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The Education Bubble

The nice thing about classic economics, is the rules do not change between markets.   It the same law of supply and demand that applies to widget, automobiles and college educations.

So speaking of  cars, aside from OWS morons, nobody would argue that all cars are the have the same uses, and should carry the same price tags.   Further, we are smart enough to hold Detroit responsible for the vehicles they sell.    If we demanded that Detroit sell are vehicles for the same price, but  not be required to back only vehicle they sold, the only cars on the markets would be lemons.

Yet while nobody wants a steel, chrome and rubber lemon with air conditioning and power windows, they a big demand for parchment lemons, from Glenn Harlan Reynolds, New York Post [1]:

I think we should return to the days when student loans were dischargeable in bankruptcy, starting five years after graduation. This will allow graduates who are unable to pay to get out from under what is otherwise a potential lifetime of debt-slavery. If you buy a house to flip, and wind up losing your shirt, we let you go bankrupt, take a credit-rating hit, and scrub the debt away. Why should graduates be forbidden from doing the same? The five-year delay means that you can’t use immediate post-graduation poverty as an excuse (as some medical students used to do), but still provides an out.

But the real incentive-alignment part is this: Put the institutions who issued the degrees on the hook for the money they received. Making them eat the entire loan balance would probably bankrupt a lot of colleges (though that should tell us something about the problem right there), but sticking them with even a small fraction — say, 10% or 15% — would be enough to inspire a much greater degree of concern for how much debt students take on while in school, and for how likely they are to find gainful employment after graduation.

Because auto companies and dealers are required to stand behind their products, few car buyers get stuck with lemon.    Because institutes of higher education are not required to stand behind their productes, purchasers college education, get stuch with lots of lemons.