Part of me is in no way a fan of higher education. Another part is. That is so say, I love education. I think we should all strive to learn more, even it is just picking up one new thing each day. I enjoy reading, I love challenging my brain. Education is great, and provides true joy in my life.

That said, let’s take it back a bit. Many know that I’m well read on the subject of economics. My regular podcast co-host, Ande Macpherson, has a degree in economics. I’ve asked him honestly how my understanding of the field stands up to what he was taught. According to him I have a great handle on the subject. But… I never earned a degree. I’m self taught. So what I know, although I’m right, isn’t worth much.

I’m a little too old to go to college. If anything, I’d take some online courses in my free time. After a Google search I found Liberty University, which offered an online bachelor’s degree course in economics. I was all in until I calculated the price – $62,400. HELL NO!

For years, K-12 students have been taught by their guidance counselors that if they want to get anywhere in life they need a college education. This effort has been effective to leading millions of young Americans to attend higher education, although little has been made of the actual results of earning a degree. Earning a bachelor’s degree costs sometimes over $100,000 (depending on the institution) and yet there is little evidence to back up the claim that it is the degree itself that is the most important factor in earning an above average income later in life.

In fact, the Washington Post reported in 2013 that only 27 percent of college graduates have a job in a field related to their major.

There are two different things going on in this chart. First, a significant number of college grads appear to be underemployed: In 2010, only 62 percent of U.S. college graduates had a job that required a college degree.

Second, the authors estimated that just 27 percent of college grads had a job that was closely related to their major.

If that’s the case, then why are students ordered to attend college, and what larger effects is this having on employment and the economy? Saddling students with mountains of debt (which cannot be eliminated through bankruptcy court, by the way) only to find jobs that people without a degree would attain in no way sounds sustainable.

To me, this sounds like the very definition of a bubble. A “bubble” in the economy means that the price of something wildly outpaces its demand. We saw this a decade ago with the American housing market. Prices of houses were continuing to rise, even though incomes and the general ability of people to actually afford the houses remained flat. It was a clear bubble is retrospect. (See The Big Short.)

For decades the price of higher education has been increasing. “Back in the day” people used to be able to pay their way through college by working a part time job; graduating with little or no student debt. Today, student loans are in the neighborhood of $1.4 trillion, which means that almost no one is paying their way through college. They are obtaining loans, backed up by the federal government, and those loans are weighing them down for years and years after they graduate.

Not only is the price of higher education increasing, but it appears that the demand for workers with college degrees is remaining relatively flat. Sound familiar? The price of houses increased, while incomes remained flat. In education, the price of a degree increases while the jobs requiring degrees remains flat. Hmm…

What is perhaps equally, or MORE, troubling is the fact that nearly half of students who attend college don’t graduate, yet still incur the costs of their tuition.

The National Center for Education Statistics reported that,

“The 6-year graduation rate for first-time, full-time undergraduate students who began seeking a bachelor’s degree at a 4-year degree-granting institution in fall 2009 was 59 percent. That is, 59 percent had completed a bachelor’s degree by 2015 at the same institution where they started in 2009.”

More and more young people are going wildly into debt to earn degrees that do not gain them better jobs. In economic terms – people are investing in something that doesn’t have a return. This is bad. Very bad. In most business ventures, people are legally allowed to use bankruptcy laws to avoid their losses. However, student loans cannot be discharged using these same laws. The debt young people are incurring is for LIFE, and HAS NO RETURN!

This is perhaps the longest growing bubble in the American economy. Although not as large as some bubbles of the past (i.e. the stock market bubble of the ’80s, the dot-com bubble of the early 2000s, or the housing bubble of 2007), this bubble has grown far longer than most.

All of this leads to a fundamental question: what inflates an economic bubble? Is the free market running amok, or is there something else at work? History and Austrian economics (ironically not taught in most economics courses) tells us that the education bubble is caused by government intervention.

A.B.C.T. Remember that acronym. It stands for Austrian Business Cycle Theory, which was developed by Ludwig von Mises and Nobel Prize winning economist Friedrich Hayek. Although the theory was developed in far greater detail by many world renowned economists, let’s make it as simple as possible using basic economics and an understanding of the price system.

misesThe price of XYZ in the free market is dictated by supply and demand. This is called the “market price”. Sometimes government intervenes and passes laws that say that the minimum or maximum price of XYZ should be a certain price. If the price government sets is above the market price, there will be a surplus of XYZ. If the price government sets is below the market price, there will be a shortage of XYZ.

XYZ can be anything, whether it be food, wages, housing, or credit. In the case of credit, government sets the interest rates. These rates are determined by the Federal Reserve, and these rates are then passed down to banks and other lending institutions. If there is a surplus of credit, this leads to more and more irresponsible loans. Businesses and individuals who should NOT be able to afford bad loans are able to. These bad loans pile up, and eventually the chickens come home to roost. The loans cannot be repaid, and the system collapses.

What is happening in the student loan market is that government is insuring all loans that banks make to students. These loans are made to students who CANNOT repay them, and yet they are not allowed to default on their loans and file bankruptcy. The loans are piling up until something very bad happens. The debt becomes overwhelming and the system collapses.

We have witnessed this before. In the past, businesses and banks have been bailed out by the federal government (a.k.a. the taxpayer) and the economy as a whole took a hit. In the case of student loans, when massive numbers of people start to NOT pay their loans (because they CAN’T), the gig is up!

What does this all mean? It means that higher education is wildly overpriced, and the increased prices of higher education are backed up by government monetary and fiscal policy. Regardless of what the United States Treasury and the Federal Reserve think, in the end, the free market always wins. Consumer supply and demand for a product reign supreme.

The price of college educations is going to continue to rise, and this means that the bubble is going to continue to inflate. Sadly, like with most bubbles, it will be innocent people who suffer when it finally bursts. The best advice is to recognize that what makes a successful person is not the degree they earn, but their own will to learn and be a great asset to those they work for.

Remember that Bill Gates, founder of Microsoft, dropped out of college. Steve Gates, founder of Apple, dropped out of college. Julian Assange, founder of Wikileaks, dropped out of college. The list goes on. Smart people succeed in life, and you don’t need an “education” to be smart. BE EDUCATED, but don’t fall victim to the massive bubble that is the higher education system in America today.