Student Loans May Be Driving the Tuition Explosion

http://www.bloomberg.com/news/articles/2015-07-09/why-is-college-tuition-rising-blame-student-loans-fed-says

by adventured • 11 years ago

74 44 11 years ago

ams6110• 11 years ago

The surging cost of U.S. college tuition has an unlikely culprit: the generosity of the government’s student-aid program

Unlikely?? Are you kidding me? Did we learn nothing from the 2008 housing bubble?

shillno1138• 11 years ago

Many people have been stating the root cause of this bubble for over a decade. Discussion and debate in the US is dead, as the left will not engage in anything that could alter their voter base, and the incentives provided to them.

ubernostrum• 11 years ago

Many people have been saying for a long time, on "the left", that the fact the government guarantees repayment of loans even if the borrower declares bankruptcy is a classic case of actual moral hazard (wherein improper guarantees to make a lender whole no matter what lead to irresponsible lending, since there are no negative consequences for the lender). Which in turn gets us to where we are now: since the lenders know they can lend essentially any amount and get guaranteed repayment, there's no pressure from lack of lending to keep tuition down.

adventured• 11 years ago

The only people that still consider this unlikely, or otherwise try to hide from the obvious government inflation cause, are those with a vested stake in the status quo. That includes an awful lot of people, from university employees, to general educators, to most people on the left politically, to the US Government that prints $50 billion a year in profit from the debt scheme, to anyone connected to the college book industry, to anyone working in student loans in the private sector - millions of people have their livelihoods directly tied to perpetual government education cost inflation.

_red• 11 years ago

Corrupt regimes always get the intelligentsia on its side either via threat or in this case bribery.

eastWestMath• 11 years ago

I mean, we have similar programs in Canada and it isn't a problem...

joshbuddy• 11 years ago

Canadian universities are all public though.

anti-shill• 11 years ago

"Did we learn nothing from the 2008 housing bubble?"

there is an old saying--it is hard to get a man to understand something when not understanding is vital to his livelihood.

In other words, many of the rich and powerful people and institutions that own, control and influence the media, and on whose support the corporate media requires, make their living off the higher education scam.

This "economy" depends on americans going into debt.

The corporate media is not going to be too hard on or notice too much about this scam.

LyndsySimon• 11 years ago

You don't say. This seems readily apparent to me.

vehementi• 11 years ago

I thought I misread the title or something and that this might be some novel thing. Isn't this basically established fact & common knowledge?

cmdrfred• 11 years ago

I call this 'the treadmill'. I don't know if its intentional or just a by product of greed but pretty much all 'gatekeeper' industries have financing the raises the end price of a product (Don't have car, can't get to work. Don't have an education, can't get a job. Don't have a house, live on the street). If this sort of loan was much more difficult to obtain imagine the change in the end cost of these items.

charlieflowers• 11 years ago

In other news, gravity might be causing those apples to fall down.

smil• 11 years ago

It is the same mechanism as the mortgages that created the housing bubble -- an almost limited amount of credit with a 0% risk (in theory, not practice as we will soon see).

michaelochurch• 11 years ago

I think that what's driving "the tuition explosion" is the declining demand for labor due to technological unemployment as it meets the social demand that people participate in paid work. It's not going to go away. Basic income would improve the situation, but we're still a generation away from attitudes changing.

The fact is that it's socially unacceptable to be unemployed for more than a few months, and so people who can't find jobs are then told to go back to school. This would be basically OK (with me, at any rate; but I have a stronger-than-average work ethic) except for the fact that, for some of them, it's on their fucking dime that they don't fucking have.

The price of social acceptability and the difference between having a chance at a career versus being written off as a loser forever is going to be very high, and will increase without bounds if the availability of credit increases in tandem.

A major part of the problem is that universities are no longer non-profit in any meaningful way. They have top administrators making high-six and seven-figure incomes, they evaluate professors based on their fundraising ability rather than their teaching or their contribution to the community, and the cling to the prestige of their non-profit status in order to keep for-profit education a ghetto because if it weren't that way, the likeness of movements on stage would embarrass them.

I don't know how to solve this. The demand for labor is so low in this world (or, perhaps, the supply is too high because society mandates that people work to have an income, being averse even in most liberal countries-- and not for bad reasons-- to redistribution) that people are now expected to do years of preparatory labor at negative pay.

w1ntermute• 11 years ago

The fact is that it's socially unacceptable to be unemployed for more than a few months, and so people who can't find jobs are then told to go back to school.

But is the majority of the growth in college-goers due to non-traditional students (those not starting a BS program right after high school)? My impression is that it's mostly due to an increasing number of high school graduates going to college. I would guess they're much more likely to get government loans as well.

douche• 11 years ago

Somehow, we've gotten to the point that it is expected that everyone with a pulse is supposed to get a four year degree, regardless of ability to complete the studies necessary, or whether there is any demand for the skills taught by that degree. If you've taken on tens of thousands of dollars of debt, to spend five or six years to struggle through a degree you couldn't really hack, only to find that the skills taught by your degree are relevant to approximately 0 jobs that are available, you've either got to find something lucrative quick, and work like a mule, or settle into the shit service economy and resign yourself to spinning your wheels for the rest of your life.

The ugly fact that can't be mentioned is that college isn't for everybody. The uglier fact is that there isn't a ton of work left out there that can support a $40k lower-middle class income for those that don't have the capabilities to get through a rigorous college degree. They also tend to be hard, dangerous, dirty jobs that you can't realistically expect to keep doing once you lose your strength, youth, and health working them for 15-20 years. Also a problem, is that those who took that route sometimes didn't make it to 40, often not 50, and those that managed to hit 60 or 62 and could retire on Social Security almost invariably croaked shortly thereafter.

So, if there's a limitless fount of money to go to college, and there little realistic chance of a comfortable life without a college degree, and everything that you are programmed to believe through your primary education tells you that you need to go to college, then everybody is going to make an attempt at going to college. And then 40% wash out the first semester, another 20% after the first year, another 20% bounce around majors, take on extra debt, but eventually finish, 10% make poor choices and choose degrees with marginal prospects, and maybe 10% make it through the wringer with an acceptable GPA, and employable major, in four years or less.

Also, with unlimited money available to marginal students, the market expands to provide supply for that demand, and schools of marginal quality cater to the marginal students, offering watered-down programs. However, it doesn't seem like the watered-down quality ever equates to much of a watered-down price; there are many mediocre private colleges that are 75% of the tuition cost of a top-tier school, not to mention out-of-state tuition rates at public universities. So the general signal of having a college degree becomes starkly gradiated by where that degree comes from.

Maybe if you had to qualify for student loans similar to the way you need to qualify for a mortgage, it'd be a better system, as far as not saddling people with worthless degrees and mountains of debt. Aptitude tests a la credit reports. Having to justify the future earnings the degree would confer versus price similar to not being able to take on a mortgage to buy a property at vastly more than it is assessed.

Maybe if companies need college-educated workers in certain fields, they could sign contracts to fund that education, in exchange for binding employment for X years. Yeah, that is indentured servitude...

rhizome2• 11 years ago

Isn't it only companies who find unemployment unacceptable? From my personal experience, people I know who have been unemployed for extended periods do not get ostracized, so "socially" unacceptable might be too general.

S4M• 11 years ago

That depends. I quit my job about a year ago to work on my own thing, and sometimes people think I am a weirdo. I am based in Spain, so a bit different from what you might have in the US in communities of young programmers.

csense2• 11 years ago

Consider a profitable business. Its workers need X dollars to survive, and the company can sell goods for Y, where Y > X. If there are a lot of workers and they all negotiate individually with the company, standard competitive market theory says that they will end up charging about X for their services, as any worker will eventually be displaced by someone who is willing to accept a tiny bit less pay.

If the workers form a cartel, their rational policy is to charge about Y -- they cannot charge more than that without driving the company out of business.

Labor unions are basically such a cartel. When they were ascendant in the mid-20th-century, the American middle class was vibrant, there were lots of low-skill jobs which provided good income.

With globalization, the business can now simply move its operations to a country where workers are poorer, regulations on environmental and workplace conditions are laxer, and organization is illegal. This has two effects: X gets smaller, and wages become close to X.

Globalization has some good effects -- increasing the world's total wealth by letting countries specialize in what they're good at, and reducing the probability of conflict by making countries more interdependent.

But the part few people in our corporate-owned governments want to talk about is that the price of these good things is, in effect, redistributing much of the wealth generated by companies from workers to owners.

csense2• 11 years ago

I do think that eventually automation will become the bigger threat. The end-game will be a point where robots and completely automated systems create all the food, clothing and shelter needed for all of humanity, and nobody needs to work in order to maintain the infrastructure to provide for everyone's physical survival and a basic modern lifestyle.

In order to get to the end-game where nobody works, we will have to pass through a point where, say, 50% of the people have to work -- and it seems like determining which half works, and what sort of accounting is used to justify the non-working half's resource consumption, is a recipe for revolution. Because it's a point that's so far away from what our institutions and culture have been set up to deal with.

thadd• 11 years ago

Government guaranteed loans driving a bubble?!

Good God, this man may be on to something.

cletus• 11 years ago

I wonder if the root cause here isn't the almost unlimited availability of government student loans but how we're raising children.

Particularly in the developed world the trend seems to be that we raise children telling them the whole way that they're smart, they're amazing and they are entitled to pretty much everything.

The problem is we're complementing what children (ostensibly) are rather than what they do. This is really damaging:

http://nymag.com/news/features/27840/

I remember seeing this:

http://money.cnn.com/2015/03/24/pf/college/student-debt-1000...

Here's an example:

Salvagin dreamed about being an actress, and even studied to be one. But she has put aside her dreams, and has taken on two jobs -- as an executive assistant at an advertising agency and at a nonprofit doing events -- to pay off her debt load.
She's managed to lighten it a little -- Salvagin graduated with $95,000 of debt.

What possessed anyone (who obviously can't afford it) to spend ~$100k at a private school to study acting?

Louis CK talks about entitled 20 year olds:

https://www.youtube.com/watch?v=LTaZkf4dih8

You know why, because you're 20. That's why. Because you're a 20 year and you have no idea how the world works. Because you think you deserve better. You think you're too interesting a person to have a shitty job. Every 20 year old that I encounter behind the counter gives me that look. "This job sucks." Yeah, that's why we gave it to you. Because you're 20, which is a mathematical guarantee that you have no skills and nothing to offer anybody in the world. You're 20. For 2 decades you've been taking and sucking up. Education and love and food and ipods. Just sucking it up and judging it.

Is it really any wonder that no thought goes into how much earning potential you have before spending 6 figures on a private school to study art history?

littletimmy• 11 years ago

It is depraved and cynical to suggest that the purpose of a college should be job-training. This is a wholly american idea, and a shitty one at that.

The purpose of college is to make one educated. If one wants to study art history, then one should study art history. One can easily build up skills on the side to complement one's education (I did programming on the side with my philosophy major and have a great job).

Ideally (and as it happens in civilized countries) the state should be paying for an education, and students should study just whatever they damn please. College shouldn't cost 6 figures in the first place.

jazzyb• 11 years ago

It is depraved and cynical to suggest that the purpose of a college should be job-training. This is a wholly american idea, and a shitty one at that.

Not wholly American. I have a coworker in Brussels who was surprised to find out that most of the programmers in the states only have BS degrees. In Belgium, he tells me, it's hard to find a programming job with less than six years of university on your résumé.

If one wants to study art history, then one should study art history.

I agree, but the problem is the mixed messages. The messages being told to prospective students (and they were told to me) are (1) "Study whatever you are passionate about; the purpose of an education is to make you a well-rounded human being" and (2) "After 4 or 5 years of this, you'll be able to get whatever job you like". It's perfectly acceptable to tell someone #1 but with the caveat that there aren't a lot of jobs in art history. It's also reasonable to tell someone #2 with the understanding that they need to study, e.g., STEM.

College shouldn't cost 6 figures in the first place.

Wholly agree.

todd82• 11 years ago

I see things a bit differently, I feel that we don't have a god given right to study whatever the hell we want and require other people to pay for it.

I understand that some people have no interest in being productive members of society, and I don't own them; they own themselves and can make their own decisions and choices about their lives.

I'm happy that there is art in the world, and I support artists by buying art, and I think it is a shame that art isn't valued by society enough to provide a really outstanding living for all but a select handful of artists. However, that's the world we live in. I like to read science fiction novels occasionally. Should I expect others to pay me to do that? Of course not, I consider that my own choice and I limit how much I do of that to what I can afford to pay for out of my own resources.

Artists and art historians don't have a right to make me work to support them simply because the choices they make don't result in the life or education that they want. If they believe they can write a book or produce a piece of music that I will purchase more power to them. However, people (and universities) shouldn't go around saying "follow your bliss" or "study whatever looks like fun" and mislead them about where that course of action will end up.

A mathematician says "How do I prove that?", a scientist says "How do I investigate that?", a businessman says "How do I produce that?" and an art history major says "Do you want fries with that?".

stevewilhelm• 11 years ago

Student loans might be enabling the tuition explosion, but the need to have at least a masters degree to ensure a middle class lifestyle is driving the tuition explosion.

w42• 11 years ago

need to have at least a masters degree to ensure a middle class lifestyle is driving the tuition explosion

This is actually a function of student loans. Because higher education is accessible to a much larger portion of the population than it otherwise would be via easy credit, a bachelor's degree is no longer a differentiator. Hence the need for more advanced degrees to set oneself apart from other job candidates.

vishalzone2002• 11 years ago

i think correlation not causation

dilap• 11 years ago

duh.

danieltillett• 11 years ago

Basically the excess profit obtained from a university degree is now being captured by external agents rather than the individual student. We should expect this to happen in any market which has reached maturity after a period of rapid expansion which higher education experienced from 1950 to 2000.

todd82• 11 years ago

Having spent many years attending universities and now sending two kids to university I observer that colleges and universities realize that tuition costs are no longer a major factor in students choosing one university over another. Cost is no longer a factor in the competition between colleges; they compete on amenities.

The universities have new luxurious dorms, outdoor swimming pools that look like Vegas resort pools with lounge chairs for sunning, large new fitness centers with indoor tennis courts, elaborate climbing walls, yoga and spin classes, etc. The universities simply raise their tuition to cover these expensive facilities. It's kind of like visiting one of the best health clubs you could imagine, except filled with beautiful people all your age and all looking for new relationships (or looking to hook up) and not having any parents around and having a free, really great cafeteria, and being told that being a member there for four, five, or even six years is going to be really fun (football games and parties, yay!) and finally being told that its not going to cost anything right now you can just pay for it later. During the sales pitch, you're told how good for you it will be and how you will come out knowing how to think and being given examples of all the people that were members of this club in the past and went on to do great things.

The evolution of universities into playgrounds for young adults has also had an impact on the educational choices begin offered. For example, universities now support large fine arts programs where students can work for years on majors where most will have no hope of obtaining meaningful employment in the field once they graduate.

I've been to a large "job fair" kind of event, except for there being no jobs, given by a very large university's college of Fine Arts--I went with a friend that was already a freelance musician at the professional symphony level who was going back to work on a graduate degree in oboe. The final, most memorable, talk was given by an alumnus of that college of Fine Arts which spoke about how one gets a job with a degree in music. The speaker related how difficult it was living in a shitty apartment in New York while playing jazz in clubs and how he finally after a few years started making a reasonable living by switching from playing bass to web-design. This was the best example the Fine Arts department presented of a "successful" graduate. By the way, my friend, the amazing oboe player, years later ended up selling her oboe in disgust and never played again.

All the schools are expensive now. With an exception of in-state schools, tuition at almost every university each of our kids considered was both high and practically the same across the board. Finally, although slightly off-topic, in my neighborhood children attend one of the very best public high schools in the country so the excellent and less expensive state university here is actually too hard to get into because admission there is based on class rank and doesn't take into account how much harder it is to be in the top 7% at the local public high school vs almost every other public high school in the state. It's possible to be admitted to Stanford but not make the 7% cutoff to get into the state University.

w42• 11 years ago

I can't wait for Bloomberg's next expose, "Water May Be Wet."

But seriously, how can this be a surprise to anyone? Easy credit = increased demand (since people who otherwise would be unable to pay for the good can now afford it) = increased prices. This is an obvious result of generous access to student loans, not a surprising one.

Student Loans May Be Driving the Tuition Explosion

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