Next: Bankruptcy for a whole Generation

Wolf Richter's picture

Wolf Richter

Another student protest, another mass arrest. Monday, thousands of students from all over California snarled traffic during their march on the Capitol in Sacramento. Hundreds of students then flooded the Rotunda of the Capitol, a somewhat raucous affair. Eventually, the California Highway Patrol cleared them out, and 60 were carted off and thrown in the hoosegow for trespassing and resisting arrest.

Their problem: tuition increases. Already, tuition in California's state schools has tripled over the last decade, and state budget cuts will induce universities to jack up tuition again. But the state is out of money. And so it's struggling in a weird and ineffectual way with its red ink. For California’s ongoing debacle, read.... Searching For The Missing Moolah.

The same day the students were arrested, the New York Fed released a report on the consequences of incessant tuition increases across the nation: ballooning student loan balances that are increasingly difficult to bear:

- 27% of the borrowers who had to make payments (not current students) were past due.

- $870 billion in student-loan balances at the end of the 3rd quarter 2011 (higher than credit card debt of $693 billion and auto loans of $730 billion), up 2.1% from the 2nd quarter, while other consumer debt declined or remained flat.

- Average balance: $23,300. That includes the millions of student loans that, after years of payment, have much smaller balances or are nearly paid off. Average balances owed by recent graduates are much higher.

The report lauded President Obama’s executive actions of October last year designed to ease the repayment burden of federal student loans. Laudable as they may be, they only soothe the symptoms for ex-students by shifting more of the costs to the taxpayer. But they don’t deal with the cause: the system itself. It has become dysfunctional.

Universities as businesses, in an environment that is devoid of price competition. For example, when the University of California system demands higher tuition, the whole system falls in line to support those increases, rather than resist them.

Captive customers. Students have to get their education within the higher education system. When tuition goes up, they can’t massively drop out because it would jeopardize their dream (by contrast, if air fares jump, customers react by flying less). They can choose cheaper colleges, but all colleges are jacking up tuition and fees. And the nationwide existence of “out-of-state tuition,” while plausible on a state basis, stifles cross-border competition. So students fight tuition increases the only way they can: by obtaining more funding.

Finance. The student-loan industry profits from processing student loans. Naturally, they encourage students to take on more debt. The amount is a function of the cost of the school, not of the ability to pay back the loan. While risk serves as a natural brake in making loans, in the student-loan industry, risk is transferred to the taxpayer who guarantees the loans.

The ultimate enabler. The government, in constant need of voter support, will fund and guarantee whatever it takes to allow students to get their education regardless of how reckless tuition and fee increases are. Thus, Obama’s executive actions make repayment less onerous, but they don’t do anything to contain tuition increases.

There are no price pressures on universities—except student protests (so, keep at it). Outrageous clockwork-like tuition increases are met not with resistance but with an unquestioning, endless, and ever increasing flow of government-guaranteed student loans. The beneficial forces of market discipline have been wrung out of the system, and governments have not stepped in to exercise alternate controls.

University administrator salaries, bonuses, benefits, golden parachutes, and pensions have shocked the public when they’re exposed in the media. Programs that have little to do with education swallow up more and more money. And sure, everybody loves to have well-equipped labs in fancy buildings. But the system needs to be restructured, either by opening it up to competition or by exposing it to effective checks and balances. Solutions won’t be easy, but there isn’t much room left before it will bankrupt an entire generation.

And just when the information age demands more from education than ever before. In this respect, an insidious and at once funny information-age issue with worldwide implications erupted, of all places, in a tiny village in France. Read.... Can't Even Urinate in his own Yard Anymore.

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Joebloinvestor's picture

Along with the student loan, they should have been given a house to.

Tom.the.Bomb's picture

What a f*&king crock of shit:

Housing Affordability Index Hits Record High

Hunker down folks... a lot of people believe this shit.

Gonna make the fall that much worse... Hold on to your hats !

Shizzmoney's picture

Universities as businesses, in an environment that is devoid of price competition. For example, when the University of California system demands higher tuition, the whole system falls in line to support those increases, rather than resist them.

I gotta say, ever since the "Axis of Evil" speech by Bush in 2002, the State of the Union has produced better comedy than Jay Leno's nightly monologue.

When Obama said that the Federal Govt isn't just going to provide loans forever for college's rising college costs, I laughed out loud for about 10 good minutes. 

Oh yeah, sure his bureaucrats are gonna go to HIS alma-mater and their Ivy League friends and tell them to lower their tuitions. 

And I want a blowjob from Christy Turlington.

Stuck on Zero's picture

The tripling of student tuition at California Universities in ten years doesn't matter if you are poor.  The state will give you the money.  It doesn't matter if you are rich.  It doesn't matter if you work for the state because your salary and perks have tripled.  It only matters if you are middle class and making an honest living.

falak pema's picture

back to the coal mines for twenty years!

j0nx's picture

Someone gotta pay for the DREAM act and all the illegals sucking the system dry. Might as well be the taxpayer and purveyors of higher education. Those illegals won't pay for themselves suckers.

SanOvaBeach's picture

I'm a illeagal person in this country.  I luv it here.  Not only do I get free food and medical.  Your tax dollar is going to pay for my college education.  If anybody gives me any shit, I tell'em to go fuck-off.  I got friends from the old country that are lawyers.  They helped me win cases against the state and county.  Many of my friends get Section eight (8) money for free rent and booze.  We also are really good at collecting wellfare  We all have learned how to turn our food stamps into cash.  We buy smokes w/ the money.  Always looking for "free stuff".  If you can help me find new, free, goverment programs, e-mail me at for free food stamps.  If you need legal assistance, e-mail me also, my brothers can get yea free money.

elderstew's picture

Don't discount the value of college education.  We're building up a resource base here.  It will be cashed out in due time when the Paper St. Soap Co.  puts the subsidized investment in the freshman 15 to good use. Consider that without the student debt larder subsidy, the pudge girl blimps would be out there working their asses off. Bad for business, bad for upscale hygeine. Liposuction discards bitchez!

realitybiter's picture


nothing to see here folks, move along.


wake up morons.  You have been robbed and are asking the robber if you should tip, too.

This is just one example of the inanity.  Consider that all states have drastically cut back their budgets and are now spending their state revenues on other things beside universities...tuitions have risen in part, due to this removal of state funding, and in part because wall street financialized education.  Universities were only thrilled to jcak up expenses and enrich themselves.


Ayn Rand's picture

Simple solution-----apply anti trust laws to the schools and prosecute them for price fixing and RICO violations.

SheepDog-One's picture

Prosecute the entire govt for racketeering and RICO violations.

BlackVoid's picture

The solution is simple. Rack up debt in the US, then leave the US and work someplace else.

----------- End Quote's picture

With the long arm of the US getting ever longer, it won't be long until they snatch you up in Latin America for unpaid student loans.

GernB's picture

Funny how the cost of things like houses and education go up the more government strives to make them affordable... Maybe there's a link between easy free money and increasing costs... naw, that's rediculous.

Money 4 Nothing's picture

Bureaucracies at their best!

AnAnonymous's picture

Article that is probably the first in a long series as the referencing is done poorly in this one.

As the series grow, it is expected that cross references will flow.

Hard to see any value other that congregation material for US citizens.

Price concurrence? Hard to see how in US citizen economics.

On what criteria?

How is an education program to be priced in a US citizen environment? That is the basic observation to get, not the superficial side effect of US citizen economics.


With the middle class being the ruling class in US citizenism, you'll end with the requirement that the physical environment must support a high level of activity to provide work to a large number of average people in whatever they do.

If one adds the elitism that pertains US citizenism, you end with universities monetizing what they are currently monetizing: their fame and a few other things.

So what?

Here are the expected results of US citizenism.

Why should US citizen bother about that?

Cast Iron Skillet's picture

I'm surprised that more U.S. students don't come on over to old Europe for a good education. My daughter's tuition as 3rd year med school student is about $800 / year. I feel good about it - at least I'm getting SOMETHING for my tax Euro. The tuition is probably more for a foreigner ... but I doubt that it would be anywhere near typical U.S. tuition rates.

AnAnonymous's picture

Is the diploma accepted in the US?

Cast Iron Skillet's picture

medicine or law maybe not, but there are plenty of other good degrees you could get in Europe (Germany in particular) and use in the U.S. - engineering, information tech, physics, chemistry ...

AnAnonymous's picture

Dont forget the networking. It is vital to find proper jobs.

OldPhart's picture

I'm a proud graduate of Tumbleweed Tech, a Calif Community College, and transferred to the nearest CSU, Commuter U to complete a BS in Bidnez Admin-Accounting.

I tested the concept of free jr. colleges in California back in the 70's by auditing Calculus at Tumbleweed Tech during High School then enrolling for a term.  I discovered that I simply couldn't afford 'free' college.  I could barely afford the gas to drive 50 miles round trip, and books were damned near $30 each.

Twenty five years later, in 1993, I decided to get a degree after being turned down for a transfer to the same position I held because I lacked a degree.  (The location I was at was being closed).

I put my family onto Welfare and had to report every penny and every hour worked, along with hours spent in the classroom.  I worked steam cleaning carpets, in desert temps from -8 to 120+, part time, carrying books and homework along. 

I found out that after the first term, you only had to pay for the first couple of classes up to a maximum amount.  After that you could add classes for no additional cost.  So I did.  I doubled up. 

When I transferred to Commuter U I found the same limit in place and doubled up there.  I think at my highest course load I was carrying 27 quarter units, the norm was 12.

My goal was to make the period of actual misery as short as possible, at minimum cost and receive a bachelor's degree.  I was an older student, 35, and driven.  I had an advantage in that I could call 'bullshit' on some instructors and university politics.  I kept costs to as much of a minimum as possible and ended up with total debt of about $4k.  (yes it was a bit cheaper back then)

Other than one term in 1974, I completed an AA-Liberal Arts, AS-Bidnez, BS-Bidnez w/Acct'g, and 60% of MBA between Jan 1993 and Jun 1996.  I had joined Alpha Kappa Psi (alpha cappa cactus) and the accounting association as a means of networking.  I left the MBA once I got my first solid job offer as a financial software consultant.

I still seethe at being required to take and finance four propaganda classes at the upper division level.  I don't remember the actual titles, just what I referred to them as:  Male Bashing 101, Corporate Bashing 101, White Bashing 101 and Christianity Bashing 101. 

I found little to admire under the university experience though I now understand the idiocy and incompetence in what many believe are our highly educated experts, leaders and teachers.

On Valentine's Day, this year my wife and I celebrated our 33rd anniversary at a Stewart Anderson's.  It's a big steak house, I don't know how prevalent they are because I'm pretty much a cheap bastard who prefers Del Taco.  Anyway, a sort of mini-family reunion was included. 

It turns out our waitress, who worked part-time there, had an MBA in Physics, and worked as a part-time Professor at good ol' commuter U.  She said her student loan was over $75k.  Jesus fuckin' Christ!

Yes, I left a decent tip.

The Navigator's picture

I'm checking out prices in Australia and England for my daughters university options - three years from now.

1- living abroad is an education in itself.

2- from my current investigations, tuition is about 1/2 price in England, still checking on Aussieland (don't know if that will be the case three years hence).

3- if it's Aussieland, hopefully she'll stay there and stay away from this debt hell-hole that will consume all that she may produce in her life time.

4- supply/demand - such pigs charging this $tuition - deprive them of students and let them go broke. What? For a piece of paper that says "you stuck it out for 4 years"? Bull shit.

Unless she can get a scholarship (or partial), I'm not much inclined to spend $20k-$40k/year for a job that would pay $45k/year gross, or $25k net. Meaning, at the extreme ($40k/year = $160k total) it would take her 6 years to repay such a cost (If I were to charge her for that cost) and she would have spent 4 years getting the degree = a loss of 10 years to start with a university degree.

Shit, for 10 years and 24,357 six packs I could have come up with the "unified theory of everything" and not owed a penny - as long as I could have come up with the dough for 24,357 six packs.

I'm less and less convinced that a BA or BS is worth $120k or $160k considering 1/3 to 1/2 of recent grads can't find a job after graduation.

Still, I'd recommend investigating overseas university options, especially in SA if you speak Spanish or Portuguese; if English is your only language, Australia and England have fine universities.

onebir's picture

Maybe worth checking better unis in Malaysia & the Phillipines.

Dugald's picture

Do the girl a favour....get her into a trade, getting a degree masages ego's all round, but will not gurantee rent paid/food on the table, an arm full of qualifcations do not make a better hash slinger...

TheSpiritOfTheTimes's picture

If you have a look at the situation, then one can only conclude one thing: US students ARE complete morons. Why would one waste that much money, when you can get a better, sometimes luxury education abroad? Just think how much a dollar buys somewhere else in the world.

Oh, right, US supremacy. Nothing washes your brain as clean as a US education. Righty.

People stop whining and get some brains!

Ah, forgot, that void between your ears is stuffed with freshly printed $s...


FreudianSlip's picture

UC is just an expensive diploma mill.  And the federal government creates rising tuitions because they guarantee higher loan amounts to cover the raises.

There is now a huge rush on within UC Campuses to create online classes and complete online degree programs.  CAL and UCLA are way ahead already.

UC knows not only Americans but people outside of the US will pay big bucks for a UC diploma, so all Campuses want a piece of this action.  Step back and watch the stampede for each campus to get a huge online class/degree system functioning at warp speed.


FreudianSlip's picture

Major University of California Issues that suck billions for no reason:

1.  Croney hiring of grossly uneducated staff making huge salaries, even bigger pensions while doing little or no practical effective work.  Effectively 1 in 10 of staff is probably really doing work.  Note, the actual administrative staff is far bigger than the teaching staff.  Both have problems.

2.  Lack of comprehensive internal audits to catch the hundreds of millions gone missing. They don't want real internal audits, some are making too much money out of the corrupt system and they are people in positions of power and control.

3.  Old long time vested staff routinely collecting a full pension AND a full time salary in 6 figures, ususally for a useless ineffective job description.

4.  Staff that routinely "works" from home, some even live in other states and telecommute.

5.  Staff walking around with top of the line free cell phones and UC credit cards for instant payment of their "business" expenses.  These are staff that don't routinely travel for UC or work outside of their campus office.

6.  And, all those much published salary cuts?  Well, they got big reinbursement payments for that at the end of the year and got paid back... along with raises in 2012.

7.  NO financial accountability outside the UC closely guarded system.  And each campus is it's own little fifedom of insider deals.  Oh, they will say they have outside audits....but it's bullshit, they engage the outside audit and only they see it.



Ayn Rand's picture


So what you are saying is that the university is no different then the rest of the whole stinking state.

Fox Moulder's picture

Bernanke's son will graduate from medical school with over $400,000 in student loan debt.

Cast Iron Skillet's picture

good reason for activating the main printers ...

FreudianSlip's picture

Great post Wolf ;)!


Caviar Emptor's picture

Today all Americans should be proud: Lehman Bros emerges from bankruptcy!

Diamond Jim's picture

College ed costs are simple economics...the more the demand, the higher the cost or what they can charge you in tuition. Here in NM there is the Lottery that pays for anyone holding a 2.0 in if you just show up in HS and your body is warm, the teachers get paid for the day and you get a "C". So kids "try out college" an extension of HS, for a year or two. Unfortunately these poor saps need two years of remedial classes and eventually flunk out or just leave. The University just finds more in the next class. There are plenty more where the flunkies came from.

So, if we go back to real scholastic qualifications for attending college, then demand will fall off and costs come down. There are so many professors on salary but teaching less...grad students bear the load. So, you are not even getting real quality for your bucks.  Let's admit it not everyone should go to college, there are tech schools, community colleges, the armed forces etc where one can gain the skills needed to do things other than brain surgery or building a rocket, which is what college is for, or used to be for.

GCT's picture

LOL I have a good friend that is a master plumber and makes a mid six figure salary.  Your shit is his bread and butter!  Alot of trades make more then college grads.  The plus is you have a skill you can use if the financial collapse as foretold on many sites these days actually happens.  My neice is in college and majoring in fricking spanish.  I told her she was wasteing her time go major in Farsi if you want to make some money.  She replies what is Farsi.  Her parents got pissed off at me!

Typical belief a degree will garner you more pay.

StychoKiller's picture

It's arguable that there would even be a civilization without plumbing (at least, not one worth considering).

BeetleBailey's picture

If she uses the degree and if she has the skill to speak it fluently, read it and so on, she limits herself to teaching others (a whole different skill set needed for that)....or, a tour guide bilingual. Telemarketing and bilingual customer service skills are coveted.


On the other hand...if she has no planned vocational goal other than to get a degree in it - then she is a douchebag.

Sorry to hear...

TahoeBilly2012's picture

These lammies won't even protest the wars anymore. I say suot um up for Tehran, that'll be a "free" education.

davey's picture

Fixing this problem is very simple. The government just has to say that they will no longer back student loans to colleges that don't drop there tuition by 50%. Watch how fast the competition STARTS!

Bicycle Repairman's picture

Here's a novel thought.  To reduce the cost of education and health care, why don't we increase the supply?  For example, lets create more facilities to train more doctors.  I sense that there is an unnecessary bottleneck in the system.

ThankYouSirMayIHaveAnother's picture

Physician fees make up 20% of health care costs, the system is currently putting out a ton of nurse practioners to act like physicians, they get paid less(not much less) and order more expensive tests so no savings. Restriction of services/tests/medications/insurance company profits are the only thing that will truly reduce costs. 

Errol's picture

Bicycle Repairman, I agree.  The law of supply and demand still applies; if we had a glut of physicians, they would face the same downward wage pressures as attourneys do currently.  The AMA is the most powerful union in the US; it has been VERY successful in limiting access to the profession.

Hugo Chavez's picture

We have fifty percent more physicians per capita than the average developed country, and our costs are dramatically higher. Increasing supply wont work unless you limit the subsidy of healthcare.

The Navigator's picture

Could it have ANYTHING to do with Govt involvment in the healthcare/medical business?????????????

Supply and demand works pretty damn good until the fucking goverment sticks their big fat finger up your ass, proctoligically speaking.

Shizzmoney's picture

The problem is not that government involvement in healthcare.

Its the fact that the government, on BEHALF of the Health Insurance Corporations, the Hospitals, and Doctors, are becoming more involved in healthcare.

The mandate is just rent seeking....with a gun on the landlord's hip. 

NotApplicable's picture

Just another version of the Matrix.

StychoKiller's picture

There was no mention of a "Health Care Crisis" BEFORE Medicare/Medicaid, mighty strange that is...

Hugo Chavez's picture

We have more doctors per capita than most countries, yet costs are still sky high in the usa.

Doctors can create demand. Sky is the limit because now obesity management, age rejuvenation, and lifestyle medicine are respectable..

Also in the united states people are afraid to go to the cheapest doctor. The sheeple are trained to find the most expensive and successful looking doctor they can afford. That wont change. No one will go to a cut rate doctor in the cheap rent section of town.

If competition gets too intense I can change how I practice and make more money. The only thing that will lower prices is to make consumers price sensitive. Until our country is ready to acknowledge and accept that poor people shoyld get shittier care than they do, go without procedures, and die younger we cannot cut the cost of. healrcare

BeetleBailey's picture

Cheapest doctor? I know few who seek out "cheap" doctors. If by that you mean, less expensive....well.

People - most - know they have to get the best irrespective of costs. That's a product of a being intelligent - not thrifty.

I know of plenty of people who go to doctors in lower rent sections of town, and they themselves are upper middle class.

Healthcare costs can be fixed. Much has to do with goverment MEDDLING, GAMING, AND SUBSIDIZING the industry.

Obama wants to take it over (and please.....let's not quibble about what APPAT is...."Obamacare).

Free markets, capitalists, and the public by majority does not want it. The plan in place blows chunks -

SCOTUS  is about to take the stage on this one.......

NotApplicable's picture

Doctors? You mean those allopathic hackers who only know how to kill/remove things in order to cure something? LOL

Most doctors are but idiotic pill dispensers/paper pushers that make little effort to understand their patients' whole health, but instead focus on stopping individual symptoms as they appear.

Nothing I've ever went to a doctor for in my life (allergies, IBS, heart palpitations, impetigo, migraines, tendon pain in my ears, etc...) has ever been cured by their actions. It's was nothing but "Here, try this pill now, to see if it minimizes Symptom X."

The last time I went to a doctor (nearly ten years ago) was for hemorrhoids. If you think 21st Century medicine is "advanced," well you're in for a surprise when you show up for that procedure.

Oh, and the interesting thing about nearly ALL of my medical conditions? They are stress induced, and thus are manageable as I learn understand my body over time. Meanwhile, I'm the healthiest person my age I know.