Knowing when you're in a bubble, case study: college degrees

As we'd seen in the middle of the past decade, knowing when you're in an asset bubble can be extremely difficult, often only obvious in retrospect.

So what are the current bubbles now? It's still hard to say, but I'll posit one bubble. Post a comment if there are other bubbles you see happening right now.

Bubble: The value of a college education. An education is definitely important, but only for certain things and certain people. With very low interest rates, student loans are available at an (apparent) low cost, and many adults dive into an education, with a focus more on the end degree than the actual education: many degrees are simply not marketable. For-profit schools are popping up all over, which means that the value of any degree is decreased, even if these schools are accredited, due to the clear conflict of interest.

And many of these institutions are not accredited at all, including legitimate-sounding names like "West Virginia State University". From Breyer State University:

Is Breyer State University accredited by an accreditor approved by the US Department of Education?

Response: Breyer State University is not accredited by an accreditation agency approved by the U.S. Department of Education. Such approval is a voluntary process, and in fact, the U.S. Department of Education states that accreditation itself is a voluntary process. There is no mandate by federal law for a School, College or University to be accredited. Many good schools are not accredited.

... Breyer State University is an accredited member of [a] private institution...

What they don't tell you is that non-accreditation will prevent many people from getting jobs: some states require job-seekers to divulge when a degree listed in their credentials is non-accredited. And their degrees generally aren't transferable to accredited institutions. That said, it's likely that many employers unknowingly hire people with non-accredited degrees.

I am not suggesting that people not go to college, or even that for-profit schools are inherently evil. But the glut of graduates due to a lower bar from massively available student loans, and due to graduates from non-accredited universities (250k to 500k, by one estimate), will make degrees less meaningful -- and, ultimately, less valuable to future generations. Does that mean fewer people will get degrees? Maybe. Maybe it will encourage more people to get degrees in the short run, since they need to compete somehow. But I suspect that people will gradually find that their investment in questionable degrees is not paying off, and enough people will find that it's more economically viable to skip the degree and make $35k/yr at Uncle Tony's Window Company.

How can you address this bubble? It's not clear how easy -- or ethical -- it would be to short student loans. My hunch (as a non-financial expert) is that there must be publicly traded securities that package up these loans, just like mortgage-backed securities. On the other hand, the federal guarantee of these loans makes them less risky, hence less attractive to short-sellers. So your best best may be to go after the non-accredited (and especially online) institutions that depend on these loans, and to find ways to short them. And remember that you're not attacking education. You're attacking fraudulent education.

Also, make sure the school you attend is a well-known school, that people will recognize. If you're staying local, a major state school or community college that people will recognize should be fine. If you're going national or abroad, try to pick a top-25 school. And, if you're hiring, be scrupulous about checking the accreditation of your newhires' schools.