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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Obadiah's picture

Actually I think the ads have a  much higher wieght given to the content, but I did put the search term "tits" into google last week... oh you dumbass. <me


So yeah I see them too.

Vlad Tepid's picture

Do you have a solution that does not include Molotov cocktails and sniper rifles?

LFMayor's picture

Q:  Do you have a solution that does not include Molotov cocktails and sniper rifles?

A:  Why in the hell would you want a boring one like that?

Crab Cake's picture

What's wrong with molotov cocktails?

LFMayor's picture

exactly.  It's not as if you get to play with molotovs and gats just every old day.  Enjoy it while it lasts.

Hugo Chavez's picture

I do.

Trade or vocational/school.
Work for someone a while. Save ur money. Then start ur own business.

Or start buying cheap rental units and leverage up.

College is not necessary. If you have a talent or interest in the trades go for it and later run your own shop.

Vlad Tepid's picture

Start your own business?  In this regulatory/tax environment?  Surely you're mad.  The second you get a business license you transmogrify yourself into a feeding trough for the government sucking machine, open yourself up to lawsuits from customers, employees and all in between, and, when consumer credit/confidence/spending falls off the cliff, you're left holding the bag.

Getting the skills is fine but work for someone else, stay mobile, and convert your capital into hard money, not a cash-sink called a small business...

NotApplicable's picture

Or figure out a way to turn it into a nonprofit org, since the profit model, as you note, is effectively dead.

LowProfile's picture

Sure, why not - Just not in THIS country...

As far as being a landlord?  Better hope your tenants don't experience cash flow problems.

JohnKozac's picture

If you want to see demonstartions bring back the draft. Also, bring back the Roman custom where the Generals led the charge...war would be a more of a defensive neccessity instead of an economic policy.

engineertheeconomy's picture

my sentiment exactly, would enjoy seeing Mc cain pick up a rifle and storm Syria leading the charge. What a chicken shit mother f....

OldPhart's picture

You can call McCain anything, ANYTHING!, and I'd agree... except a chicken shit. 

ClassicalLib17's picture

I would rather see Lindsey Graham or Joe Lieberman leading the charge.   

I think I need to buy a gun's picture

protests? i haven't seen anything on the news? Everything is working fine

Tanbou's picture

Higher Ed.-- Pop bitchez.

fnord88's picture

The university model is dying. Anybody interested in doing something a bit more worthwhile with their time check out Knowing how the underlining software of our digital world works is like learning how to read and write 200 years ago.

IronShield's picture

Not bad for starters.  But, grab a book (Java, C, C++, .NET), some coffee, and start typing...  No shortcuts to learning, anything.  You have to pay your dues.  I have found some of the best developers didn't have Comp Sci degrees but came from other technical fields (Engineering) and just burnt the midnight oil to gain proficiency far beyond their Comp Sci peers.  In the end, irrespective of degree, it's all about passion.

Stack Trace's picture

I found that some of the best Medical Doctors have no high school certificate. /sarcasm off

I know plenty of developers without computer science degrees and most of them don't understand what they don't know even though they can code.

Just because you can write doesn't mean you can write a novel. Even if you pushed this further to writing a novel without some pre-requisite training doesn't mean it will be deemed acceptable or successful. It could be successful but the odds are against it happening.

Computer Science isn't "coding". It provides a foundation for understanding complex problem domains and how one might go about solving them through machine computation. I assume a Computer Science student could solve engineering problems because the two domains are closely related but I wouldn't call him/her an engineer.

Caviar Emptor's picture

University in America today is modeled after the education received by 19th century English nobility. It was exclusive, a closed club and of course it was imitated here in the colonies. 

The entire assembly line: prep school, 4-year liberal arts college, fraternity membership and further pointless degrees and job on Wall Street at father-in-law's firm were for the rich fuck ups from elite families. Don't kid yourself that Harvard grads from the 1950s and before were in any way intellectually gifted. Some were. By percentage not. 

Manthong's picture

University education in America is expensive, but it is necessary to retain the Academic talent and provide the facilities required to impart essential knowledge and skills to our youth.


Bob's picture

Interesting little classroom demo, I'll bet.  For those who missed it, here's the lucky girl:

Manthong's picture

Seems like the truth disturbs a few folks..

I guess they would rather preserve the expensive dysfunction and not disturb the illusion.

Either that, or I am a master of subtle sarc.

Element's picture

The primary point of higher education is to learn how to learn to teach yourself.

The great mistake is that it's degenerated into corporate vocational team-player gobshite.

A vocation or profession to my mind is very much a fortuitous secondary benefit.


'Uni' means one ... work it out from there.

r00t61's picture

The current university education model is extremely mature.  So mature, in fact, that its useful life has ended.  Following the life-cycle of all bureaucracies, the university as an institution is collapsing under its own weight, much like a star suffers gravitational collapse before it goes nova.

There are so many aspects to this collapse, briefly touched on by the OP.  But it's not all bad.  If Socrates and Diogenes were around today, I think they'd look upon the impending destruction of the higher education bubble and smile.

ebworthen's picture

"Higher Education" = "Higher Affirmation"

A continuation of the "feel good" education model where everyone gets a star.

It only costs us $1 Trillion to make everyone feel good post K-12.