Over the last several years, a growing number of economists have concluded that the economic conditions of American higher education resemble a speculative bubble. Although the price of a degree continues to rise, the argument goes, its intellectual and financial rewards are declining. At some point, students, their parents, and the lenders they rely on, including the federal government, will either run out of money or realize that they’re paying more than the goods they receive are worth. At that point, the bubble will burst, taking with it significant features of the higher ed landscape.

It’s not clear that the bubble theory applies to the upper reaches of the educational hierarchy: the rarefied plane of selective admissions, tenured professors, and leafy quadrangles for which I reserve the word “college“. The demand for college is far from infinite. But there are still plenty of students and families willing and able to pay for a fancy degree.

On the other hand, the vast network of open admissions, non-residential, part-time, quasi-vocational, and part-time programs that enroll the majority of American students is vulnerable to a collapsing bubble. That’s primarily because the students it serves are the poorest and least academically prepared. For these reasons, moreover, the lower tiers of higher education are also the most dependent on federal support, mostly in the form of Pell Grants and guaranteed loans. So they bear the burden of cuts in government spending.

These considerations help explain Wednesday’s announcement that the University of Phoenix is closing 115 physical locations, including 25 main campuses, and laying off 800 employees. A for-profit operation, UOPX relies on federal aid for 80 percent of its revenue. At the same time, it graduates only about 16 percent of its students by the Department of Education’s standards (UOPX calculates a much higher rate by taking into account the fact that many of its students attend part-time, carry academic credits acquired at other institutions, or complete their degrees elsewhere).

These numbers are not dispositive. But they strongly suggest that UOPX offers a product that’s not worth the cost. Students’ behavior is consistent with that judgment. Under the pressure of negative publicity about low graduation rates and the the poor quality of instruction, enrollments at UOPX have been dropping for several years.

UOPX won’t simply go bust. Its flexible programs and expanding online offerings remain a good deal for some students. Nevertheless, the bubble in low-end higher education appears to be deflating, if not dramatically bursting.  Although both Obama and Romney have promised to protect the Pell Grant program, I expect to see similar retrenchment  by UOPX’s competitors, in both the for- and non-profit sectors.

The question for the future, then, is what should be done about their erstwhile customers: students who lack the time, resources, or ability to benefit much from higher education. It would be cruel to consign them to a lifetime of low-wage, low-skill employment, if they’re lucky enough to find work in the first place. But it is both cruel to encourage students to pursue degrees they’re unlikely to complete and irresponsible to permanently subsidize studies that provide few demonstrable public benefits.

I wish that I knew the solution to this problem. I am certain, however, that it will grow more severe as the economy continues to struggle.