According to the National Center for Education Statistics, 33.5 percent of Americans between the ages of 25 and 29 in 2012 had at least a bachelor’s degree, compared with 24.7 percent in 1995 and 21.9 percent in 1975. Several factors have contributed to this sharp rise in those earning college credentials. The Digital Age and its higher-paying jobs now require the digital training found at universities. Women’s share of degrees awarded keeps rising as they continue their multidecade surge into higher education. The weak economy of the last seven years has also made college a more attractive option for many of the unemployed, even though only half of those entering college in 2006 had graduated by 2012. Greener pastures await students who graduate. Job openings for college graduates have increased nine percent since the recession’s onset in December 2007. Last March’s employment data showed just 3.3. percent of college graduates unemployed versus 11.8 percent of American high-school graduates.

            As a result of this increased demand for college educations, student debt outstanding has more than quadrupled, soaring from $250 billion in 2003 to more than $1 trillion today, according to the Federal Reserve Bank of New York. Tuition at four-year colleges has increased more than six-fold since 1980, far outpacing the mere twofold increase in the Consumer Price Index over that same period. It will surprise no one that 75 percent of all college debt is held by households with an average net worth less than $79,000. Thanks to the economy’s continuing sluggishness, these modest families are now falling behind in servicing this unsecured debt. Student loans more than 90 days delinquent now make up 12 percent of the total, the worst performing segment of all consumer loans today.

            But the primary driver behind rising college enrollments has been the easy availability of student loans in terms of both price and nonexistent credit qualifications. Ever eager to ingratiate itself with the middle class, the federal government - taking a page from the Soviet Union’s central-planning playbook - set interest rates on student loans artificially low. To ease the financial burden of student borrowers further, the federal government covers the interest costs of subsidized Stafford loans for students while they are enrolled in school. This subsidy has distorted the student-loan market in the same way the mortgage-interest deduction distorted the housing market by allowing borrowers to overextend themselves.

            In addition to meddling with the pricing of student loans, the government has interfered with the credit-approval process between student borrowers and lenders. Under current regulations, borrowers may not discharge student loans in bankruptcy proceedings. This quirk in the law encourages financial institutions to ignore each borrower’s risk of default since, short of fleeing the country a la Edward Snowden, borrowers remain on the hook for life. Worrywarts and skeptics who point out the dangers of such foolhardy lending practices get shouted down with mindless accusations of being “anti-education” in the same way that those who protested risky mortgages in 2007 were smeared as “anti-homeowner.”

            Low rates on mortgages drove house prices to unsustainable levels. And now low rates on student loans are inflating another bubble of frightening magnitude. However, low interest rates do more than just encourage increased borrowings. They also lead to a rise in the price of the item being financed. As noted earlier, colleges have taken advantage of this easy money by raising tuition and expenses far faster than the rate of inflation. In their defense, much of this increase is unavoidable because of what economists refer to as the Baumol Effect. Per Baumon’s theory, salaries paid to university professors rise over time even though the professors’ productivity remains constant. By contrast, factory owners can justify wage increases to manufacturing employees thanks to rising productivity. But college instructors today require the same amount of time to teach a class as they did 50 years ago, and maybe even more when one considers that PowerPoint presentations provide more distraction than efficiency. So college costs rise without a corresponding offset in productivity.

            Sadly, these additional funds flowing into university coffers have failed to improve American higher education. Rather than using their increased revenues to bolster academic offerings, schools have added layer upon layer of nonacademic staff who add little to the conveyance of human knowledge. This summer, Colorado State University launched a job search that may one day stand as the poster child for student-loan bubble excess. In its ad for an “Assistant to the Associate Provost for Educational Attainment,” Colorado State announced its intention to hire “the right person to play an essential role in supporting educational innovation and in helping to facilitate a national dialogue about excellence, innovation, and reform in undergraduate education at comprehensive research universities.” Teeming with meaningless jargon, the ad itself illustrated the bureaucratic kudzu, watered and fertilized by ever-rising student tuitions, that has overtaken colleges and universities today:

“The Assistant to the Associate Provost for Educational Attainment will provide direct administrative support to the Associate Provost for Educational Attainment, who reports to the Provost and works under his/her direction to promote the University’s educational-attainment goals, with particular attention to undergraduate student educational attainment (encompassing student learning; retention and graduation rates; and overall levels of degree attainment).”

This inane position will last for five years and cost Colorado State’s student body between $50,000 and $55,000 annually. When mortgage rates are low, house buyers overpay for real estate. When student-loan rates are low, universities raise their tuition in order to hire extraneous staff who couldn’t justify their existence in a nursery school.

- from “The College Bubble” by Mark G. Brennan, featured in the September issue of Chronicles