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Fed Finally Figures Out Soaring Student Debt Is Reason For Exploding College Costs
Back in May 2014, in one of its patented utterly worthless "analyses" (that cost taxpayers several tens of thousands of dollars) the San Francisco Fed, home of such titans of central planning thought as Janet Yellen, asked "is it still worth going to college." Not surprisingly, its answer was yes after some contrived mathematics that completely forgot to include just one thing: debt.
At the time, we had the following comment:
Oddly enough, having perused the paper several times, and having done
a word search for both "loan" and "debt" (both of which return no
hits), we find zero mention of one particular hockeystick. This one:
Perhaps for the San Fran Fed to be taken seriously one of these
years, it will actually do an analysis that covers all sides of a given
problem, instead of just the one it was goalseeked to "conclude" before
any "research" was even attempted.
An analysis, even a painfully simple one, such as the one we put together less than a month later:
It is common knowledge that in the hierarchy of bubbles, not even the stock market comes close to the student loan bubble. If it isn't, one glance at the chart below which shows the exponential surge in Federal student debt starting just after the great financial crisis, should put the problem in its context.
And while we have previously reported that a shocking amount of the loan proceeds are used to fund anything but tuition payments, a major portion of the funding does manage to find itself to its intended recipient: paying the college tuition bill.
Which means that with student debt being so easily accessible anyone can use (and abuse), it gives colleges ample room to hike tuition as much as they see fit: after all students are merely a pass-through vehicle (even if one which for the most part represents non-dischargeable "collateral") designed to get funding from point A, the Federal Government to point B, the college treasury account.
It should thus come as no surprise that in a world in which colleges can hike tuition by any amount they choose, and promptly be paid courtesy of the federal government, and with endless amounts of propaganda whispering every day in the ears of impressionable potential students the only way they can get a well-paying job is to have a college diploma (see San Francisco Fed's latest paper confirming just this) there is no shortage of applicants willing to take on any amount of debt to make sure this cycle continues, that soaring tuition costs are one of the few items not even the BLS can hedonically adjust to appear disinflationary.
End result: tutitions have literally expoded across the country in both public and private colleges.
None of this was rocket science, in fact that ultra cheap, widely available government-funded student debt is the cause for soaring prices, in this case college tuitions, is so obvious even tenured economists at the Federal Reserve should be able to get it.
Well, we are delighted to report that about 7 years after it was glaringly obvious to everyone except the Fed of course, now - with the usual half decade delay - even the NY Fed has finally figured out what even 5 year olds get.
As the WSJ helpfully reminds us, the federal government has boosted aid to families in recent decades to make college more affordable. However "a new study from the New York Federal Reserve faults these policies for enabling college institutions to aggressively raise tuitions."
The implication is the federal government is fueling a vicious cycle of higher prices and government aid that ultimately could cost taxpayers and price some Americans out of higher education, similar to what some economists contend happened with the housing bubble.
But... but... the San Fran Fed said...
Could it be possible that the Fed itself, with its imbecilic monetary policies, and the Federal government with its resultant $1.2 trillion in cheap debt, is the cause for tuition prices which are soaring by 6% every year, some three times higher than the increase in broad wages?
Not only is it possible, but it is precisely what has happened. And now, even the Fed has figured it out.
The heresy continues:
“There’s widespread concern among policy makers and college officials that it has become too easy for students to borrow large amounts of money without necessarily appreciating what they are getting into,” said Terry Hartle of the American Council on Education, a trade group representing college and university presidents.
The government’s student-credit spigot burst open in recent decades as Americans sought a leg up in an increasingly sophisticated economy, and accelerated during the last recession. Annual student-loan disbursements—which include some private loans but come mostly from the federal government—more than doubled between 2001 and 2012 to $120 billion, according to the New York Fed’s David O. Lucca, Taylor Nadauld and Karen Shen.
The math became so clear even economists, even Fed economists, finally figured it out:
Federal student loans allow Americans to borrow at below-market rates with scant scrutiny of their credit and no assessment of their ability to repay. Meanwhile, federal Pell grants, which help low-income college students and don’t need to be repaid, more than tripled to more than $30 billion a year between 2001 and 2012. Education tax credits roughly quadrupled to about $20 billion a year.
The cost of getting a degree similarly exploded. From 2000 to 2014, consumers’ out-of-pocket costs for college and graduate-school tuition rose 6% a year, on average, according to the Labor Department’s consumer-price index. By comparison, medical-care inflation looks meek at an average 3.8%. Overall consumer prices climbed 2.4% a year.
And so on.
What is most embarrassing about this above is not that what has been patently common sensical has finally been confirmed, but that the this was so confusing to the "smartest central planners in the room", it took them years upon years, and not only faulty analysis (thank you San Fran Fed) to finally get it right.
What will they figure out next: the buying E-Minis to prop up the S&P, after having monetized 30% of all 10Year equivalents, is a recipe for the greatest disaster ever? But at least also today the Fed (ironically the San Fran edition) finally admitted that the US economy can't function without bubbles, so there...
In fact, the only sensible thing out of this entire hodge-podge of Fed economist BS, was one of the comments to the WSJ piece, which stands on its own merit:
Any first WEEK student of economics knows that more money begets higher prices - regardless of whether it is higher education or the housing market - and that throwing tax dollars at the problem only makes things worse. This study was a waste of money, but what it really shows is that basic economics shouldn't wait for "higher education" and should be taught in high school.
The problem, dear commentator is that the Fed's only purpose to exist, is to throw tax, or newly printed, dollars at problems.
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I just sent that 'ho Sallie Mae mo' money. Where's my handout, bitchez?
It seems now that everyone from the ghetto to Manhattan penthouses is getting something for 'free.'
I guess as a middle class white guy, I'm shit outta luck...
If/when the govt pulls the plug, a LOT of colleges are going to fail.
Good riddance.
The level of fiscal mismanagement in higher ed is breathtaking. That, and the graft. I swear many colleges only exist to provide cash to the construction companies building them. I've lost count of the number of stories I've heard where students literally cannot understand the english spoken by H1B "professors," while the college is building a new $200 million building as the previous $100M building sits in disuse because there aren't enough funds to actually put any equipment in it.
Just one more edifice of the FSA that needs to crumble. The real students learn regardless of where they are, and the partiers will also party, regardless where they are. No need to taxpayer fund the latter.
At Milken's sentencing, Judge Kimba Wood told him:
You were willing to commit only crimes that were unlikely to be detected.... When a man of your power in the financial world... repeatedly conspires to violate, and violates, securities and tax business in order to achieve more power and wealth for himself... a significant prison term is required.
Yea nice one Kimba. Now all the kiddy's have to pay 100x for a piece of shit USSA education.
Barry wants to make college free so who gives a fuck.....
The notion that student loans are merely a "pass-through" to forward the funds to colleges is most intriguing.
But after said funds have been "passed through" the student, where do they go?
This is an intriguing question.
For that reason, we the undersigned respectfully request establishing the position of Vice Chancellor for Examining Passed-Through Funds from Student Loans.
This would be an executive-level position.
In order to attract the caliber of applicant we seek, the starting salary will be in the $180k range.
Thoughtfully,
Vice Chancellor for Student Success
Vice Chancellor for Aquatic Development
Vice Chancellor for Domestic Alumni Affairs
Vice Chancellor for International Alumni Affairs
Vice Chancellor for Racial Diversity
Vice Chancellor for Gender Diversity
Vice Cnancellor for Compliance
Vice Chancellor for Accreditation
Vice Chancellor for Recruitment
Vice Chancellor for Corporate Relations
Vice Chancellor for Metrics and Rankings
Vice Chancellor for Media Communications
Vice Chancellor for Branding and Image
Vice Chancellor for Intellectual Property
Vice Chancellor for Patent Royalties
Vice Chancellor for Patent Defense
Vice Chancellor for Honorary Doctorates
Vice Chancellor for Environmental Impact
Vice Chancellor for Climate Change
Vice Chancellor for Child Advocacy
Vice Chancellor for Learning Enrichment
Vice Chancellor for Education! Now!
Vice Chancellor for Adult Services
Vice Chancellor for Community Engagement
Vice Chancellor for Ethics
Vice Chancellor for Leadership
Vice Chancellor for Asset Repurposing
Vice Chancellor for Legislative Outreach
Vice Chancellor for Foreign Exchanges
Vice Chancellor for Vision 2020
Vice Chancellor for Learning Readiness
A LOT of colleges should fail! Fuck, they cost five times as much but teach half as much as they did in the early 90's.
BTW, is anyone else puzzled by the ever lengthening school year that turns out ever dumber product?
Out of curiosity, I checked the current tuition at my alma mater a while back. When I went, it was $1200 a semester. It now costs over $9000 a semester. And this is a state school! When I went to college, we had actual professors teaching the courses. Now all the professors are on sabbatical writing textbooks and shit, while the courses are being taught (at peasant wages) by grad students and teaching assistants. And it's frankly astonishing that so many incoming students have to take courses like College Algebra. I bet most Hedgers got algebra out of the way by eighth grade and completed calculus in high school. With the current high school tracks, calculus can't be completed in high school unless you double up on math courses, because they split algebra into two years, and they made trigonometry a year-long subject instead of the end of the algebra course or geometry course. And we wonder why colleges today graduate nothing but dumbasses?!
I'm a 'Gen-X'er' and my generation was constantly denigrated by the BABY BOOMERS (which in itself is hilarious) for being shiftless, lazy, blah blah.
After being a hiring manager for years, I can tell you that other people of similar age and older are terrified of what's coming out of the 'Millennial' generation.
Not only are they seemingly horribly educated, but they tend to think they're special and deserve a paycheck just for showing up to work. Scary shit.
Ah the ever old adage of foreseeing doom from the next generation. Yawn.
1816 called, they're still waiting for the fallout from the youngsters and their crazy foreign dance the "Waltz".
In other words, you have ZERO experience hiring/managing Millennials. You're probably one yourself and are being self consciously defensive.
What you're saying is literally what every generation has said about every contemporary younger generation, century after century.
"Our sires' age was worse than our grandsires'. We, their sons, are more
worthless than they; so in our turn we shall give the world a progeny yet more
corrupt."
Book III of Odes, circa 20 BCE, Horace
"Whither are the manly vigor and athletic appearance of our forefathers flown? Can these be their legitimate heirs? Surely, no; a race of effeminate, self-admiring, emaciated fribbles can never have descended in a direct line from the heroes of Potiers and Agincourt..."
1771, Valerie Steele
And never forget who raised the youngest generation to be what they are. You reap what you sow.
Ha. The liberalism of the GenXers is exactly why the Millennials can't get an education. GenXers are the great liberals who decided that Everyone could come to America; let's just give away this great country because after we have an extra ONE HUNDRED MILLION foreigners here, we'll make money clenaing up their poop (where do you put all that waste...ever think about it?) and by having to hire hundreds of administrators and translators for every school district which means that when you read that a school district spends $12,000 on every student? They are really saying that more than half of that is to accomodate all those kids who don't speak english, aren't citizens, and whose parents have STOLEN more than many will every have. After all, they have nothing to lose so lie to get all those social benefits and if you get caught...it's cause you didn't really understand the language.
MORE THAN ONE_HALF of the masters and ph.d spots in our colleges and universities are now going to FOREIGNERS because they pay more.
Pull up your college/university contract for the president/dean. Most of them are making well over one million dollars when you add the benefits of the free car, free travel, free housing, and don't forget, the contract says the wife gets all that free travel to AND she propably has a cushy university job herself. Last but not least, you don't see any white haired college profs anymore because they changed it that you get full retirement at twenty years, rather than that oh-so-disgusting forty years people used to work. but who cares, the kids will have to pay for those golden parachute, 40-50 years of retirement pay for profs who retire at 50.
Let me tell you a little bit about that math track you describe. I'm 25, so this is pretty fresh in my mind.
One day in 8th grade, we came in to math class and had to take a test. That one 50-problem test was our placement test for freshman year. If you did very well, you got into geometry as a freshman which put you on pace to take calc as a senior. Less well, advanced algebra. Dumber than that? Algebra and pre-algebra for you.
By extenstion, that was our math placement test for the rest of our school careers.
The only, and I mean only, way to be able to take calculus in high school was to get one of the highest scores on that one fucking test in 8th grade. Having a bad day? Fuck you. Played too hard at lunch and felt like shit? Fuck you.
This, everyone, is our public school system. Needless to say, I did not finish high school. I now make $90,000+ a year. None of my college-educated peers even come close to that.
@Captain I looked at the cost for my alma mater last week. Between tuition and room and board, the sticker price is more than the annual household income for my ZIP code, I s*t you not. It's grotesque, as if an old Russian playwright was rewriting The Government Inspector about the American college system. Not a bad idea in fact, it almost calls for a popular parody to be written. Maybe that would be the key to getting through to your average brainwashed libarts types that their cherished platitudes are what's driving their own suffering. In Spanish there is a saying that when you don't see the truth right before your eyes, that you are "like the water carrier's donkey, loaded down with water and dying of thirst" (estar como el burro del aguador; cargado de agua y muerto de sed). But they won't listen, just watch all the proposals from their candidates, it'll all just amount to "Let's have the government give the system more money."
For what it's worth, I didn't pay the tuition at my school, which was 14K per year even back in the late 80s, I had merit scholarships that covered it. My retired dad still silently thanks me, I think.
Either you didn't learn, or you didn't get a degree....
You're paying back the loans, but everybody else ISN'T. Do you feel "smart" now? Just "roll over" on command, and when they yell, answer "How high?!?!"
Yes, that "smarts".
I got a degree, but I was young & dumb and didn't take an extra 6 courses that would've resulted in a (much more marketable) Accounting or Finance degree during the '93 recession. Perhaps better guidance could've steered me in the right direction.
You make the incorrect assumption that my school loans are for undergrad. They're actually for the first year of law school, that I attended nearly ten years after I graduated undergrad. After a year, I knew that being a lawyer wasn't for me, and I didn't want any more loan debt.
You also make the IMBECILIC statement that "(I'm) paying back the loans, but everybody else ISN'T." Right. That's why student loan debt is over $1.2 TRILLION. You DUMB CUNT. Yeah, you're the 'SMART' one, ignorant as fuck, but smart....
Bring it, BITCH! Fight Club is ON.
Middle class white guys have always been shit out of luck. I won a partial scholarship to college back in the day because I worked damn fucking hard for my grades. At the awards dinner, I was the only white male who won a scholarship. All the other scholarships were "need-based" and seemed to go entirely to black females.
May I just say the San Fran Fed gets today's "No Shit, Sherlock!" award? This is why my kids are homeschooled and will not be attending college. I've been telling them for years, that I will gladly finance trade school, but college is on their dime. 2 out of 3 get it. My dunce kid wants to go to college to study fucking anthropology, for fuck's sake. I predict this kid will never move out of his room until I boot his ass out.
Anthropology is a joke minor, never heard of someone majoring in it.
Maybe he is worried at the lack of pussy in trade school. Finance a few spring breaks at the bunny ranch and he will change his tune.
I recall finding some chicks blog about how she completed a major in anthropolgy and couldn't find anything better than a job at Starbucks pouring coffee. She reasoned that her problem was, she needed to upgrade that to a Master's, so she took out a $50K loan and went back to school to finish that Masters in Anthropology. Now fresh out owing $100K in loans, she still can't find a job, she's still working at that Starbucks job, and her loan deferral days are all used up. Now the government will start to garnish her bank account.
Now the government will start to garnish her bank account.
Not if she signs up for one of the gubmint's newfangled repayment plans. She'll pay a ridiculously low amount (so long as she remains a nice little coffee jockey with no higher aspirations), and after a couple decades whatever's left gets written off. Only I bet it doesn't get that far before the bubble pops and they start "forgiving" loans at the expense of the taxpayer.
Can't file bankruptcy on student loans... Keep getting those worthless degrees dummies!
Just don't use that time to learn how to think critically.
Can't file bankruptcy on student loans yet.
That's better.
morons
Quality declining while cost increase, all thanks to our big government, always thinking of us.
Next up will be a new capability measuring system, seeing as how higher education system has so polluted our ability to use it as an arbiter of anything except stupidity.
FRED has a very impressive hockey stick graph... Ive seen so many of them lately..it seems. I wonder if it could mean something significant.
Ending student loans would do a lot of good.
That'll end right after the 30 year mortgage and the 7 year auto loan do.
They've found a new way to create a bubble and add to the perpetual debt payments they make you think you "have" to make to survive.
They just want to look like the good guys when they wipe the student debt free.
I need a plumber and electrician - oh - and a good auto mechanic. I don't require a college degree or proof of crushing college debt.
Might be a good idea to learn to grow/hunt food - gun smithing skills might be helpful.
I wish I'd said 'FUCK college' and learned in the real world. The family pressure got to me. Even though I knew most of my studies were worthless at the time, I slogged through and finished. I even filled out a post-course eval in philosophy and told the prof that while studying philosophy can be fun, it's just like a cat chasing it's tail - a waste of time, that will never result in any definite answers. He failed me. Pot smoking hippie dirtbag. LOL
Anyway, two of the wealthiest families I knew when I was was growing up in Atlanta in the 70's had very successful roofing and plumbing businesses - both still going strong, btw.
I guess there's a 'hedger with a degree in philosophy. LOL.
someone always has to be pissy
Tyler-----if you think the FEDs only purpose is to throw newly printed money or tax at problems then you really are missing the whole scheme----the FEDs primary purpose is to take from one and give to another---that's its reason for existing--period.
This is a payoff to the indoctrination centers for ruining the minds and worldviews of generations of Americans with their progressive bullshit.
It's not a bug - it's a feature.
No worries This same clown show is now in charge of health care.
Not only is there a tuition bubble, there's also a fraudulent loan bubble, particularly when it comes to private for-profit institutions. They prey on naive young folks with poor preparation for college or chronic mental illness, convincing them they "can do it," but without dedicating the counseling and remedial work that would make success possible. They peddle both the enrollment and the loans to pay tuition and "other" expenses, knowing full well the prospective student is likely to be unable to repay the loans. But they get their tuition up front, much like the mortgage brokers accepting NINJA applications.
Exactly like the mortgage brokers accepting NINJA applications: they know there are precious few jobs out there for those worthless diplomas and they know the kids can't declare bankruptcy......sick predators. The banks and the higher institutions are in bed together: more for me; more for you.
Just like health care.
Just like the housing bubble.
Every god damn time the Feds get involved and open the money spigot the plateau rises to accomodate limitless Fed spending.
And they get involved every god damn time because everything they touch turns into a god damn back door welfare vote buying scam for buttfucking Donkeys and Rinos.
Yep.. Substitute "healthcare" for "education" and substitute "Obamacare" for "student loans". Same shit. And remember, everyone gets to go to Junior College in the near future. Watch those tutions go to the moon, while the "value" of the Junior College education gets diluted.
Friend of mine teaching business at an area high school tells me the big push this year is to mainstream the special education students into regular ed classes. "76% of all special ed students will have schedules consisting of 80% regular education classes," ad staff told her. And it's happening in all content areas.
I asked her, "will your district finally drop its 'EVERYONE can go to college!' mantra, now? Because your API numbers and tests scores are going to get monkey-hammered as your Prep kids unwittingly find themselves studying a special ed curriculum."
No answer.
Eventually the students at UCLA will be special ed, too. I'm just counting down the years until I see it.
Ain't life in AmeriKa grand?
Welcome to Costco I love you, Law degrees aisle 3. I like money.
Some of the smartest people I have known (in over 60 years) never went to college. One - who died with $800 million USD in the bank - didn't even have a high school diploma.
That was BEFORE the government became interventionists. Sarbox/Dodd-Frank/ADA/EPA/TSA
Home Depot CEO said he could have never started the company in today's highly regulated economy.
With great respect to everyone, I think you are missing half the story.
Tyler Durden said:
>The problem, dear commentator is that the Fed's only purpose to exist, is to throw tax, or newly printed, dollars at problems.
Not true.
There is another purpose - very, very clearly in evidence:
To create indentured servant-slaves.
Indebted graduates, who will labor slavishly to service debt are far more valuable to the slave-holding crony-capitalist system than un-encumbered freemen.
This should be obvious to any thoughtful analyst.
The Fed "throwing money" means by definition creating debt. That too should be obvious.
NO SHIT SHIRLOCK! I've been saying this for almost 20 YEARS and I didn't need a high powered MBA or government job or grant to figure that one out.
who would of thunk!
just wait till it's free.
William Dudley helps set all of it up for his buddies at Goldman.
Plays dumb and his buddies at Goldman raked in the profits.
I'll just shout into the void one more time - probably 80% of this "debt" is to for-profit colleges, at least 80% of the *defaulted* debt certainly is, and of that maybe 80% of it is fraudulent from the beginning, the students never existed, just the loans.
IOW someone has stolen maybe half a trillion dollars in fed money over the last twenty years. That money is gone, gone, gone. Only the issuing banks are sitting there, crying over their bad loans and asking the fed to bail them out.
Exactly what they were warned would happen when they came up with this stupid idea. My dad went to the exact same engineering school I did. He made enough pumping gas during the summer to pay for tuition. Is the education I received really that much better? I know (when adjusting for inflation), the jobs certainly don't pay that much more.
So FED "academics experts" are finally admitting that tuitions have been increasing slightly more than the real inflation number? Go back to the mid to late 80's and the college I went to tuition has increased 340%.
My alma-mater just announced about 250 job cuts. I was glad to see that it included numerous useless vice-president positions paying $150k per year.
"Fed Finally Figures Out Soaring Student Debt Is Reason For Exploding College Costs"
The FED has known that all along.
I've been saying this for years. End the federal student loan racket and the cost of going to college would actually become competitive again. Unintended consequences? I think not. This was the plan all along, enslave the people that drank the kool aid. I'd be so proud of my son if he became a "mere" plumber. He'd be so far ahead of his peers by 22 or 23 and would be able to afford any freaking degree he wanted in night school, while they were serving him food and drink on his off nights with their anthropology degrees.
"None of this was rocket science, in fact that ultra cheap, widely available government-funded student debt is the cause for soaring prices, in this case college tuitions, is so obvious even tenured economists at the Federal Reserve should be able to get it."
They got it all along.
Ben Bernanke wrote in 1988, that QE doesn't work. He then did QE. The public is being gamed. Greenspan did the same thing. The FED has known all along that dramatically rising student debt has been the cause of dramatically rising tuition.
They also can see a bubble before it bursts.