By Glenn Reynolds

As bubbles burst in one economic sector after another, we’re now hearing talk of a “higher education bubble,” in which cost increases, buoyed by cheap government loans, may be hitting their limit. Can technology save the day? Or does the problem go deeper than that?

No one disputes that college and graduate-school costs have skyrocketed. In recent decades, college tuition has increased at more than four times the rate of inflation, outpacing even medical–care costs and amounting to a 439 percent increase between 1982 and 2007. As Forbes recently noted, just a decade ago a year of college cost 18 percent of a typical family’s annual income—now it has hit 25 percent and prices are continuing to rise. At public four-year schools, for instance, total costs rose 6 percent in 2011, to $17,131—far outstripping inflation.

The causes are debated. Some blame palatial facilities and reduced teaching loads for professors, while one recent study fingered bloat in the ranks of administrators.

As tuition has risen, students and their families have made up the difference by borrowing. The New York Times ran a sad story about a woman who had amassed nearly $100,000 in student loan debt pursuing a degree in women’s and religious studies at New York University, only to find herself virtually unemployable upon graduation. Even students who major in programs shown to increase earnings, like engineering, face limits to how much debt they can sanely amass. With costs approaching $60,000 a year for many private schools, and out-of-state costs at many state schools exceeding $40,000 (and often closing in on $30,000 for in-state students), some people are graduating with debts of $100,000 or more. That’s dangerous.

The rule of thumb is that college-debt payments should account for less than 8 percent of gross income. Otherwise, watch out—and remember that loan payments are usually not dischargeable in bankruptcy. The loans can follow you for decades. Read More