The for-profit college boom looks an awful lot like the subprime mortgage bubble. But it’s the differences that can teach us how to change the market for higher education.

Stack_of_Books_2In the 2000s, home prices went on an historic tear. Easy credit backstopped by government loan guarantees and securitized by Wall Street created excess demand for residential investment. “Fringey” market players like exurban developers and subprime lenders finally blew the bubble past the breaking point.

When a bubble watcher like Vikram Mansharamani looks at the market for higher education, he can’t help but find parallels. Historic price increase? College inflation outpaces health care inflation. Easy credit? Total financial aid for college has doubled since 2002. Fringey market players? For-profit schools stand accused of luring low-income students into government-sponsored debt to obtain degrees of questionable value. Easy money, moral hazard, artificial demand? Check, check, check.

But the parallels between the housing bubble and education have their limits. The Great Recession started with a domino of broken promises and failed expectations. Families stopped paying back mortgages, banks wrote down mortgage-backed assets, contagion spread. In education, the domino line is shorter. If students don’t pay back their loans to the federal government, the government just pays itself the difference. The only way for the market to change is for Washington to change the market.

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Source: Derek Thompson | The Atlantic