The university graduation season this past spring dumped another seven million job seekers onto the sputtering economy.  A June headline in the New York Times painted a dismal picture of their likelihood of finding employment: “Degrees but No Guarantees: Faltering Economy . . . Dims Prospects for Graduates.”  In response, the mortarboard horde took to social media to voice its postcommencement frustration.  The Times noted that alarmed government officials begged schools, public agencies, and businesses to hire the frustrated microbloggers, if only on a temporary basis.  One Columbia University economist articulated the political leaders’ latent fears when he warned readers that the only thing worse “than an unemployed low-skilled person is an unemployed educated person.”  Not surprisingly, graduates from the nation’s top universities have had the most success at landing employment these last few months.  But even that elite group has not been immune to financial reality.  Many employers, fearing continuing economic weakness, have subsequently rescinded their offers.  Unemployment nationwide for college graduates between 21 and 25 years of age now hovers at 16 percent.  That’s the bad news.

The good news?  The Times article dealt with China, not the United States.  After enjoying GDP growth rates between 10 and 14 percent in the boom years before 2008, China’s economy will grow “only” 7.8 percent this year, according to the International Monetary Fund’s most recent projections.  In contrast with the seven million newly minted Chinese college graduates flooding their slowing economy in search of employment, this year three million American college graduates will have to find work in an economy with just one quarter of China’s growth rate, or a paltry 1.8 percent.  Then again, maybe a college degree isn’t all it’s cracked up to be.  The unemployment rate in China for elementary-school graduates has sunk to 4 percent thanks to a booming manufacturing sector where pay rates have risen 70 percent since 2009.  American elementary-school graduates face more daunting prospects.  With the U.S. manufacturing base now thoroughly destroyed, wages in the American economy’s last-resort McJob sectors have been flat for decades.  As a result, a college education has become the best hope of those reaching for a toehold in the American middle class.  The government understands this desperate economic choice.  Unfortunately, through a series of policies fraught with unintended consequences, the federal government now encourages citizens and noncitizens alike to assume massive debts to fund college educations of questionable economic and scholarly value.  These harmful policies have sown the seeds for another major financial disaster like 2008’s real-estate crash.

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 sixfold 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 à 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 Baumol’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.

Luckily, budgetary constraints may put a cap on the government’s student-loan geyser.  The rate on Stafford loans for undergrads doubled from 3.4 to 6.8 percent on July 1, despite protests from both Republican and Democratic congressmen.  One aggrieved borrower, Alyssia Osorio, a 22-year-old senior at New York’s City College, denounced the rate increase while simultaneously calling into question whether she had learned anything during her first three years at the school.  “Education is a right, not a privilege,” the Gotham scholar protested to a New York Post reporter.  Now that student-loan borrowings are the second-largest component of consumer debt in the United States after mortgages, Miss Ossorio’s IOU may soon become your tax burden as defaults rise following these rate increases.

What may come as an even bigger surprise is that student-loan debt is now growing fastest among Americans over age 60.  According to the Federal Reserve Bank of New York, the average “senior” student-loan balance now tops $19,500, up from $11,000 in 2005.  Two million senior citizens have racked up almost $40 billion in student loans during the latest recession.  Now imagine Miss Ossorio’s inability to distinguish a right from a privilege coupled with AARP’s marketing prowess and deep pockets.  The federal government’s recent bailout of underwater mortgages set a precedent that will free the likes of Miss Ossorio, along with her grandparents, to continue their studies in graduate school as they bury themselves even deeper in debt.

More important concerns get lost when all discussion of education shifts to its financing.  Bard College President Leon Botstein reminded listeners of the deeper purposes behind college education in a February 2013 speech at the University of Virginia.  Colleges do not exist to train workers for a vocation, but to prepare students for every aspect of life.  In Botstein’s words, a college education offers “an intellectual rite of passage, which helps students define who they are, what career they will take, consider what they do or do not believe and why, and to have a real conversation based in the intellectual tradition that makes a difference to the conduct of their life.”  Note that Botstein, a well-regarded music scholar and conductor, defined a college education as a “rite of passage” to help students determine which career path they might follow, and not as vocational training to utilize the day they leave campus.  A liberal education opens the mind to new ideas, new ways of thinking, and a new understanding of the world.  To illustrate his point, Botstein cited the farce of modern presidential debates, which he deemed “analogous to a singing contest: one person sings, and then the other person sings and the audience votes.”  Botstein then asked when the last time was that any candidate ever said to his opponent “That’s a good point,” before adding that such an admission would earn Botstein’s vote based on honesty and openness to truth.  A well-rounded liberal education inculcates catholic tastes, including the ability to understand an opponent’s argument.  Four years immersed in the study of accounting, marketing, or supply-chain management do not come close to accomplishing that, even if the “Assistant to the Associate Provost for Educational Attainment” argues to the contrary.  Columbia English professor Andrew Delbanco echoed Botstein’s thoughts in his recent book College: What It Was, Is, and Should Be.  For Delbanco, a college education should lead not just to “personal advancement but the public good.”

A college education has become an investment, much like the purchase of a stock or a mutual fund.  Students and parents will continue to weigh the costs of a college education, both the immediate tuition hit as well as the debt-servicing costs carried for years after graduation, against the supposed benefits.  Despite the wishes of traditional scholars like Botstein and Delbanco, Americans now evaluate colleges on their ability to help Junior land a job that pays enough to cover his loans and eke out a middle-class existence.  As long as today’s college graduate knows the difference between a debit and credit, Americans will continue their support of post-high-school vocational training masquerading as education.  W.E.B. DuBois’s dictum that the purpose of education is not to turn men into bricklayers but to turn bricklayers into full men will only resonate with the Botsteins and Delbancos who look at the growing mountain of student loans and ask, “Cui bono?”  When the bubble pops we will have jurors, voters, and neighbors who know how to calculate earnings per share and optimize production functions even though they lack the funds to repay their college loans.  But we won’t have citizens who understand how we immiserated ourselves culturally despite our high college-graduation rates.