This is what a bubble looks like.
They’re generally not that hard to spot. I remember various prescient hand-wringing articles about the tech stock bubble and the housing price bubble. The problem is people don’t see the bubble all at the same time right up until the moment that it suddenly pops. At that moment we can genuinely claim to be surprised and not surprised at the same time.
Here’s another graph. This one is about college costs. You look at it and you say, “Man, that just can’t continue.” College costs are growing out of all proportion to income growth and cost-of-living increases.
It well and truly cannot continue growing at this pace, because like all exponential growth, it would eventually blot out the sun. Of course, going to college is a great thing. But sooner or later you just can’t pay for it. The rumblings of discontent are starting to show up in popular media. Here’s the anonymous Professor X writing for the Atlantic: An Anti-College Backlash?
Colleges are stuck in a textbook innovator’s dilemma in the sense that they are still making good money catering to a high-paying market. But because they won’t, or are structurally incapable of cutting prices, disruptive forces will eventually gut them from below. And those disruptive forces are almost certain to take the form of online education of one kind or another. That’s the theme of this piece from the Chronicle of Higher Education: Disrupting College. It in turn points to an analysis written by Mr. Innovator’s Dilemma himself, Clayton Christensen. And finally, here’s a short piece written about Scott McNealy’s investment in open source education. McNealy can always be counted on for a good sound bite: “Universities will be forced to decide what they are. You know, are they going to be football teams with libraries attached? That’s what a lot of them are now.”
It’s hard to say when, but change is on the way. All I know for certain is I would be nervous to be on a university’s payroll at this moment.
Rambles Blog at Star Chamber 
There certainly need to be massive adjustments, but they have taken place in the past – land grant colleges and the emergence of “popular” higher education in the 1800s, the move to the German system and the dramatic expansion that followed WWII with the GI bill.
Many argue that we need to establish where college educations are really needed given the nature of the labor market. Finland is frequently cited as having the best educated population but only half its students go on to college. The rest go through trade schools. This approach is common in some European countries and there is little stigma to being a tradesperson. It may be that a key component of what is needed here is a refocusing of what the community college system is … rather than a watered down four year college, perhaps it should become a robust system for people interested in the trades.
Many of the people I know in the 25 to 35 year age range are finding themselves in serious unemployment as their degrees are not well coupled with the (bad) job market. This even includes lawyers and teachers. A few have decided to train in a trade after a few years of the reality of working as sales “associates”. I have a sense that some trades are being viewed in a very positive light. Four years or more of college was a misdirection for them. They received some value, but it cost them a lot of money and time.
It is worrisome looking at funding issues at the major universities. That is where most basic research takes place – it is s joke to think that industry does much in the way of fundamental research. The majority of applied research also takes place in Universities and its students drive the growth of much of our economy. Shrinkage here without growth elsewhere will damage our economy in the long term. But the winds certainly point towards shrinkage.
It is a terrible time to be a post doc with intentions on an academic carrier. But change is clearly on the way.
There is also the immediate problem of for profit schools that somehow use federal funds to lure students into paying large amounts of money for what amounts to a mountain of debt and very little real value.
http://blogs.forbes.com/erikkain/2011/04/06/the-for-profit-college-scam-in-one-handy-infograph/