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Is Higher Education the Next Bubble to Burst?

The Chronicle of Higher Education raises a question worth examining, as the credit stays tighter than usual and the economy remains sluggish: Is higher education the next bubble to burst?

With tuitions, fees, and room and board at dozens of colleges now reaching $50,000 a year, the ability to sustain private higher education for all but the very well-heeled is questionable. According to the National Center for Public Policy and Higher Education, over the past 25 years, average college tuition and fees have risen by 440 percent — more than four times the rate of inflation and almost twice the rate of medical care. Patrick M. Callan, the center’s president, has warned that low-income students will find college unaffordable.

Meanwhile, the middle class, which has paid for higher education in the past mainly by taking out loans, may now be precluded from doing so as the private student-loan market has all but dried up. In addition, endowment cushions that allowed colleges to engage in steep tuition discounting are gone. Declines in housing valuations are making it difficult for families to rely on home-equity loans for college financing. Even when the equity is there, parents are reluctant to further leverage themselves into a future where job security is uncertain.

Even though we’re still in the middle of this economic mess, it’s worth pondering what the long-term outcome will be once the recession finally ends. There’s been plenty written about a new frugality, with consumers changing their ways for good, and saving more and spending less. I haven’t totally signed on to that one. If the economy should somehow pick up, I think many consumers could easily revert to their old free spending habits. They always have in the past.

But when you think about much more limited access to credit — no more using your house as an ATM — combined with higher college costs, it’s a different story. We could very well end up with lower and middle income families finding college simply out of reach. That’s not something being watched closely right now, given our attention is focused on the banking and foreclosure crises.

The authors of the Chronicle piece –Joseph Marr Cronin, the former Massachusetts secretary of educational affairs, and Howard E. Horton, the president of New England College of Business and Finance – suggest it’s time to start. They’re trying to call this bubble before it bursts – which means at least one lesson from this financial crisis is sinking in, at least for some.

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