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Economy

More on the student loan bubble

There’s an interesting article found on N+1 referenced on the Economist’s Schumpeter Blog.

The article is full of fascinating information about the current state of higher education and the resulting student debt.  Suffice it to say the author has an extremely pessimistic view of the current state of higher education and the impending student loan bubble.

The Project On Student Debt estimates that the average college senior in 2009 graduated with $24,000 in outstanding loans. Last August, student loans surpassed credit cards as the nation’s single largest source of debt, edging ever closer to $1 trillion. Yet for all the moralizing about American consumer debt by both parties, no one dares call higher education a bad investment. The nearly axiomatic good of a university degree in American society has allowed a higher education bubble to expand to the point of bursting.

Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation. To put that number in perspective, housing prices, the bubble that nearly burst the US economy,  then the global one, increased only fifty points above the Consumer Price Index during those years.

The result is that the most indebted generation in history is without the dependable jobs it needs to escape debt.

On a related note, I simply don’t see how the cost of higher education can continually outpace inflation the way it has over the last 30 years.  But onto some more great quotes:

…this wouldn’t be America if you couldn’t monetize your children’s futures…

The loans and costs are caught in the kind of dangerous loop that occurs when lending becomes both profitable and seemingly risk-free: high and increasing college costs mean students need to take out more loans, more loans mean more securities lenders can package and sell, more selling means lenders can offer more loans with the capital they raise, which means colleges can continue to raise costs. The result is over $800 billion in outstanding student debt, over 30 percent of it securitized, and the federal government directly or indirectly on the hook for almost all of it.

…for-profit two-year schools have apocalyptic figures: 96 percent of their students take on debt and within fifteen years 40 percent are in default.

N+1 also discusses touches on the quality of eduction at 4-year Universities:

Marc Bousquet, a leading researcher into the changing structures of higher education, wrote in How The University Works(2008):

If you’re enrolled in four college classes right now, you have a pretty good chance that one of the four will be taught by someone who has earned a doctorate and whose teaching, scholarship, and service to the profession has undergone the intensive peer scrutiny associated with the tenure system. In your other three classes, however, you are likely to be taught by someone who has started a degree but not finished it; was hired by a manager, not professional peers; may never publish in the field she is teaching; got into the pool of persons being considered for the job because she was willing to work for wages around the official poverty line (often under the delusion that she could ‘work her way into’ a tenurable position); and does not plan to be working at your institution three years from now.

And don’t forget about the administrators:

If current trends continue, the Department of Education estimates that by 2014 there will be more administrators than instructors at American four-year nonprofit colleges.

The damning conclusion:

If tuition has increased astronomically and the portion of money spent on instruction and student services has fallen, if the (at very least comparative) market value of a degree has dipped and most students can no longer afford to enjoy college as a period of intellectual adventure, then at least one more thing is clear: higher education, for-profit or not, has increasingly become a scam.

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