Next bubble: Student Loans/Academia Bubble

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Kurosawa's picture
Kurosawa
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Posts: 43
Next bubble: Student Loans/Academia Bubble

I read some future trends Gerald Celente sees happening in the near future one being the collapse of the overpriced college industrial complex.  I just wonder what new programs the Obama administration will prop up in order to battle this bubble, lol.  Anyways did some light research and I pulled this article up found at:

http://hotair.com/archives/2009/02/05/the-next-bubble-student-loans-and-...

Thoughts? Your input is always appreciated.


The next bubble: student loans and Academia

POSTED AT 10:58 AM ON FEBRUARY 5, 2009 BY ED MORRISSEY
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Picture a market with overpriced product, driven by government-subsidized consumers that create an artificially high demand with overextended debt, on which major institutions rely as investments.  A description of the American housing market, 1998-2008?  Sure, but it also describes the American college market, and Kathy Kristof writes for Forbes that Academia may be the next bubble to pop:

Misguided easy-money policies that are encouraging the masses to go into debt; a self-serving establishment trading in half-truths that exaggerate the value of its product; plus a Wall Street money machine dabbling in outright fraud as it foists unaffordable debt on the most vulnerable marks.

College graduates will earn $1 million more than those with only a high school diploma, brags Mercy College radio ads running in the New York area. The $1 million shibboleth is a favorite of college barkers.

Like many good cons, this one contains a kernel of truth. Census figures show that college grads earn an average of $57,500 a year, which is 82% more than the $31,600 high school alumni make. Multiply the $25,900 difference by the 40 years the average person works and, sure enough, it comes to a tad over $1 million.

But anybody who has gotten a passing grade in statistics knows what’s wrong with this line of argument. A correlation between B.A.s and incomes is not proof of cause and effect. …

Offsetting that million-dollar income discrepancy is the $46,700 four-year cost of tuition, fees, books, room and board at a public school and $99,900 at a private one–even after financial aid, scholarships and grants. Add all this to the equation and college grads don’t pull even with high school grads in lifetime income until age 33 on average, the College Board says. Even that doesn’t include the $125,000 in pay students forgo over four years.

It’s impossible to recap Kristof’s thorough reporting here; one has to read the entire column.  One difference between the housing subprime market and what Kristof describes as the student subprime market is the lack of government guarantees on the most profitable of the loans.  Lenders can do better by avoiding government purchase of the paper, as they can avoid some of the restrictions.

Otherwise, the student lending market carries most of the same characteristics of the housing meltdown: exaggerated claims, predatory lending, and overburdened borrowers who quickly learn that they’ve gotten in over their heads.  Many of these loans come at credit-card interest rates, as the regulations do not impose a cap.  What happens?  Students default, ruining their credit for years and leaving the lenders and their investors with empty pockets.  SLM, called Sallie Mae, has lost 80% of its shareholder value thanks to what it called “nontraditional lending”, although its CEO mananged to cash out in 2007 with $72 million in stock sales before the bill came due.  If that sounds familiar, see Franklin Raines and Fannie Mae.

The root cause of this impending bubble is the same for the housing market.  Politicians decided that all students should go to college, just as they decided that all people should own their own home.  Those are certainly admirable goals, but prescriptions for disaster as public policy.  Rather than create public colleges with no requirement for tuition, which would have been the honest way to implement that policy but completely unpalatable as a spending plan, the federal government pushed for tuition loans, upping the demand at universities.  With billions of dollars flooding the market and consumer demand dramatically rising, prices increased across the board, predictable from the basic economic law of supply and demand.  When prices increased, the subsidies increased, which increased demand and pushed prices higher, creating a vicious cycle … exactly as it did in the housing market.

Government has to get out of the lending markets altogether.  If politicians want to subsidize education, they should create more supply and lower the price in order to create the increased accessibility they want, not create bubbles in lending markets.  Better yet, government should stay out of it altogether and let the market take care of itself.

  

 

caroline_culbert's picture
caroline_culbert
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 624
Re: Next bubble: Student Loans/Academia Bubble

Well all I have to say is that one doesn't have to go to college to get an excellent education.  If someone wants to learn something... well there're books.  I think I've learned more by learning on my own after graduating from college than in it.  College?- What a rip-off.  I'm sorry, but unless the prof. hands out gold-plated PDFs and diamond studded exams... it's not worth it.  Most of the sh*t they make you learn you unlearn the moment you take the exam.  I love how they try to shove that rote-learning sh*t down your throat and call it teaching.  Even if I wanted to memorize a bunch of stuff (say medical terminology) I wouldn't need a professor.  I mean, come on, are they going to inject it intravenously?  Give me a break.  College-- RIP-OFF.  Learning is the way to go.  These two do not necessarily depend upon each other.

SamLinder's picture
SamLinder
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Posts: 1499
Re: Next bubble: Student Loans/Academia Bubble
Kurosawa wrote:

<snip>

The next bubble: student loans and Academia

POSTED AT 10:58 AM ON FEBRUARY 5, 2009 BY ED MORRISSEY

<snip>

Wow - that's pretty cool - this guy knows how to post stuff in the future! I'm impressed!  Tongue out

Kurosawa's picture
Kurosawa
Status: Bronze Member (Offline)
Joined: Jul 2 2008
Posts: 43
Re: Next bubble: Student Loans/Academia Bubble
SamLinder wrote:
Kurosawa wrote:

<snip>


The next bubble: student loans and Academia

POSTED AT 10:58 AM ON FEBRUARY 5, 2009 BY ED MORRISSEY

<snip>

Wow - that's pretty cool - this guy knows how to post stuff in the future! I'm impressed!  Tongue out

*crickets* 

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Next bubble: Student Loans/Academia Bubble

'College industrial complex' ... you got it. College is a lot like
housing and health care -- thanks to extensive government intervention
and financing, it costs much more than it should. All the predictable
results are visible -- ex-politicians hired as college presidents to
maximize rent-seeking; antitrust violations as colleges conspire to
coordinate financial aid offers so as to suppress competition;
athletic program scandals; etc. etc.

In his address to a joint
session of Congress, President Obama called for every American to pursue some form of education
beyond high school. This is terribly misguided. One of the reasons the
U.S. doesn't 'make things' anymore is that vocational education is
systematically neglected. Yet a recent NY Times article reported that
vocational magnet high schools in New Jersey are fully competitive with
rich districts such as Princeton in standardized test scores.

http://www.nytimes.com/2009/02/08/nyregion/new-jersey/08reportnj.html

After
the coming dollar collapse, the U.S. will HAVE to export more. I would
advise everyone to keep this trend in mind as they develop their
abilities. Misdirected educational priorities mean that skilled
technicians will continue to benefit from their know-how being in
permanent shortage. Some of them will end up training and supervising
unemployed lawyers, at $22.50 an hour instead of $225 an hour ... ya hear me, Barry?

Under president machinehead, our nation's law schools will be converted into solar panel fabs. Innocent

Alex Szczech's picture
Alex Szczech
Status: Silver Member (Offline)
Joined: Dec 31 2008
Posts: 105
Re: Next bubble: Student Loans/Academia Bubble

A college education isn't without value. However it is overpriced. Seems as though the Board of Regents primary activity is bitching to the state legislature for more funding to give themselves and the administrators raises in order to 'keep and attract talent'.Yell 

caroline_culbert's picture
caroline_culbert
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 624
Re: Next bubble: Student Loans/Academia Bubble
Alex Szczech wrote:

A college education isn't without value. However it is overpriced. Seems as though the Board of Regents primary activity is bitching to the state legislature for more funding to give themselves and the administrators raises in order to 'keep and attract talent'.Yell 

Yes... I agree.  A college education, you're right, isn't without value. 

nickbert's picture
nickbert
Status: Diamond Member (Offline)
Joined: Jan 14 2009
Posts: 1207
Re: Next bubble: Student Loans/Academia Bubble

As someone who recently (4 years ago) graduated from college, I have to agree that 1) most college educations are overpriced, and 2) most colleges are going to be in a world of hurt.  Like many if not most people, my only options for paying for college were loans, join the military, or work full-time while going to school.  And all of these options suck to varying degrees... working and going to school at the same time can be difficult to coordinate and rough on school performance, taking loans involves going into large amounts of debt, and IMO the military is only a good option if you have a serious desire to be there in the first place (not just doing it for free or mostly-free education).  So fast forward to the near-future, where we could conceivably have limited availability for college loans along with record unemployment.  All of a sudden the options become much more limited, and that combined with diminished or depleted college savings accounts (whether from market losses or emergency withdrawals) should lead to diminished enrollment.  Add to that reduced funding from states, alumni, and other sources, and you have a recipe for many colleges dying out. 

While I grumble at the high cost of it, I actually don't have regrets about my most recent degree (engineering).  It opened up a job market with much higher income and job satisfaction, gave me some of the skills and knowledge I was looking for, and has future job prospects better than many other careers.  That being said though, I'd feel much differently about it if I'd gone into a lower-paying field or one that's now collapsing, or if I didn't have my considerable student loan balance consolidated at a very low interest rate.  I look around at other recent grads and think I'm far luckier than most.... IMO many other students and grads are/were being screwed with excessively high costs, low job availability, and student loans they'll spend 1-2 decades paying off.  The way college is priced now, I see only a limited number of degrees where one can get true value for their money.

- Nickbert

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