Mr Neutron
Well-Known Member
TINA KORBE, Liberty Ink Journal
For many students, the cocoon of college is comfortable, but when they emerge, theyre not always free to fly. At a time when national unemployment stands at more than 9 percent and superabundant undergraduate degrees have lost some economic cachet in the eyes of employers, the average college student graduates with more than $20,000 in student loan debt24 percent more than in 2004, according to The Project on Student Debt.
That increased debt is part of what some education experts have called the education bubblea far less cozy cocoon than the all-inclusive college campuses student loan dollars fund.
In some important respects, that bubble parallels the housing bubble, as several education experts have pointed out. From a societal standpoint, home ownership and a college education have long been heralded as hallmarks of middle-class status. From an economic standpoint, in both cases, government intervention in the credit markets created perverse incentives.
Government-subsidized loans have injected money into higher education, as they did into housing, causing prices to balloon, American Enterprise Institute fellow Michael Barone wrote in an August Townhall.com article.
And balloon they have. Since 1982, college tuition has increased by 439 percent. In the last decade, tuition and fees (before financial aid) have risen an average of 4.9 percent a year beyond general inflation, according to a Forbes article by Richard Vedder, director of the Center for College Affordability and Productivity.
There are no incentives in the system for colleges to keep the tuition fees down, no incentives whatsoever, Vedder said in an interview. The increasing demand for a higher education, which is funded by these student loans, has enabled or empowered colleges to raise tuition fees and until that spigot is closed, that is going to continue to happen.
But the spigots not likely to be turned off anytime soon: The student loan program is extremely profitable for the federal government, according to Art Keiser, president of Keiser University, one of Floridas largest independent careeror for-profituniversities.
The government makes a 23 percent return on their [loan] portfolio, he said.
The government also needs student loan repayments to pay for President Obamas healthcare bill. The healthcare reconciliation package included a provision for the takeover of the student loan industry: It ended all subsidies to private lenders and shifted all student aid lending into the federal governments Direct Loan Program and the Federal Direct Perkins Loan Program.
If it wasnt for the takeover of the private student loan market, healthcare wouldnt have been funded, Keiser said. Thirty-four billion dollars of the healthcare funding came from the student loan market and the ability of direct lending to make a profit.
But there could be a limit to the demand for government loans.
When people start getting scared about the thoughts of borrowing $50,000, $60,000, or $70,000, youre going to start seeing a reduction in the demand for higher education, Vedder said.
Some students have begun to realize the price of a college education isnt always worth the risk.
Were in the age of tree trimmers with college degrees and plumbers with college degrees, Vedder said. It is true that on average college graduates make more than non-college graduates, but its also true that not everyone is the average. Fifty percent of people fall below the average. Its also true that 45 percent of the kids who enter four-year schools dont graduate within six years, so a large percentage of the people who attempt college find it to be a bad investment.
In 2010, the average starting salary offer to graduates slipped 1.3 percent from 2009, according to the National Association of Colleges and Employersand more than two million bachelors degree holders are currently looking for work.
As people start to notice that we have more unemployed graduates, you see people much less willing to go into debt to wind up being like those graduates, said Glenn Harlan Reynolds, a University of Tennessee law professor who has written extensively on the education bubble.
Students have also begun to recognize the lifelong constraining effects of student loan debt, said Reynolds, founder of the popular Instapundit blog. Students who graduate with debt are less likely to purchase a house or a car right away, he saidand student loan debt can never be expunged.
Mortgage debt is much better for the debtor, he said. If I cant pay my house, I can walk away from my house and go bankrupt and my credit rating will take a big hit, but I can be out from under it. A student loan, which is typically given to someone who is eighteen to twenty-one, for often more than a mortgagetheyre slaves for life.
Technological advances might also dent the demand for the traditional college experience. Former Heritage Foundation education policy analyst Dan Lips has proposed that state colleges and universities be required to place instructional content and course information online for freeas some private institutions, like the Massachusetts Institute of Technology, have already done. If policymakers enacted such a proposal, the demand for traditional higher education would certainly decrease.
Such a reduced demand might pop the education bubble, but it would also save taxpayers dollars. In fact, the bubble just might need to burst.
Post-bubble, perhaps students and employersnot to mention parents and lenderswill focus instead on education that fosters economic value, writes Reynolds.
A cost-effective cocoon? Seems students could buy into that.
Tina Korbe is a reporter in the Center for Media and Public Policy at the Heritage Foundation in Washington, D.C.
For many students, the cocoon of college is comfortable, but when they emerge, theyre not always free to fly. At a time when national unemployment stands at more than 9 percent and superabundant undergraduate degrees have lost some economic cachet in the eyes of employers, the average college student graduates with more than $20,000 in student loan debt24 percent more than in 2004, according to The Project on Student Debt.
That increased debt is part of what some education experts have called the education bubblea far less cozy cocoon than the all-inclusive college campuses student loan dollars fund.
In some important respects, that bubble parallels the housing bubble, as several education experts have pointed out. From a societal standpoint, home ownership and a college education have long been heralded as hallmarks of middle-class status. From an economic standpoint, in both cases, government intervention in the credit markets created perverse incentives.
Government-subsidized loans have injected money into higher education, as they did into housing, causing prices to balloon, American Enterprise Institute fellow Michael Barone wrote in an August Townhall.com article.
And balloon they have. Since 1982, college tuition has increased by 439 percent. In the last decade, tuition and fees (before financial aid) have risen an average of 4.9 percent a year beyond general inflation, according to a Forbes article by Richard Vedder, director of the Center for College Affordability and Productivity.
There are no incentives in the system for colleges to keep the tuition fees down, no incentives whatsoever, Vedder said in an interview. The increasing demand for a higher education, which is funded by these student loans, has enabled or empowered colleges to raise tuition fees and until that spigot is closed, that is going to continue to happen.
But the spigots not likely to be turned off anytime soon: The student loan program is extremely profitable for the federal government, according to Art Keiser, president of Keiser University, one of Floridas largest independent careeror for-profituniversities.
The government makes a 23 percent return on their [loan] portfolio, he said.
The government also needs student loan repayments to pay for President Obamas healthcare bill. The healthcare reconciliation package included a provision for the takeover of the student loan industry: It ended all subsidies to private lenders and shifted all student aid lending into the federal governments Direct Loan Program and the Federal Direct Perkins Loan Program.
If it wasnt for the takeover of the private student loan market, healthcare wouldnt have been funded, Keiser said. Thirty-four billion dollars of the healthcare funding came from the student loan market and the ability of direct lending to make a profit.
But there could be a limit to the demand for government loans.
When people start getting scared about the thoughts of borrowing $50,000, $60,000, or $70,000, youre going to start seeing a reduction in the demand for higher education, Vedder said.
Some students have begun to realize the price of a college education isnt always worth the risk.
Were in the age of tree trimmers with college degrees and plumbers with college degrees, Vedder said. It is true that on average college graduates make more than non-college graduates, but its also true that not everyone is the average. Fifty percent of people fall below the average. Its also true that 45 percent of the kids who enter four-year schools dont graduate within six years, so a large percentage of the people who attempt college find it to be a bad investment.
In 2010, the average starting salary offer to graduates slipped 1.3 percent from 2009, according to the National Association of Colleges and Employersand more than two million bachelors degree holders are currently looking for work.
As people start to notice that we have more unemployed graduates, you see people much less willing to go into debt to wind up being like those graduates, said Glenn Harlan Reynolds, a University of Tennessee law professor who has written extensively on the education bubble.
Students have also begun to recognize the lifelong constraining effects of student loan debt, said Reynolds, founder of the popular Instapundit blog. Students who graduate with debt are less likely to purchase a house or a car right away, he saidand student loan debt can never be expunged.
Mortgage debt is much better for the debtor, he said. If I cant pay my house, I can walk away from my house and go bankrupt and my credit rating will take a big hit, but I can be out from under it. A student loan, which is typically given to someone who is eighteen to twenty-one, for often more than a mortgagetheyre slaves for life.
Technological advances might also dent the demand for the traditional college experience. Former Heritage Foundation education policy analyst Dan Lips has proposed that state colleges and universities be required to place instructional content and course information online for freeas some private institutions, like the Massachusetts Institute of Technology, have already done. If policymakers enacted such a proposal, the demand for traditional higher education would certainly decrease.
Such a reduced demand might pop the education bubble, but it would also save taxpayers dollars. In fact, the bubble just might need to burst.
Post-bubble, perhaps students and employersnot to mention parents and lenderswill focus instead on education that fosters economic value, writes Reynolds.
A cost-effective cocoon? Seems students could buy into that.
Tina Korbe is a reporter in the Center for Media and Public Policy at the Heritage Foundation in Washington, D.C.
