Perry Glasser

THE CRUSH – PART 2 of 3: WHY DOES EDUCATION COST SO DAMN MUCH?

In Business, Economics, Economy, EDUCATION, Finance, Millenials, Political Economy on June 8, 2018 at 10:58 pm

The Whiners can’t win for losing. In the education stakes they are damned if they take on education debt, damned if they do not, and have no third option, at least not as long as anyone wants a comfortable middle-class life. You know, a car, a family, maybe a house, a pet, food in the panty, and a place to put books that isn’t bricks and boards purloined from a construction site.

Why does it cost an arm, leg, foot, your mother’s wig and a promise of your first-born? A Baby Boomer could sell ice cream on the beach all July and August, take another two weeks to goof off, and pretty much have education fully covered. No such luck for the Whiners.

WTF is going on?

The cost of an education soars because unrestrained lending and unrestrained spending is the cocaine of finance.

UNRESTRAINED LENDING

Not long ago, the world learned there ain’t so such thing as a free lunch. Global markets became grossly inflated because of easy credit. No lender had any incentive to say, “No.” After all, if the price of everything will go sky high in the very near future, even your Uncle Pete’s lamebrain kid if he borrows money can pretty much do nothing but clean his toes, wait for profits, sell, and pay off everyone.

But if markets head south, the Uncle Pete’s lamebrain kid shrugs and walks away from a soured investment. When a million knuckleheads all walk away at once, and the financial community is left holding worthless paper.

That was the story of The Great Recession, the worldwide economic slowdown that had national economies shrinking anywhere from 6 months to 6 years after 2006.

It’s not as though a few speculators took it on the chin. When nations’ economies shrink, angry crowds that see their futures and the futures of their children evaporate, carrying pitchforks, torches, and ropes fill the streets.  They want blood.

The similarities between the Great Recession and The Crush are scary.

THE GREAT RECESSION THE  CRUSH
EASY CREDIT BORROWERS Sub-prime mortgages Any 18-year old who can sign his name—or get a parent to sign in his stead.
MARKET CONSEQUENCE The price of housing soars since no one is paying their own money. Why not? Let’s buy 3 properties and in a year sell them to reap huge profits. At 3% down, our returns will be stratospheric! 3? Piker–let’s go for 10! The price of education soars, since no one is paying their own money. Why not? Let’s take three degrees, take our time in school, and figure out what to do after a year or two abroad. We can’t lose! We have a diploma and a bunch of letters after our name! Mom will be proud!
UNDERLYING ASSUMPTION Housing prices will always rise. A return is sure. What can go wrong? College grads will always earn more, a guaranteed return. What can go wrong?
THE CREDIT ENGINE In the US, Federal National Mortgage (FNMA) and Federal Home Loan Mortgage Company (Freddie Mac) guarantee loans made by banks and other agencies.  The Fed is our safety net! How can we lose when the US taxpayer is on the hook to cover all bets in the event of defaults? In the US, Sallie Mae guarantees Federal student loans made by banks and other agencies. How can lenders lose when the US taxpayer is on the hook for defaults if some slacker Whiner refuses a decent job?  Never mind defaults:  the only way to discharge a student loan is for the borrower to drop dead!
THE TOP In 2008 just as the subprime crisis was coming to a head, Americans had $12.68 trillion in debt outstanding, of which housing debt made up $10 trillion.
With collateral like a standing house whose value rises every six months, we’ll make out like bandits!
In 2014, there was approximately $1.3 trillion of outstanding student loan debt in the U.S. that affected 44 million borrowers who had an average outstanding loan balance of $37,172.

With collateral as sound as a college degree, there’s just no way the kid can’t pay it back—and if he doesn’t, we’ve got Mom and Dad on the hook, too!

THE BUST The rise in housing prices proves unsustainable as supply outstrips demand. Financial organizations “too big to fail” do just that. It’s hard to stay solvent when there is not money coming through the front door. Individual savings and investments evaporate like piss on a hot rock. Municipalities holding “guaranteed” mortgage paper can’t pay retirees; whole countries flirt with bankruptcy. Political unrest endangers the developed world Just wait, Bunky.

The Crush is coming.

UNRESTRAINED SPENDING

Unrestrained spending for colleges and universities siphons money from the paying customers–students–into rat-holes that have little to do with their own educations. What incentive does any school have to contain expenditures?  The kids have to pay, and with  a generation coerced into attending, and lending institution falling over each other in haste to lend to kids who can’t resolve debt except by paying or dying, why would a school say to a student, “Nothing doing”?

Living and working on a campus is a nice life. There are shows, sporting events, a lot of trees; pleasant company, all in a landscape that is a joy to the eyes. Bird songs. Fountains. Statues.

Of course it’s not the school’s money that pays for that lovely life. It’s the students. Schools just spend their students’ money. If there is some project near and dear to an administrator’s cold dark heart (assuming administrators have hearts at all) if there isn’t enough in the cash box just raise tuition and fees.

Administrative passions vary, but all have a few things in common:

  1. Administrative bloat has outstripped the pace of student growth. Every dean needs a secretary and an assistant dean who also needs a secretary. Worse, student growth is now reversing itself, but don’t expect college layoffs any time soon.
  2. Administrative services to students allegedly about insuring a safe and healthy environment create the “snowflake” mentality and in fact infantilizes young men and women. Here’s an idea: instead of crumbling with anxiety and accessing expensive college support services, drop out of school and come back when you are ready. Yes, it is possible to live in a world where people disagree. Keep your cash, have another latte, ponder your future.
  3. Whole curricula that have little or nothing to do with traditional scholastic concerns in the Liberal Arts and Humanities or real-world studies such as Math and Science are now lavishly funded. Professors are passionate about educating students about the smallest social segments anyone can identify. Instead of seeking our commonalities, find our differences. A professor’s fantasies of revolutionizing society must be indulged. Identity politics can and perhaps should be stressed on campuses as an engine of social change, but never forget that students pay cash money for a political indoctrination that is available for free 5 yards beyond the ivy-covered walls.
  4. Colleges and universities compete for students by offering amenities usually reserved for cruise ships or mental hospitals: health clubs, guidance counselor, swimming pools, lounges, architecture that wins awards, teams that win championships. The world’s greatest teachers, Siddhārtha Gautama, the Buddha, taught under a banyan tree; Jesus of Nazareth did his best work lecturing in the open air on a hill. They managed to change the world by talking about common humanity, not by demanding their student spay heed to their difference.
Almamater

Please pay at the door.

  1. Colleges and universities have no financial skin in the game. How this point eludes legislators mystifies Dollar$. Thanks for borrowing cash, kid, thanks for giving it to us, don’t let the door slam you in the ass on your way out where you will soon discover that your profound knowledge of a contemporary gay Asian poet has less market value than the dude’s poetry.
  2. Legislatures have cut aid to state education, off-loading what was once understood to be a public good to what now constitutes a use tax. Never mind that all of us benefit from youth ready, willing, and able to make the innovations in products and processes that will benefit us all, let’s charge only the kids.

But is there a costs to us all?

You betcha.

We are every one of us at risk. The Crush will come for us all.

READ:
Part 1 – THE CRUSH – THE COMING STUDENT DEBT CRISIS
Part 3 – THE CRUSH – THE CRUSH IS ON US

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