Book Bubble

"Looks like the University of Illinois!"
--Joel Goodson (Risky Business)

Why do higher ed costs remain persistently high? Mike Shedlock hits it right on the nose. The reason is government subsidies. Loan programs like Sally Mae subsidize the market for higher ed. Subsidies always increase demand relative to supply. Consequentially, scarce resources are misallocated and prices rise.

Moreover, the 'cheap credit' structure of these subsidies has prompted borrowers to enter into larger commitments than they otherwise would. This should sound familiar, for it describe a process similar to the housing bubble.

How has this been operationalized on college campuses? Massive spending programs to build university capacity. Enrollment of students who would not have been admitted without subsidies--many of whom lack talent and motivation to do college level work. Diversion of resources away from those students with talent and motivation to do college level work. More debt. And, of course, higher prices.

Very few in the higher ed industry view this situation as bubblish. When reviewing the evidence, however, the familiar signs are there.

Which bids the question, what happens to these institutions and their stakeholders when the bubble pops, as bubbles always do?