7 ms·

The College-Cost Calamity

61 points by synacksynack 14y ago

BadassFractal 14y ago
Fewer jobs, more education required to fill those positions, education becoming more expensive and debt unavoidable. What will make this bubble finally burst?
- iamdave 14y ago
  I can't remember if it was here, or Reddit that someone posted about a few economists speculating that if we go through a second recession it will be the result of high unemployment, even higher underemployment, and obscene amounts of the un/underemployed paying astronomical student loan debts. If anything, in my opinion it's that very speculation coming to life that will do it.
- lsc 14y ago
  >Fewer jobs, more education required to fill those positions I'm not seeing this. I mean, fewer jobs, sure, but If by education, you mean 'formal education' I mean, other than as a class marker (try getting a barista job post-college age without a degree) a huge number of employed people I know do not have a degree relivant to their career. Perhaps most. I know a fair number of people in my industry (including myself) without degrees at all. I mean, as a class marker it shouldn't be underestimated, but as for actual instruction? a degree in history... does not teach you skills that make you significantly more employable. Really, I think that article's complaint (that is, colleges are spending on classing the place up rather than on instruction) is a good one, but I think it's unavoidable. I mean, right now education is a class marker, and that is the problem. We don't have enough class-based jobs for all the people graduating with arts degrees. In many ways, I think this is good; Maybe people will be judged more on merit than on familial background. Or maybe some other proxy for class will come into vouge. Either way, the real problem isn't education, its that we haven't figured out enough jobs for people that need to be told what to do. Personally? I think the next frontier is monitizing more of traditional 'women's work' - I mean, I know a lot of couples where both people earn six figures (and both work brutal hours) - sometimes those people even have kids. Usually it's the woman who is expected to do most of the traditional women's work while still working, but whichever way you slice it, it's crazy to work a bunch of hours a week outside the house for really good pay, then come home and spend a bunch more hours doing work the unemployed person down the way would be happy to do for cheap. Why not monitize that? I mean, in my price range, though, there's not a lot of room for a middleman. Sure, people even in silicon valley are happy to work for those rates, but if you have a middleman, you essentially double those numbers. People like me? we don't care; we prefer going direct anyhow. But most people feel more comfortable with the legitimacy of a middleman. There's a business idea; a low-overhead domestic services agency. You'll either be able to lower prices to end-customers, vastly expanding your customer base, or pay your workers more, which likely will net you better service. That, and I think many people need to be told what to do not because they can't run a business but because they have been told it is hard. And some of it, especially when you don't have the cash for an accountant, really is hard. So I think there is a lot of room for low-cost franchise operations that take the accounting/legal bs out of starting a company. Heck, some kind of 'ycombinator for lifestyle businesses' would be pretty great, though the business model isn't really there. I guess the business model is that if someone comes up with a business model you franchise it out. Yeah, that's a pretty good idea, I think. Some kind of incubator for new service businesses; instead of exiting through VC, you turn the successful ones into franchises. (It's possible that 'service' isn't the right sector, and we need to come up with an entirely new means of economic production... but I'm not the man to make that jump, and I think there is still a lot of room for 'service' industry growth, especially now while labour is inexpensive.)
  - rdl 14y ago
    Outside of startups and operations, college degrees still seem to be pretty mandatory, and even more so outside the US. I suspect, for instance, a rural Idaho government agency hiring a sysadmin will expect a 2 or 4 year degree.
    - lsc 14y ago
      Rural California government agencies don't... I know that from experience. I mean, outside of the computer industry, you may very well be correct, I don't know. But for SysAdmins, at least? even in government, a degree is demonstrably not required if you have the requisite experience and knowledge. Hell, 30 years ago when my dad got a computer operator job at the university of california, such things weren't required. I mean, he ended up getting a degree, and it no doubt helped make the jump from SysAdmin to IT manager, but it wasn't required for the SysAdmin position.
    - BadassFractal 14y ago
      Outside of the US quality degrees are often orders of magnitude cheaper to obtain as well, perhaps justifying the requirement.
roarktoohey 14y ago
Indentured servitude is a pesky problem that keeps resurfacing in various forms though modern history.
- pbiggar 14y ago
  Indentured servitude (defined by the UN to be slavery) is nothing like taking on debt to go to college. Two components of indentured servitude is that they do not permit you to leave your work until you have paid the debt, and secondly that they charge you so that you can never escape your debt. A final onerous part of real indentured servitude is that debt can be passed to your children, and many generations can be born into slavery and never leave it. [Source: Disposable People] [edited to remove bankruptcy reference. Apparently it doesnt help]
  - jbarham 14y ago
    Student loan debt cannot be expunged via bankruptcy in the US.
  - deleted 14y ago
    [deleted]
  - guelo 14y ago
    I agree except for the generous bankruptcy laws part. Student loan debt is not dischargeable through bankruptcy.
  - HCIdivision17 14y ago
    While I certainly don't think college debt is quite indentured servitude (you certainly can leave work while still in debt), it's worth noting that US bankruptcy laws are specifically not generous with student loan debt. It's very rare to have it forgiven. Worse, if the loans have a cosigner, the debt can continue to harass them, and they'll typically be a family member. Of course, it's not going to follow for generations, so you're right about the situation being substantially better than indentured servitude. But the metaphor isn't too far off the mark if its context is toned down a bit.
trop 14y ago
I have a hard time imaging a world is with a huge crash in education. Does this mean fewer colleges and more students going into trades? Radically lower tuition? Fewer tenured professors, and more adjuncts and visiting professors with three-year contracts? Speaking of the latter, there is the disruption of online course offerings. These are creeping in from the bottom, replacing introductory lectures, and working their way up. Online classes allow schools to take the already squeezed adjuncts and grad students and pay them even less to help grade/moderate the online variants. Meanwhile eating away at the consensus that education is a series of seminars amongst the wise.
- carsongross 14y ago
  People also had a hard time imagining a world with a huge crash in housing.
- redwood 14y ago
  It's very easy for me to imagine a massive societal shift from traditional ivory tower education toward self-learning and online education and a skills-focused employment race. Of course there will always be ivory towers that provide elites with a way of distinguishing themselves for a very small, reserved portion of the population. Harvard et al's degrees will always set you apart... but for the bulk of the middle class there will need to be something else. The way everyone today feels they need a masters reminds me of the way everyone used to say you need a credit card to get a good credit score. It's called drinking the kool-aid.
  - TimGebhardt 14y ago
    Or you "need" to buy a house now (circa 2006) before all the good ones are bought up and you're out of the housing market boom. Man, if I could go back in time...
stevencorona 14y ago
The craziest part, IMO, is that I had to make a decision whether or not to take on $175,000 in debt (I went to RIT, it costs $44,000 per year) when I was 18 years old and had never handled more than $300. Sure! Sign me up! I couldn't even imagine what that much money would look like, let alone feel like to pay back- at that time, it was as equally mysterious as $10,000 or $1,000,000. Luckily, I left after my 2nd year and only walked away with $50k in student loans. It was one of the best decisions I've ever made.
- dfc 14y ago
  Why did two years cost $50k but four years costs $175k? (2/4 != 50/175) As far as the $300 goes I take it you never worked in high school?
  - deleted 14y ago
    [deleted]
  - yardie 14y ago
    Possibly the difference between the amount of subbed and unsubbed loans that you can take out as a freshman verses a junior. One of my friends (this was a decade ago) got a great financial aid package her freshman year at a private college. Then each year, as new levels of Stafford loans unlocked, the university replaced "freshman" scholarships with loans. Still, a $75k jump is unheard of unless you're doing some sort of hybrid undergrad/med school program.
  - icegreentea 14y ago
    He went to RIT, so he might been in a coop program. Not sure how RIT's works, but if its similar to uwaterloo's (which I've been told is so), after 2 calender years, he may have had only 3 school terms and 3 work terms. That's ~65k for school minus whatever he managed to save from his work terms.
  - stevencorona 14y ago
    No one really pays sticker price for college. I had some grants, financial aid, and (like someone else mentioned), the co-op program helped pay for some of my tuition. I did work, at Target, making minimum wage. One full-time paycheck was about 300 bucks, give or take. Since I supported myself, that money was used on car/food/gas. So, 300 bucks was the most I'd ever seen.
taligent 14y ago
I would be curious to know the costs and implications for adopting an Australian solution. Here in Australia everyone can go to college and what happens is that the tax office keeps track of the money you owe and then as you start earning money they pay the loan back through a tax increase. You also get a discount if you have the loan back quicker. It's all seamless and you can also add books/computer to the loan as well.
- guelo 14y ago
  Sounds way too sensible for the US.
- HEYGRANDMA 14y ago
  And the loans are only indexed to CPI too. So you won't end up getting crushed by interest if you can't pay it back quickly.
- jbarham 14y ago
  I think the more pressing issue for Australians will be the costs and implications of the currently deflating housing bubble... Similarly in Canada. The US student debt bubble is just another "asset" bubble that's primed to burst.
- meric 14y ago
  We probably want to mention that there is a limit to how much we can borrow. "The 2012 limits (indexed annually) are $89 706 for most courses and $112 134 for students undertaking a medicine, dentistry or veterinary science course" http://www.deewr.gov.au/HigherEducation/Programs/StudentSupport/FEEHelp/Pages/FSFEEHELPLimit.aspx http://www.deewr.gov.au/HigherEducation/Programs/StudentSupp... ..which is hardly enough for many degrees in many universities in the US, where it can cost over $40k a year. Of course, this is Australia and even if a student didn't make it to HECS-HELP where the government subsidies around two thirds of the cost of a degree, or for international students where government funding and lending isn't available, a degree can't cost more than $25k a year.
- wisty 14y ago
  Because it's effectively a price control, and price controls are bad and communist and evil.
_delirium 14y ago
One thing missing in this analysis is the contribution of more stingy state funding to the decrease in affordability of public universities. For example, the University of California is actually cheaper per-student now to operate than it was in 1990, by about 25%: if you take the total budget, divide by total students, and adjust both numbers for inflation, the result now considerably lower. And that increased overall efficiency comes even despite an increase in administrators. So if the per-student budget is lower, why are per-student fees much higher, rather than 25% lower? Well, the state portion of the funding has declined even faster: from $16,500 per student to somewhere in the $8-9k range in the upcoming budget (inflation-adjusted). So tuition has gone up to compensate. The situation differs at different universities, but in the UC system it's close to being a dollar-for-dollar replacement of declining state funding by increased tuition.
raverbashing 14y ago
Never underestimate the power of easy lending to the population. Especially if this lending will allegedly give more status/money to the person Housing bubble, Education bubble, Healthcare bubble
- scottkduncan 14y ago
  ...VC bubble. Ok, so I don't actually think it's a sector-wide bubble but I do think near-zero real interest rates and excess capital looking for a return can explain some of the excessive funding rounds and valuations that have at least temporarily prevailed in the last year.
tsotha 14y ago
What can't go on, won't. There's no reason a college needs to charge $40k to an undergraduate. What's changed in the US over the last few decades is the ratio of administrators to students. I don't remember the exact numbers, but it went from something like 1 in 9 to 1 in 3. Colleges will simply have to make due without the third assistant to the vice dean in charge of diversity and lower the tuition they charge to new students. Fewer people will get degrees, of course. Some courses of study are investment, and some courses of study are consumption. You'll see a drop in the consumption degrees, since those people could only get jobs by continuing on to get a law degree. There aren't any jobs for newly minted lawyers right now. I would like to see the law changed so colleges can't ask about your family's finances. The kind of perfect price discrimination they practice would be flatly illegal in any other industry. Imagine going to a car dealer and having him tell you "Well, the list price for a new car is $100k. But if you turn over all your financial information, you know, how much your family's house is worth and how much your parents make, we'll adjust the price of the car so you can just barely afford it."
- arethuza 14y ago
  "The kind of perfect price discrimination they practice would be flatly illegal in any other industry." Sounds awfully like "value based pricing" - which is a pretty common strategy in enterprise software sales.
  - tsotha 14y ago
    It doesn't sound anything like enterprise software to me. I work for a company that's pretty high up on the F500 list, and believe me, we don't let vendors charge us based on what we can afford.
ninguem2 14y ago
Anybody knows a good way of short selling Universities?
- antidoh 14y ago
  Ah. Maybe universities should issue stock.
- jbarham 14y ago
  You could try shorting APOL (owner of University of Phoenix), DV (DeVry) and similar stocks of private education companies, although a lot of them are already down substantially from ~2009 highs. Student loan ABS are harder to short unless you're an institutional investor or hedge fund (in which case you wouldn't be asking ;), but if things get nasty again in the financial markets people tend to pile into treasuries and USD as relative safe havens.
cafard 14y ago
Back when Mark Edmundson wrote a piece for the NY Times saying that one should attend college for the joy of it, not as a vocational school, I had a look at the University of Virginia tuition about the time he started teaching there, and at the minimum wage. At the end of the 1970s, a summer of minimum wage work would pretty much cover U.Va. tuition and fees, though not room and board. At the moment, the equivalent number of hours falls far short. A sort of institutional will has taken over the universities, one that leads them to expand at all costs. The area occupied by George Washington University in Washington, DC, has considerably increased over the years, and they have campuses in Alexandria and along Foxhall Road. AU, Catholic, and Georgetown have all expanded--the last, which is hemmed in with expensive real estate, is looking to open a campus several miles away across town. And they all seem to have Schools of Professional Studies (or some such name) where one can earn a credential by the investment of a couple of years of evenings and money that one's employer might pay for.
- TimGebhardt 14y ago
  I remember reading an article (can't find a link, it was the local paper) that highlighted that when my mom and dad when to college (1975) the average college student could pay approximately 44% of all their college costs by working part time and during the summer. That figure has dropped to 17% now, and that's why students are taking on more and more debt. The problem is that colleges know that magic statistic that on average people with a college degree earn about 1 million dollars more than those without. So they can raise costs because it still pays to go to college and they're taking a bigger share of that future 1 million dollars in income.
cpunks 14y ago
My hope is that programs like Khan, edX, and Udacity will address this.
- SideburnsOfDoom 14y ago
  The article hardly even mentions a very real risk to Ivy league Universities - that they will be challenged from below by Khan, Coursera, and Udacity and the like. Ivy-covered buildings and in-person lectures cost a lot to keep going. As the article states, Universities are typically in debt and student fees are rising. "Disruption" is an overused buzzword but it may apply in this case. Universities trade of the fact that their expensive product is important and exclusive. What happens when it isn't exclusive or expensive any more?
  - tom_b 14y ago
    The Ivies are actually selling exclusivity by attendance along with acting a filter for employers: only the absolute top students have any chance of being admitted and physically attending. The quality of education obtained at the Ivies is not part of that. An interesting question to consider is whether admissions to Ivies followed by independent, autodidact study can work around the actual attendance. "Here is my online coursework portfolio, research, and my admission acceptance letters to Yale and MIT . . . "
    - SideburnsOfDoom 14y ago
      Disruption happens from the low end up. MP3 players supplemented but didn't challenge CDs because they didn't have the same sound quality ... until they did challenge CDs, and now CD sales are in steep decline. It turns out that people valued having 10 000 tunes in their pocket more than the audio quality, and the audiophiles could use FLAC or high-bitrate MP3. There's nothing stopping the online-U's from eventually working on reproducing or circumventing the Ivies' specific advantages. Another outcome to look out for would be for cash-strapped Ivies to be hollowed out. i.e. become a cluster of buildings where students log on and do work online in exchange for an attendance certificate. That would preserve the quality of education and the social advantages of the university, while costing less. It would work, at least for a while until the next generation sees through the archaic model.
mcherm 14y ago
College tuition is too high and rising too fast -- that's nothing new. But this article wasn't (primarily) about that, this article was about how borrowing by colleges and universities is shooting up. In their defense, I want to say that I think it is an example of wise financial management with a long-term view. Most institutions struggle to consider any time horizon beyond the current year (if not just the current quarter), but often schools can take a longer view. And right now, interest rates are hitting a once-a-century record low. I contend that an institution would be WISE to borrow as much as possible on a long-term basis. In a few years that 2% loan may be LESS than they are making on their investments (if their investments were locked in years ago, it may be less right now). Do all the building possible right now, then plan to ride out a couple of decades. The article suggested that taking on this debt wasa sign of mismanagement and recklessness, but it seems to me like a sign of long-term vision. What do you think?
- rscale 14y ago
  I had the same immediate reaction. Low-cost debt is a very useful tool for long-lived institutions. I'm certain that a few institutions are using it naively or foolishly, but the existence of debt doesn't prove the existence of a problem. The graphs they chose for the article are also absolutely uninformative. As an example, the top graph indicates that long-term debt grew substantially faster than instruction costs from 2002-2008, but that's exactly what I would expect given that instruction costs were relatively static, but interest rates plummeted.
- jonnathanson 14y ago
  Generally, and within reasonable limits, I would agree. With interest rates the way they are, debt financing is remarkably cheap right now, while saving is comparatively expensive. That said, borrowing "as much as possible" can be problematic. Debt should be used to finance only what is necessary. Problems arise when institutions (or people) take on as much debt as they can, figuring they'll put it to use eventually. You shouldn't stock more food in your pantry, so to speak, than you can eat in a reasonable timeframe. The stuff you don't get around to eating will start to spoil.
- hollerith 14y ago
16s 14y ago
My advice is to go to a college that you can afford. I spent my first two years at a local community college and transferred 60 credit hours (about half of what's needed to graduate) to a large state university where I graduated Phi Beta Kappa with honors and I only had about 15K in student loan debt. I could have avoided the loans entirely if I had worked a few more part time jobs. You don't have to go to a high-priced private university for four years to have a good career (that you enjoy) and live a nice life.
- steverb 14y ago
  Also, if you weren't the best student in high school, community college will give you a chance to establish a better track record. I was an average student in HS (3.0 GPA), but I buckled down at CC and got my GPA up high enough to score an academic scholarship (full tuition) when I moved on to university through Phi Theta Kappa.
- tzs 14y ago
  That $15k in student loan debt is higher than the average loan debt at graduation at many high-priced private universities. Harvard, Yale, Princeton, Caltech all average $10k or under, and MIT and Stanford average under $15k. The averages are the averages of those who borrowed, which for most of those schools is about 50% of the students (about 25% at Princeton), so half the students at these high-priced private schools are graduating without any debt. These are 2010 numbers. The numbers are probably lower now at some of them. Stanford, for instance, waives tuition completely for students whose families make under $100k. By all means consider affordability when choosing a school--but don't assume that you can't easily afford a high-priced private university just because the sticker price is in the stratosphere.
Quizzy 14y ago
The most relevant question is "whether the college experience (including life experiences and consequent employment value) is worth the attached price tag?" It's one thing when you are paying $5,000 per semester, but at $40,000 per year for 4 years? Unless those 4 years leads to an positive cash flow of $10,000 per year thereafter to repay this debt, I just don't see the rationality of paying so much for non-incoming producing B.S./B.A. degrees (biology, psychology, sociology, languages, etc.).

61 points by synacksynack 14y ago

Fewer jobs, more education required to fill those positions, education becoming more expensive and debt unavoidable. What will make this bubble finally burst?

iamdave 14y ago
I can't remember if it was here, or Reddit that someone posted about a few economists speculating that if we go through a second recession it will be the result of high unemployment, even higher underemployment, and obscene amounts of the un/underemployed paying astronomical student loan debts. If anything, in my opinion it's that very speculation coming to life that will do it.
lsc 14y ago
>Fewer jobs, more education required to fill those positions I'm not seeing this. I mean, fewer jobs, sure, but If by education, you mean 'formal education' I mean, other than as a class marker (try getting a barista job post-college age without a degree) a huge number of employed people I know do not have a degree relivant to their career. Perhaps most. I know a fair number of people in my industry (including myself) without degrees at all. I mean, as a class marker it shouldn't be underestimated, but as for actual instruction? a degree in history... does not teach you skills that make you significantly more employable. Really, I think that article's complaint (that is, colleges are spending on classing the place up rather than on instruction) is a good one, but I think it's unavoidable. I mean, right now education is a class marker, and that is the problem. We don't have enough class-based jobs for all the people graduating with arts degrees. In many ways, I think this is good; Maybe people will be judged more on merit than on familial background. Or maybe some other proxy for class will come into vouge. Either way, the real problem isn't education, its that we haven't figured out enough jobs for people that need to be told what to do. Personally? I think the next frontier is monitizing more of traditional 'women's work' - I mean, I know a lot of couples where both people earn six figures (and both work brutal hours) - sometimes those people even have kids. Usually it's the woman who is expected to do most of the traditional women's work while still working, but whichever way you slice it, it's crazy to work a bunch of hours a week outside the house for really good pay, then come home and spend a bunch more hours doing work the unemployed person down the way would be happy to do for cheap. Why not monitize that? I mean, in my price range, though, there's not a lot of room for a middleman. Sure, people even in silicon valley are happy to work for those rates, but if you have a middleman, you essentially double those numbers. People like me? we don't care; we prefer going direct anyhow. But most people feel more comfortable with the legitimacy of a middleman. There's a business idea; a low-overhead domestic services agency. You'll either be able to lower prices to end-customers, vastly expanding your customer base, or pay your workers more, which likely will net you better service. That, and I think many people need to be told what to do not because they can't run a business but because they have been told it is hard. And some of it, especially when you don't have the cash for an accountant, really is hard. So I think there is a lot of room for low-cost franchise operations that take the accounting/legal bs out of starting a company. Heck, some kind of 'ycombinator for lifestyle businesses' would be pretty great, though the business model isn't really there. I guess the business model is that if someone comes up with a business model you franchise it out. Yeah, that's a pretty good idea, I think. Some kind of incubator for new service businesses; instead of exiting through VC, you turn the successful ones into franchises. (It's possible that 'service' isn't the right sector, and we need to come up with an entirely new means of economic production... but I'm not the man to make that jump, and I think there is still a lot of room for 'service' industry growth, especially now while labour is inexpensive.)
- rdl 14y ago
  Outside of startups and operations, college degrees still seem to be pretty mandatory, and even more so outside the US. I suspect, for instance, a rural Idaho government agency hiring a sysadmin will expect a 2 or 4 year degree.
  - lsc 14y ago
    Rural California government agencies don't... I know that from experience. I mean, outside of the computer industry, you may very well be correct, I don't know. But for SysAdmins, at least? even in government, a degree is demonstrably not required if you have the requisite experience and knowledge. Hell, 30 years ago when my dad got a computer operator job at the university of california, such things weren't required. I mean, he ended up getting a degree, and it no doubt helped make the jump from SysAdmin to IT manager, but it wasn't required for the SysAdmin position.
  - BadassFractal 14y ago
    Outside of the US quality degrees are often orders of magnitude cheaper to obtain as well, perhaps justifying the requirement.

roarktoohey 14y ago

Indentured servitude is a pesky problem that keeps resurfacing in various forms though modern history.

pbiggar 14y ago
Indentured servitude (defined by the UN to be slavery) is nothing like taking on debt to go to college. Two components of indentured servitude is that they do not permit you to leave your work until you have paid the debt, and secondly that they charge you so that you can never escape your debt. A final onerous part of real indentured servitude is that debt can be passed to your children, and many generations can be born into slavery and never leave it. [Source: Disposable People] [edited to remove bankruptcy reference. Apparently it doesnt help]
- jbarham 14y ago
  Student loan debt cannot be expunged via bankruptcy in the US.
- deleted 14y ago
  [deleted]
- guelo 14y ago
  I agree except for the generous bankruptcy laws part. Student loan debt is not dischargeable through bankruptcy.
- HCIdivision17 14y ago
  While I certainly don't think college debt is quite indentured servitude (you certainly can leave work while still in debt), it's worth noting that US bankruptcy laws are specifically not generous with student loan debt. It's very rare to have it forgiven. Worse, if the loans have a cosigner, the debt can continue to harass them, and they'll typically be a family member. Of course, it's not going to follow for generations, so you're right about the situation being substantially better than indentured servitude. But the metaphor isn't too far off the mark if its context is toned down a bit.

trop 14y ago

I have a hard time imaging a world is with a huge crash in education. Does this mean fewer colleges and more students going into trades? Radically lower tuition? Fewer tenured professors, and more adjuncts and visiting professors with three-year contracts? Speaking of the latter, there is the disruption of online course offerings. These are creeping in from the bottom, replacing introductory lectures, and working their way up. Online classes allow schools to take the already squeezed adjuncts and grad students and pay them even less to help grade/moderate the online variants. Meanwhile eating away at the consensus that education is a series of seminars amongst the wise.

carsongross 14y ago
People also had a hard time imagining a world with a huge crash in housing.
redwood 14y ago
It's very easy for me to imagine a massive societal shift from traditional ivory tower education toward self-learning and online education and a skills-focused employment race. Of course there will always be ivory towers that provide elites with a way of distinguishing themselves for a very small, reserved portion of the population. Harvard et al's degrees will always set you apart... but for the bulk of the middle class there will need to be something else. The way everyone today feels they need a masters reminds me of the way everyone used to say you need a credit card to get a good credit score. It's called drinking the kool-aid.
- TimGebhardt 14y ago
  Or you "need" to buy a house now (circa 2006) before all the good ones are bought up and you're out of the housing market boom. Man, if I could go back in time...

stevencorona 14y ago

The craziest part, IMO, is that I had to make a decision whether or not to take on $175,000 in debt (I went to RIT, it costs $44,000 per year) when I was 18 years old and had never handled more than $300. Sure! Sign me up! I couldn't even imagine what that much money would look like, let alone feel like to pay back- at that time, it was as equally mysterious as $10,000 or $1,000,000. Luckily, I left after my 2nd year and only walked away with $50k in student loans. It was one of the best decisions I've ever made.

dfc 14y ago
Why did two years cost $50k but four years costs $175k? (2/4 != 50/175) As far as the $300 goes I take it you never worked in high school?
- deleted 14y ago
  [deleted]
- yardie 14y ago
  Possibly the difference between the amount of subbed and unsubbed loans that you can take out as a freshman verses a junior. One of my friends (this was a decade ago) got a great financial aid package her freshman year at a private college. Then each year, as new levels of Stafford loans unlocked, the university replaced "freshman" scholarships with loans. Still, a $75k jump is unheard of unless you're doing some sort of hybrid undergrad/med school program.
- icegreentea 14y ago
  He went to RIT, so he might been in a coop program. Not sure how RIT's works, but if its similar to uwaterloo's (which I've been told is so), after 2 calender years, he may have had only 3 school terms and 3 work terms. That's ~65k for school minus whatever he managed to save from his work terms.
- stevencorona 14y ago
  No one really pays sticker price for college. I had some grants, financial aid, and (like someone else mentioned), the co-op program helped pay for some of my tuition. I did work, at Target, making minimum wage. One full-time paycheck was about 300 bucks, give or take. Since I supported myself, that money was used on car/food/gas. So, 300 bucks was the most I'd ever seen.

taligent 14y ago

I would be curious to know the costs and implications for adopting an Australian solution. Here in Australia everyone can go to college and what happens is that the tax office keeps track of the money you owe and then as you start earning money they pay the loan back through a tax increase. You also get a discount if you have the loan back quicker. It's all seamless and you can also add books/computer to the loan as well.

guelo 14y ago
Sounds way too sensible for the US.
HEYGRANDMA 14y ago
And the loans are only indexed to CPI too. So you won't end up getting crushed by interest if you can't pay it back quickly.
jbarham 14y ago
I think the more pressing issue for Australians will be the costs and implications of the currently deflating housing bubble... Similarly in Canada. The US student debt bubble is just another "asset" bubble that's primed to burst.
meric 14y ago
We probably want to mention that there is a limit to how much we can borrow. "The 2012 limits (indexed annually) are $89 706 for most courses and $112 134 for students undertaking a medicine, dentistry or veterinary science course" http://www.deewr.gov.au/HigherEducation/Programs/StudentSupport/FEEHelp/Pages/FSFEEHELPLimit.aspx http://www.deewr.gov.au/HigherEducation/Programs/StudentSupp... ..which is hardly enough for many degrees in many universities in the US, where it can cost over $40k a year. Of course, this is Australia and even if a student didn't make it to HECS-HELP where the government subsidies around two thirds of the cost of a degree, or for international students where government funding and lending isn't available, a degree can't cost more than $25k a year.
wisty 14y ago
Because it's effectively a price control, and price controls are bad and communist and evil.

_delirium 14y ago

One thing missing in this analysis is the contribution of more stingy state funding to the decrease in affordability of public universities. For example, the University of California is actually cheaper per-student now to operate than it was in 1990, by about 25%: if you take the total budget, divide by total students, and adjust both numbers for inflation, the result now considerably lower. And that increased overall efficiency comes even despite an increase in administrators. So if the per-student budget is lower, why are per-student fees much higher, rather than 25% lower? Well, the state portion of the funding has declined even faster: from $16,500 per student to somewhere in the $8-9k range in the upcoming budget (inflation-adjusted). So tuition has gone up to compensate. The situation differs at different universities, but in the UC system it's close to being a dollar-for-dollar replacement of declining state funding by increased tuition.

raverbashing 14y ago

Never underestimate the power of easy lending to the population. Especially if this lending will allegedly give more status/money to the person Housing bubble, Education bubble, Healthcare bubble

scottkduncan 14y ago
...VC bubble. Ok, so I don't actually think it's a sector-wide bubble but I do think near-zero real interest rates and excess capital looking for a return can explain some of the excessive funding rounds and valuations that have at least temporarily prevailed in the last year.

tsotha 14y ago

What can't go on, won't. There's no reason a college needs to charge $40k to an undergraduate. What's changed in the US over the last few decades is the ratio of administrators to students. I don't remember the exact numbers, but it went from something like 1 in 9 to 1 in 3. Colleges will simply have to make due without the third assistant to the vice dean in charge of diversity and lower the tuition they charge to new students. Fewer people will get degrees, of course. Some courses of study are investment, and some courses of study are consumption. You'll see a drop in the consumption degrees, since those people could only get jobs by continuing on to get a law degree. There aren't any jobs for newly minted lawyers right now. I would like to see the law changed so colleges can't ask about your family's finances. The kind of perfect price discrimination they practice would be flatly illegal in any other industry. Imagine going to a car dealer and having him tell you "Well, the list price for a new car is $100k. But if you turn over all your financial information, you know, how much your family's house is worth and how much your parents make, we'll adjust the price of the car so you can just barely afford it."

arethuza 14y ago
"The kind of perfect price discrimination they practice would be flatly illegal in any other industry." Sounds awfully like "value based pricing" - which is a pretty common strategy in enterprise software sales.
- tsotha 14y ago
  It doesn't sound anything like enterprise software to me. I work for a company that's pretty high up on the F500 list, and believe me, we don't let vendors charge us based on what we can afford.

ninguem2 14y ago

Anybody knows a good way of short selling Universities?

antidoh 14y ago
Ah. Maybe universities should issue stock.
jbarham 14y ago
You could try shorting APOL (owner of University of Phoenix), DV (DeVry) and similar stocks of private education companies, although a lot of them are already down substantially from ~2009 highs. Student loan ABS are harder to short unless you're an institutional investor or hedge fund (in which case you wouldn't be asking ;), but if things get nasty again in the financial markets people tend to pile into treasuries and USD as relative safe havens.

cafard 14y ago

Back when Mark Edmundson wrote a piece for the NY Times saying that one should attend college for the joy of it, not as a vocational school, I had a look at the University of Virginia tuition about the time he started teaching there, and at the minimum wage. At the end of the 1970s, a summer of minimum wage work would pretty much cover U.Va. tuition and fees, though not room and board. At the moment, the equivalent number of hours falls far short. A sort of institutional will has taken over the universities, one that leads them to expand at all costs. The area occupied by George Washington University in Washington, DC, has considerably increased over the years, and they have campuses in Alexandria and along Foxhall Road. AU, Catholic, and Georgetown have all expanded--the last, which is hemmed in with expensive real estate, is looking to open a campus several miles away across town. And they all seem to have Schools of Professional Studies (or some such name) where one can earn a credential by the investment of a couple of years of evenings and money that one's employer might pay for.

TimGebhardt 14y ago
I remember reading an article (can't find a link, it was the local paper) that highlighted that when my mom and dad when to college (1975) the average college student could pay approximately 44% of all their college costs by working part time and during the summer. That figure has dropped to 17% now, and that's why students are taking on more and more debt. The problem is that colleges know that magic statistic that on average people with a college degree earn about 1 million dollars more than those without. So they can raise costs because it still pays to go to college and they're taking a bigger share of that future 1 million dollars in income.

cpunks 14y ago

My hope is that programs like Khan, edX, and Udacity will address this.

SideburnsOfDoom 14y ago
The article hardly even mentions a very real risk to Ivy league Universities - that they will be challenged from below by Khan, Coursera, and Udacity and the like. Ivy-covered buildings and in-person lectures cost a lot to keep going. As the article states, Universities are typically in debt and student fees are rising. "Disruption" is an overused buzzword but it may apply in this case. Universities trade of the fact that their expensive product is important and exclusive. What happens when it isn't exclusive or expensive any more?
- tom_b 14y ago
  The Ivies are actually selling exclusivity by attendance along with acting a filter for employers: only the absolute top students have any chance of being admitted and physically attending. The quality of education obtained at the Ivies is not part of that. An interesting question to consider is whether admissions to Ivies followed by independent, autodidact study can work around the actual attendance. "Here is my online coursework portfolio, research, and my admission acceptance letters to Yale and MIT . . . "
  - SideburnsOfDoom 14y ago
    Disruption happens from the low end up. MP3 players supplemented but didn't challenge CDs because they didn't have the same sound quality ... until they did challenge CDs, and now CD sales are in steep decline. It turns out that people valued having 10 000 tunes in their pocket more than the audio quality, and the audiophiles could use FLAC or high-bitrate MP3. There's nothing stopping the online-U's from eventually working on reproducing or circumventing the Ivies' specific advantages. Another outcome to look out for would be for cash-strapped Ivies to be hollowed out. i.e. become a cluster of buildings where students log on and do work online in exchange for an attendance certificate. That would preserve the quality of education and the social advantages of the university, while costing less. It would work, at least for a while until the next generation sees through the archaic model.

mcherm 14y ago

College tuition is too high and rising too fast -- that's nothing new. But this article wasn't (primarily) about that, this article was about how borrowing by colleges and universities is shooting up. In their defense, I want to say that I think it is an example of wise financial management with a long-term view. Most institutions struggle to consider any time horizon beyond the current year (if not just the current quarter), but often schools can take a longer view. And right now, interest rates are hitting a once-a-century record low. I contend that an institution would be WISE to borrow as much as possible on a long-term basis. In a few years that 2% loan may be LESS than they are making on their investments (if their investments were locked in years ago, it may be less right now). Do all the building possible right now, then plan to ride out a couple of decades. The article suggested that taking on this debt wasa sign of mismanagement and recklessness, but it seems to me like a sign of long-term vision. What do you think?

rscale 14y ago
I had the same immediate reaction. Low-cost debt is a very useful tool for long-lived institutions. I'm certain that a few institutions are using it naively or foolishly, but the existence of debt doesn't prove the existence of a problem. The graphs they chose for the article are also absolutely uninformative. As an example, the top graph indicates that long-term debt grew substantially faster than instruction costs from 2002-2008, but that's exactly what I would expect given that instruction costs were relatively static, but interest rates plummeted.
jonnathanson 14y ago
Generally, and within reasonable limits, I would agree. With interest rates the way they are, debt financing is remarkably cheap right now, while saving is comparatively expensive. That said, borrowing "as much as possible" can be problematic. Debt should be used to finance only what is necessary. Problems arise when institutions (or people) take on as much debt as they can, figuring they'll put it to use eventually. You shouldn't stock more food in your pantry, so to speak, than you can eat in a reasonable timeframe. The stuff you don't get around to eating will start to spoil.
hollerith 14y ago

16s 14y ago

My advice is to go to a college that you can afford. I spent my first two years at a local community college and transferred 60 credit hours (about half of what's needed to graduate) to a large state university where I graduated Phi Beta Kappa with honors and I only had about 15K in student loan debt. I could have avoided the loans entirely if I had worked a few more part time jobs. You don't have to go to a high-priced private university for four years to have a good career (that you enjoy) and live a nice life.

steverb 14y ago
Also, if you weren't the best student in high school, community college will give you a chance to establish a better track record. I was an average student in HS (3.0 GPA), but I buckled down at CC and got my GPA up high enough to score an academic scholarship (full tuition) when I moved on to university through Phi Theta Kappa.
tzs 14y ago
That $15k in student loan debt is higher than the average loan debt at graduation at many high-priced private universities. Harvard, Yale, Princeton, Caltech all average $10k or under, and MIT and Stanford average under $15k. The averages are the averages of those who borrowed, which for most of those schools is about 50% of the students (about 25% at Princeton), so half the students at these high-priced private schools are graduating without any debt. These are 2010 numbers. The numbers are probably lower now at some of them. Stanford, for instance, waives tuition completely for students whose families make under $100k. By all means consider affordability when choosing a school--but don't assume that you can't easily afford a high-priced private university just because the sticker price is in the stratosphere.

Quizzy 14y ago

The most relevant question is "whether the college experience (including life experiences and consequent employment value) is worth the attached price tag?" It's one thing when you are paying $5,000 per semester, but at $40,000 per year for 4 years? Unless those 4 years leads to an positive cash flow of $10,000 per year thereafter to repay this debt, I just don't see the rationality of paying so much for non-incoming producing B.S./B.A. degrees (biology, psychology, sociology, languages, etc.).