College education becomes a predator’s lounge for Wall Street and the government – Since 2000 the real cost of college is up by 23 percent yet the real earnings of college graduates is down by 11 percent.
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The cost of going to college seems to defy the rules of fundamental economics and basic gravity. Over the last decade the real earnings of college graduates has fallen yet the cost of a four year education continues to go up almost oblivious to this fact. These kinds of dislocations in markets typically signify bubbles just like we experienced in the housing market. Home prices soared without any underlying change in fundamentals except the fact that loans were made more accessible. The same can be said for a college education. The cost of attending a college has surpassed virtually every sector in our economy yet college graduate earnings have not enjoyed a similar rise. Then why is the cost soaring? Is it simply because banks know that the government will back every penny in student loan debt? Is it the multi-million dollar workout facilities? Is it the laws that shackle students into debt that isn’t removed even through court ordered bankruptcy? The college dream just like buying a home is part of the American dream narrative and many are willing to go into massive debt without questioning the value of what they are paying for (or going into debt for). The Wall Street and government predators know this.
The return on investment is falling for college graduates
The banking debt machine of our country continues to go strong in higher education. Take a sobering look at the above chart and align it with these stats:
Since 2000, in real terms college costs are now up by 23%
Since 2000, in real terms real pay for college graduates is down by 11%
So you have students paying much more for a college degree that is yielding lower pay. I get the argument that education is a valuable commodity. I’ve seen the charts showing that college graduates make more than non-graduates over time. But again, this is data based on history that reflects a more affordable college degree without comical levels of debt. Today you have paper-mill institutions charging $20,000 a year for a worthless degree. You have private schools charging over $50,000 a year in tuition and fees while the per capita income in the United States is $25,000. This is the major disconnect here. And from all the data we are seeing in regards to student loan debt we realize that many Americans have no way of financing a college education without going into back breaking debt.
There used to be the affordable public option but that is now being quickly shut off because of state budget deficits. In California for example, the University of California will be raising tuition yet again in a state that has seen no real income growth over the decade:
Source: OC Register
Since 2000 the price of a University of California education has gone up by roughly 200 percent after new fees are adjusted in fall of 2011. Keep in mind this is the affordable option here. Like mentioned before, you have the following options:
State schools: Quickly rising fees because of horrible state budget cuts
Paper-mill for-profits: In business to suck up student loans and provide sub-par education
Private schools: $50,000 in annual tuition is common
Yet as the first chart stated, college graduates are earning much less over the last decade while fees have gone up. This in fact is a bubble. The government is placing many students in debt serfdom because student loan debt is not discharged through bankruptcy. The horror stories of student loan debt are amazing. The stories over at Student Loan Justice are enough to make your skin crawl. Here are the pitfalls:
-Student loan debt is stuck with you for life
-Start missing payments and penalties are compounded onto your initial balance. You have students with $10,000 in initial debt suddenly facing $40,000 in repayments because of compounding, fees, and higher interest rates.
-Tax refunds taken
In essence if you misstep with student loans you are put into a modern day debtor’s prison. The blame is largely on the banking system and our government yet again. First, many of these schools are merely doing what the banking industry did with housing. They did not care that home prices were going up with no economic justification and were trying to milk the system all the way up. When the bubble burst, it was the taxpayers that carried the bill. Have you seen the executive pay for the for-profit institutions? Taken a look at the pay for executives at Sallie Mae? Once again Wall Street is turning education, a noble and important cornerstone of our economy, into a predators lounge to gouge every cent from the public.
You would think that with private schools reaching $50,000 in tuition per year that we may be reaching a breaking point. That is not the case. As long as people are still believing in the college dream storyline few people pay attention to the repercussions of taking $50,000, $100,000, or even $200,000 in student loan debt. Even those who track college costs for a living envision even higher costs down the road:
Source: College Board
This chart I find amazing. Many private colleges already charge $50,000 per year. So according to this chart, in 6 years many of these schools will charge $100,000 for one year of school? How can that be if incomes do not rise and show no signs of rising now? You already have many recent graduates struggling to pay for their student loans even with a job in hand. The above chart never bothers to ask the underlying question of how it will be possible to pay for college if incomes do not rise in conjunction. This has bubble written all over it and it is only a matter of time of the bubble bursting. Just like housing values have cratered, the cost of a college education will fall over time.
The first place to pop the bubble is with the for-profit schools. These paper mills are simply ways of siphoning off government backed loans to students who would be better off simply working or going to vocational programs in cheaper community colleges. No other modern industrialized nation has such a nonsense shadow system sucking up so much federal funding. We now have close to $1 trillion in student loan debt outstanding. This is unsupportable.
Wall Street and the government are simply inflating another bubble and more executives are sucking this host dry until they find another vector to implode. Welcome to the predator’s lounge. No need for a college degree to see where this thing is heading.