to graduate. In 2011, the graduation rate for undergraduate students pursuing a bachelor’s degree at a four-year institution was 59% within six years. While this figure does not account for individuals who have transferred to different institutions, it is fair to say that a significant portion of the population invested money in their education without getting anything in return. This means that any debt taken on by those who fail to graduate is difficult to pay back, because these individuals will presumably be earning the income of someone who has not graduated from college, but will be required to pay for the tuition they took out a loan for. As far as an asset-price bubble is concerned, this may account for a large portion of the overall amount of student loan debt.
Detecting a Bubble: Analyzing Potential Sources
The Cost-Earnings Differential
If a bubble in student loans were to exist, then the price of college would significantly exceed its fundamental value. Tuition prices would have to be growing past the earnings one obtains from receiving a degree. My analysis is the inverse of this phenomenon. I compare the price of college to the earnings and track its progress over the past decade. The price, or investment, in the context of student loans would be the cost of college. The “fundamental value” of college can be measured through an earnings differential between high school graduates and college graduates (bachelors and higher). This is because the economic benefit of college is the higher income you receive over a high school diploma. The earnings differential data was obtained from the US Census Bureau’s inflation-adjusted annual median earnings for both high school and college graduates. Because it is difficult to predict earnings over the average working life of a person, the weighted median annual earnings must be smoothed to account for volatility. This aids in forecasting by ensuring that changes in the earnings differential were not impacted by recent economic conditions. While some may argue that the value of college has only recently been considerably high, smoothing tells us that this has been a long-term trend rather than a short-term phenomenon. Forecasting forty years into the future can be extremely difficult with only ten years of data, but the moving average takes into account past trends as well as present ones. To smooth the earnings, the moving average for the years beginning in 1991 was used to forecast the median earnings between 2001 and 2012. For example, the average of median annual earnings between 1991 and 2001 was calculated to find earnings for 2001. Then, the average of median annual earnings between 1992 and 2002 was calculated to find earnings for 2002 etc. The present value of the smoothed earnings was then projected out 40 years (the anticipated working time in a human life) with a discount rate of 4.4% (equivalent to the current interest rate on a 30-year treasury bond). From this, the value of going to college could be determined. The graph “Value of College” shows the projected earnings differential between 2001 and 2012. The diagram shows that the value of college increased from 2001 to 2007 and declined since the onset of the Great Recession in 2007. Despite this, the value of college has hovered around $545,000 in the past ten years, indicating a large difference between lifetime earnings for college graduates and high school graduates.
The “Value of College (Unadjusted)” shows the earnings differential over the last ten years without the moving average. While the unadjusted values show a drop in the value of college between 2002 and 2005, the moving average values show an increasing trend. Despite this, both graphs show the overall trend of the value of college dropping beginning in 2007 while still projecting the value of college to hover around $545,000. The variations in the two valuations of college are rather small given the overall scale of this value. The unadjusted graph retains the overall shape of the moving average graph, peaking in 2006-2007 and declining after the onset of the housing crisis.
It is worth noting that the earnings differential is a result of a combination of both changes in the earnings of high school graduates and those of college graduates, rather than a particular trend in one or the other. A potential criticism of the measure of the value of college is that earnings for high school graduates have simply declined faster than earnings for college graduates, resulting in a rising value of college. As can be seen by the graph, this is true, but of minor significance, as median earnings for both categories have fallen relatively in line with each other as a result of prevailing economic trends. Between 2007 and 2012, median earnings fell 8% for those with college degrees and 9.89% for those with high school diplomas.
Although these results only measure the earnings differential from 1991 to 2012, a cross-generational study conducted by the Pew Research Center notes that the difference in earnings between high school-educated and college-educated workers has increased since 1965. The study measures the median annual earnings among full-time workers ages 25 to 32. As seen in the chart titled “Earnings Disparity Between Young Adults Without a College Degree,” the Silents of 1965 who have a Bachelor’s degree or more were earning $38,833 per year, while Millennials of 2013 who have a Bachelor’s degree or more are earning $45,500. Those with only a high school diploma in 1965 earned $31,384. These earnings have decreased to $28,000 for those with only a high school diploma in 2013. The Pew study shows that the value of going to college and the cost of not going to college have both increased over the past 50 years.
Next, the “net price” of college for the years 2003-2012 was taken from College Board. The net price represents the average tuition price of colleges, taking into account fees, room and board, grant aid and tax benefits. This value was extracted for both private and public undergraduate institutions and multiplied by four years to represent the overall cost of college. As seen in the diagram below, net prices have remained relatively constant over the past ten years.
A ratio of college costs to college value needs to be taken in order to analyze whether the market price (costs) are deviating from the fundamental value (earnings) over time. This ratio helps to determine the risk of attending college. If the ratio gets larger, then the risk of attending college (thus, the risk of having paid more for college than it is worth) increases, as the cost of attending college gets closer to the earnings obtained from doing so. A value of one would indicate that lifetime earnings are equal to the cost of college. If a bubble were to occur, the ratio would be getting larger, as costs come closer to earnings. To obtain this ratio, costs simply need to be divided by earnings. This ratio tells us the amount of spending on the cost of college compared to the value of college. For example, if we ballpark the cost-earnings ratio for attending private college between 2003 and 2012 to be about 0.17, this tells us that the cost of college is only 17% of the earnings obtained from receiving a college degree. As seen below, the ratio has slightly increased over time for private and public colleges, indicating that college costs have been getting higher compared to the present value of future earnings from a college degree. This ratio begins to increase at a higher rate between 2009 and 2012 for both public and private colleges. This seems to reflect a drop in earnings relative to the cost of college due to lag from the recession of 2007-2009. The ratio has increased by 31% for public colleges and 7% for private colleges between 2003 and 2012.
While this may seem like a large increase, it is not as significant of a climb compared to a 67% increase in the price-to-rent ratio between 1999 and 2006 during the housing crisis. In short, this ratio appears to suggest that a bubble is not going to occur in the near future, due to how small the ratio actually is. If a ratio that goes above one tells us that the value of college is not worth the amount one pays for it, these ratios show little indication that they have or ever will go above one, making college a safe and worthwhile investment.
Cost-Earnings by Degree
There has been a great deal of criticism for college students who choose to pursue degrees in fields that do not have a large payout (usually degrees in the humanities). The mantra often goes that if one pursues a degree in the humanities, there is a lower demand for jobs in that field and the Musical Theater major will end up waitressing for the rest of her days, while playing ensemble roles in off-Broadway musicals on the side. In other words, the supply of labor in these fields exceeds demand for expertise. This notion is supported by the “Enrollment By Degree” chart, which shows the change in enrollment between 1970-71 and 2009-10. While degrees in “soft skills” such as Business, Communication, Liberal Arts, Psychology, and Visual and Performing Arts have increased drastically since 1970, degrees in the hard sciences such as Biology, Engineering, and Physical sciences have increased only marginally. This runs counter to earnings in these fields.
When the cost-earnings ratio is calculated for these degrees in the “Cost-Earnings Ratio By Degree” chart, this disparity between growth in enrollment and earnings is evident. The earnings for these results were taken from the 2010 American Consumer Survey’s synthetic work-life earnings estimates for field of degree. The ACS took the median earnings for each degree by age level, ages 25-64, and added these earnings together to get a work-life earnings estimate. The estimates above use the 10-year moving average of the median earnings for college graduates and subtract them from the 10-year moving average of the median earnings for high school graduates. From this differential, the present value of expected future earnings for the next 40 years is projected to obtain the value of college. While the American Consumer Survey’s methodology to obtain the earnings differential is not the same as my own, the resulting differential is similar enough in that it estimates a 40-year work-life and disaggregates the data by level of degree. The degrees with the largest growth in enrollment have some of the largest cost-earnings ratios. Psychology degrees grew from 38,000 to 97,000 between 1970 and 2010 and have a high cost-earnings ratio of 0.14. Similarly, Visual and Performing Arts grew from 30,000 to 92,000 between 40 years and also has a high cost-earnings ratio of 0.15. On the other hand, Engineering, which has the smallest cost-earnings ratio of only 0.045 grew from 45,000 in 1970 to 73,000 in 2010. Computer Science currently has only 40,000 degrees, but has a small cost-earnings ratio of 0.054. It is evident from this information that there is a clear mismatch between the specialization of skills available and the demand for those skills. It can be argued that a large portion of the population is not responding to economic incentives and is instead choosing degrees that interest them.
While a mismatch of skills and demand for labor exists, it is unlikely that this could manifest itself into a bubble. Although students are clearly pursuing degrees in which there is a lower need for specialized knowledge in that field, the college degree alone is worth the cost, given the low cost-earnings ratio. If an individual pursues a degree in Visual and Performing Arts, for example, their lifetime earnings is still $1,966,000 compared to the lifetime earnings of a high school graduate, which is only $1,371,000. This means he will still earn 43% more money over his lifetime than if he had not gone to college. Including the net cost of four years of college, his earnings are still 37% greater than if he had not gone to college at all. Therefore, while the mismatch of skills can be seen as a potential threat to the economy if the trend continues in the long-term, so long as the earnings differential remains high and the cost-earnings ratio remains low, it should not be taken as short-term cause of a bubble in student loans.
Enrollment: From Public to Private
Since we have determined that the risk of a negative net income from going to college has either gone down or remained constant over the past ten years, a bubble in student loans may take another form. Given the extremely high sunk costs and economies of scale required to get into the business of college management, it is difficult to dispute that the college industry is an oligopoly. Because of this, colleges are able to charge higher prices without seeing a large loss in demand for the service they provide. Therefore, it is possible for a bubble to manifest itself in ways unrelated to the cost-earnings ratio.
Theoretically, since the net price of private institutions ($23,840) is just about double that of the net price of public institutions ($12,110), then a bubble could manifest itself in a shift from private to public colleges due to dissatisfaction with the cost of private education. In other words, if the fundamental value of college was in fact lower than the tuition price of private institutions, then consumers of education would rationally want to buy closer to the fundamental value.
As seen in the graph “Percentage of Students Attending Private Universities,” which includes both private non-profit and for-profit universities, the percentage of students who attend private universities declined drastically from 1965 to 1974, but has been increasing steadily since 1989, with a minor blip presumably caused by the Great Recession. This indicates that, despite higher tuition prices, students place a higher value on private institutions, seeming to indicate that the fundamental value of education is on the rise, rather than on the decline. While this may potentially be an aggregation error due to the fact that “private colleges” includes for-profit institutions, students are continuing to opt for higher tuition costs in order to obtain the higher earnings that come along with a college education.
Similarly, we see a steady increase in overall college enrollment over the past 50 years. This can indicate one of two things: 1) either students are rationally fulfilling a growing demand for college-educated laborers in the workforce or 2) enrollment in college is irrationally exceeding the demand for educated labor. Given our earnings differential from above, there is clearly a demand for college-educated labor, as earnings for a bachelor’s degree far outstrip earnings for a high school degree. It can therefore be concluded that the increase in college enrollment is filling such a demand, as the earnings differential is expanding rather than contracting.
For-Profit Education Speculation
While the data may show that there is no bubble in private and public education, there may be evidence suggesting a bubble in for-profit education. These institutions, which tend to focus on more technical and vocational education, are subsidiaries of private corporations that are expected to generate revenue for the company’s shareholders. Many choose for-profit universities for their flexible schedules that sometimes allow students to finish faster. Most for-profit colleges have extensive online degree programs that are popular in an age that places a large emphasis on convenience and adaptability.
Statistically speaking, students who graduate from for-profit institutions are more indebted than those from private and public colleges. According to the US Department of Education, 75% of students at four-year for-profit colleges took out loans to finance their education, compared to 62% at private four-year colleges and 50% at public four-year colleges. For two-year schools, 64% of students at for-profit institutions borrow money, while only 17% of those at public colleges do the same. An incredible 90% of those attending four-year for-profit institutions received some form of financial aid, compared to 72% at public schools. A report by the Education Trust estimates the median debt of for-profit graduates to be $31,190, which far outstrips private colleges ($17,040) and public colleges ($7,960). The report also states graduation rates at for-profit colleges to be merely 22%, compared to 55% for public and 65% for private institutions.
The University of Phoenix is the prime example of a for-profit institution. With over 300,000 students enrolled in its online program alone, the University of Phoenix boasts a moderate tuition rate of $9,216 per year, but is criticized for accepting applicants who cannot afford to pay for their education while giving them large promises of the earnings they will receive from the degree. 97% of University of Phoenix students receive some form of financial aid, receiving a total of $25.7 million in total grant aid. While the University does not publish its acceptance rate figures, its retention rate is a mere 36% compared to a national average of 77%. Its six-year graduation rate comes in at a measly 5%.
If such a bubble were to exist in for-profit colleges, there is evidence to suggest that it has already popped. In October 2012, the Apollo Group Inc., the parent company of the University of Phoenix reported that its fourth-quarter profits had fallen 60% from the previous year. New student enrollment slumped 13%, causing the stock to dive 22% the day following the announcement. In 2011, when overall college enrollment dropped 0.2%, for-profit colleges saw a dip of 3%. Undergraduate enrollment dropped 21.5% at Corinthian Colleges, 25.6% at DeVry University, 35.8% at Capella University and 47% at Kaplan Higher Education in the first quarter of 2011. While part of this can be attributed to for-profit institutions tightening up standards for admission due to public pressure for predatory recruiting, it appears that students are realizing that obtaining a degree from such institutions is not worth the amount they take out in loans.
The average tuition paid by students at for-profit four-year colleges was $13,819 in 2011-2012, a drop from $16,268 in 2006-2007, adjusted for inflation. This is indicative of the drop in enrollment previously noted. For-profit colleges are responding to savvier students who understand the risks of attending such a university. The National Bureau of Economic Research points out income in 2009 for graduates of for-profit institutions was approximately $5,500 lower than their private/public counterparts. Other researchers have found that for-profit students make up 50% of all student loan defaults, despite the fact that they make up only 12% of the overall student population. Students are becoming more aware of these numbers and are attending not-for-profit institutions as a result. This has led to the burst of a sub-bubble in higher education, which may explain general fears about an industry-wide bubble articulated in the introduction.
Given all of the potential sources of a bubble in the student loan market, it is safe to conclude that there is little risk of such a bubble in the near future. Due to the oligopolistic nature of higher education, it is possible for a bubble to manifest itself in different ways. Having identified and tested several of the major ways this is possible, all indicators either point closer to the fact that a bubble does not exist or are rendered insignificant in a macroeconomic sense. Due to the difficulty of obtaining data on a potential feedback loop in higher education as well as the fact this it is only loosely applicable to the student loan market, this area was never explored; however, it is worth looking into this type of speculation in future studies. While the data may indicate an increasing cost-earnings ratio, this trend is not nearly stark enough to be used as conclusive evidence for a bubble. Therefore, the market price is not deviating from its fundamental value in an asymmetric pattern strong enough to fit the aforementioned definition of an asset-price bubble.
"A dot-com bubble." The Globe and Mail, February 3, 2000, 18.
Chopra, Rohit. Consumer Financial Protection Bureau, "Student Debt Swells, Federal Loans Now Top a Trillion." Last modified July 17, 2013. Accessed February 11, 2014. http://www.consumerfinance.gov/newsroom/student-debt-swells-federal-loans-now-top-a-trillion/.
Colombo, Jesse. "The Dot-com Bubble." The Bubble Bubble (blog), August 19, 2012. http://www.thebubblebubble.com/dot-com-bubble/ (accessed December 1, 2013).
FindTheBest.com, Inc. , "University of Phoenix." Last modified 2012. Accessed December 1, 2013. http://colleges.findthebest.com/l/5097/University-of-Phoenix.
Gerstein, Ben. Money Morning, "The Scary Reality of the Student Loan Bubble in 5 Charts." Last modified March 05, 2013. Accessed February 11, 2014. moneymorning.com/2013/03/05/the-scary-reality-of-the-student-loan-bubble-in-5-charts/.
JP's, "Real Estate Charts." Last modified 2013. Accessed January 7, 2014. http://www.jparsons.net/housingbubble/.
Konczal, Mike. "Are Student Loans Becoming a Macroeconomic Issue?." Next New Deal: The Blog of the Roosevelt Institute (blog), April 23, 2013. http://www.nextnewdeal.net/rortybomb/are-student-loans-becoming-macroeconomic-issue (accessed December 1, 2013).
Korn, Melissa. The Wall Street Journal, "Party Ends at For-Profit Schools." Last modified August 23, 2011. Accessed December 1, 2013. http://online.wsj.com/news/articles/SB10001424053111904279004576524660236401644.
Krainer, John, and Wei Chishen. The Federal Reserve Bank of San Francisco, "House Prices and Fundamental Value." Last modified October 01, 2004. Accessed February 14, 2014. http://www.frbsf.org/economic-research/publications/economic-letter/2004/october/house-prices-and-fundamental-value/.
Kubicova, Ivana, and Komarek Lubos. "The Classification and Identification of Asset Price Bubbles." Journal of Economics and Finance. no. 61 (2011): 34-48. journal.fsv.cuni.cz/storage/1203_kubicova.pdf (accessed December 1, 2013).
Kumar, Priya. Campus Direct, Inc. , "For-Profit vs. Non-Profit Colleges: What's the Difference? 0." Last modified March 31, 2010. Accessed December 1, 2013. http://www.greatdegree.com/articles/For-Profit-vs-Non-Profit-Colleges-What-s-the-Difference-36.html.
Lind, Hans. "Price Bubbles on the Housing Market: Concept, theory and indicators." Royal Institute of Technology: Section for Building and Real Estate Economics. (2008): 1-18. www.fhs.se/documents/.../hans-lind-price-bubbles-working-paper58.pdf (accessed December 1, 2013).
Lowenstein, Roger. The New York Times, "Triple-A Failure: The Ratings Game." Last modified April 27, 2008. Accessed January 7, 2014. http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html?_r=0.
Luke, Jim. "Oligopoly and the Costs of Higher Education - Journal Edition." EconProph (blog), http://econproph.com/2011/10/25/oligopoly-and-the-costs-of-higher-education-journals-edition/ (accessed December 1, 2013).
Marcus, Jon. Teachers College at Columbia University, "Tuition starts to fall at private, for-profit colleges." Last modified August 21, 2013. Accessed December 1, 2013. hechingerreport.org/content/tuition-starts-to-fall-at-private-for-profit-colleges_12972/.
Merrit, Cam. The San Francisco Gate, "What Is the Meaning of Securitization?." Accessed February 16, 2014. http://homeguides.sfgate.com/meaning-securitization-6615.html.
Mitchell, Franklin. "Student Loans: The Next Bubble? 0." The CPA Journal. no. 7 (2013).
National Center for Education Statistics, "Institutional Retention and Graduation Rates for Undergraduate Students." Last modified May 2013. Accessed January 8, 2014. http://nces.ed.gov/programs/coe/indicator_cva.asp.
Pew Research Center, "The Rising Cost of Not Going to College ." Last modified February 11, 2014. Accessed February 21, 2014. http://www.pewsocialtrends.org/2014/02/11/the-rising-cost-of-not-going-to-college/.
Pianin, Eric. The Washington Post, "Student loans seen as potential 'next debt bomb' for U.S.." Last modified March 11, 2012. Accessed December 1, 2013.
Pilon, Mary. The Wall Street Journal, "Student-Loan Debt Surpasses Credit Cards." Last modified August 09, 2010. Accessed December 1, 2013. http://blogs.wsj.com/economics/2010/08/09/student-loan-debt-surpasses-credit-cards/.
Shiller, Arthur. Irrational Exuberance. Princeton: Princeton University , 2005.
Steiger, Kay. Raw Story Media, Inc. , "Study: For-profit college students end up with lower earnings." Last modified July 03, 2012. Accessed December 1, 2013. http://www.rawstory.com/rs/2012/07/03/study-for-profit-college-students-end-up-with-lower-earnings/.
Taibbi, Matt. Rolling Stone, "Ripping Off Young America: The College-Loan Scandal." Last modified August 15, 2013. Accessed December 1, 2013. http://www.rollingstone.com/politics/news/ripping-off-young-america-the-college-loan-scandal-20130815.
The College Board, "Average Net Price for Full-Time Students over Time — Public Institutions." Last modified 2013. Accessed December 1, 2013. http://trends.collegeboard.org/college-pricing/figures-tables/average-net-price-full-time-students-over-time-public-institutions.
The Federal Reserve Bank of San Francisco, "Financial Crisis." Accessed December 1, 2013. http://sffed-education.org/econanswers/crisis.htm.
The National Center for Higher Education Management Systems, " Retention Rates - First-Time College Freshmen Returning Their Second Year." Last modified 2010. Accessed December 1, 2013. http://www.higheredinfo.org/dbrowser/index.php?measure=92.
United States Census Bureau, "Educational Attainment." Last modified 2011. Accessed January 8, 2014. http://www.census.gov/hhes/socdemo/education/data/acs/infographics/biology.html.
Weissmann, Jordan. The Atlantic Monthly Group, "Did the For-Profit College Bubble Just Go Pop?" Last modified October 25, 2012. Accessed December 1, 2013. http://www.theatlantic.com/business/archive/2012/10/did-the-for-profit-college-bubble-just-go-pop/264106/.
 Chopra, Rohit. Consumer Financial Protection Bureau, "Student Debt Swells, Federal Loans Now Top a Trillion." Last modified July 17, 2013. Accessed February 11, 2014. http://www.consumerfinance.gov/newsroom/student-debt-swells-federal-loans-now-top-a-trillion/.
 Gerstein, Ben. Money Morning, "The Scary Reality of the Student Loan Bubble in 5 Charts." Last modified March 05, 2013. Accessed February 11, 2014. moneymorning.com/2013/03/05/the-scary-reality-of-the-student-loan-bubble-in-5-charts/.
 Pilon, Mary. The Wall Street Journal, "Student-Loan Debt Surpasses Credit Cards." Last modified August 09, 2010. Accessed December 1, 2013. http://blogs.wsj.com/economics/2010/08/09/student-loan-debt-surpasses-credit-cards/.
 Pianin, Eric. The Washington Post, "Student loans seen as potential 'next debt bomb' for U.S.." Last modified March 11, 2012. Accessed December 1, 2013.
Franklin Mitchell, "Student Loans: The Next Bubble? ," The CPA Journal, 83, no. 7 (2013), n. pag.
 Taibbi, Matt. Rolling Stone, "Ripping Off Young America: The College-Loan Scandal." Last modified August 15, 2013. Accessed December 1, 2013. http://www.rollingstone.com/politics/news/ripping-off-young-america-the-college-loan-scandal-20130815.
Ivana Kubicova, and Komarek Lubos, "The Classification and Identification of Asset Price Bubbles," Journal of Economics and Finance, 1, no. 61 (2011): 34-48, journal.fsv.cuni.cz/storage/1203_kubicova.pdf (accessed December 1, 2013).
 Hans Lind, "Price Bubbles on the Housing Market: Concept, theory and indicators," Royal Institute of Technology: Section for Building and Real Estate Economics, 58 (2008): 1-18, www.fhs.se/documents/.../hans-lind-price-bubbles-working-paper58.pdf (accessed December 1, 2013).
 Robert Shiller, Irrational Exuberance, (Princeton: Princeton University , 2005), 72.
 Ibid, 61.
 "A dot-com bubble." The Globe and Mail, February 3, 2000, 18.
 Jesse Colombo, "The Dot-com Bubbe," The Bubble Bubble (blog), August 19, 2012, http://www.thebubblebubble.com/dot-com-bubble.
 Krainer, John, and Wei Chishen. The Federal Reserve Bank of San Francisco, "House Prices and Fundamental Value." Last modified October 01, 2004. Accessed February 14, 2014. http://www.frbsf.org/economic-research/publications/economic-letter/2004/october/house-prices-and-fundamental-value/.
 JP's, "Real Estate Charts." Last modified 2013. Accessed January 7, 2014. http://www.jparsons.net/housingbubble/.
The Federal Reserve Bank of San Francisco, "Financial Crisis." Accessed December 1, 2013. http://sffed-education.org/econanswers/crisis.htm.
 Merrit, Cam. The San Francisco Gate, "What Is the Meaning of Securitization?." Accessed February 16, 2014. http://homeguides.sfgate.com/meaning-securitization-6615.html.
 Lowenstein, Roger. The New York Times, "Triple-A Failure: The Ratings Game." Last modified April 27, 2008. Accessed January 7, 2014. http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html?_r=0.
 National Center for Education Statistics, "Institutional Retention and Graduation Rates for Undergraduate Students." Last modified May 2013. Accessed January 8, 2014. http://nces.ed.gov/programs/coe/indicator_cva.asp.
 Pew Research Center, "The Rising Cost of Not Going to College ." Last modified February 11, 2014. Accessed February 21, 2014. http://www.pewsocialtrends.org/2014/02/11/the-rising-cost-of-not-going-to-college/.
 United States Census Bureau, "Educational Attainment." Last modified 2011. Accessed January 8, 2014. http://www.census.gov/hhes/socdemo/education/data/acs/infographics/biology.html.
 Jim Luke, "Oligopoly and the Costs of Higher Education - Journal Edition," EconProph (blog), http://econproph.com/2011/10/25/oligopoly-and-the-costs-of-higher-education-journals-edition/.
 The College Board, "Average Net Price for Full-Time Students over Time — Public Institutions." Last modified 2013. Accessed December 1, 2013. http://trends.collegeboard.org/college-pricing/figures-tables/average-net-price-full-time-students-over-time-public-institutions.
 Kumar, Priya. Campus Direct, Inc. , "For-Profit vs. Non-Profit Colleges: What's the Difference? ." Last modified March 31, 2010. Accessed December 1, 2013. http://www.greatdegree.com/articles/For-Profit-vs-Non-Profit-Colleges-What-s-the-Difference-36.html.
 Sheehy, Kelsey. US News & World Report, "Student Borrowing Higher at For-Profit Than Public CollegesStudent Borrowing Higher at For-Profit Than Public Colleges." Last modified August 22, 2013. Accessed December 1, 2013. http://www.usnews.com/education/best-colleges/paying-for-college/articles/2013/08/22/student-borrowing-higher-at-for-profit-than-public-colleges.
 HuffPost Education Group, "For-Profit College Graduation Rate: 22 Percent." Last modified May 25, 2011. Accessed December 1, 2013. http://www.huffingtonpost.com/2010/11/24/forprofit-college-graduat_n_787964.html.
 FindTheBest.com, Inc. , "University of Phoenix." Last modified 2012. Accessed December 1, 2013. http://colleges.findthebest.com/l/5097/University-of-Phoenix.
 The National Center for Higher Education Management Systems, " Retention Rates - First-Time College Freshmen Returning Their Second Year." Last modified 2010. Accessed December 1, 2013. http://www.higheredinfo.org/dbrowser/index.php?measure=92.
 HuffPost Education Group, “For-Profit College.”
 Weissmann, Jordan. The Atlantic Montly Group, "Did the For-Profit College Bubble Just Go Pop?." Last modified October 25, 2012. Accessed December 1, 2013. http://www.theatlantic.com/business/archive/2012/10/did-the-for-profit-college-bubble-just-go-pop/264106/.
Korn, Melissa. The Wall Street Journal, "Party Ends at For-Profit Schools." Last modified August 23, 2011. Accessed December 1, 2013. http://online.wsj.com/news/articles/SB10001424053111904279004576524660236401644.
 Marcus, Jon. Teachers College at Columbia University, "Tuition starts to fall at private, for-profit colleges." Last modified August 21, 2013. Accessed December 1, 2013. hechingerreport.org/content/tuition-starts-to-fall-at-private-for-profit-colleges_12972/.
 Steiger, Kay. Raw Story Media, Inc. , "Study: For-profit college students end up with lower earnings." Last modified July 03, 2012. Accessed December 1, 2013. http://www.rawstory.com/rs/2012/07/03/study-for-profit-college-students-end-up-with-lower-earnings/.