Stein’s Law states, “If something cannot go on forever, it will stop.”

And it looks like the current mode of financing higher education is now proving that law true. Conservative pundit Michael Barone has this analysis in RealClearPolitics:

Markets work. But sometimes they take time.

That’s the uncomfortable lesson that proprietors of America’s colleges and universities are learning.

For many years, market forces didn’t seem to apply to them. There was a widespread societal consensus that a college education was a good economic investment.

Politicians gave lip service to the idea that everyone should go to college. No one should be stopped by a lack of money.

There was historic precedent. The G.I. Bill of Rights vastly expanded college populations and helped build prosperous post-World War II America. Putting even more through college would make us even more prosperous.

So Congress passed student loan and grant programs to make it easier for people to pay for college and university tuitions. That increased potential higher education revenues.

Surprise! Over the last three decades, tuitions rose faster than the economy grew.

For a long time, that didn’t seem to be a problem. College still seemed like a good investment during the quarter century of low-inflation economic growth from 1982 to 2007. You could pay off those loans with earnings increased by your degree.

Meanwhile colleges and universities — and not just the highly selective ones — competed for students whose test scores would improve their ratings in the U.S. News College Guide by giving “scholarships” that actually were discounts on the tuition list price.

…Now the higher education bubble has burst. The Wall Street Journal reported this week that that the average “tuition discount rate” offered incoming freshmen last fall by private colleges and universities has reached an all-time high of 45 percent.

At the same time, their “sticker price” tuitions have increased by the smallest amount in the last dozen years.

Tuitions for in-state students at public four-year colleges and universities also increased by the smallest amount during that period.

Applicants are negotiating bigger discounts than they used to. Market competition has kicked in.

Barone concludes:

In more straitened circumstances, they are discovering that, sooner or later, markets work. Their old business model is no longer working.

Colleges and universities have been doing a good job of meeting their administrators’ needs. Now, in the new normal economy, they’re scrambling to serve society’s needs, as well.