Guest Post: Our "Let's Pretend" Economy: Let's Pretend Student Loans Are About Education

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Our "Let's Pretend" Economy: Let's Pretend Student Loans Are About Education

Let's pretend student loans aren't just a stupendous and highly profitable scam being run on the youth of America. Of course pretending doesn't make it so.

We have a "let's pretend" economy: let's pretend the unemployment rate actually reflects the number of people with full-time jobs and the number of people seeking jobs, let's pretend the Federal government borrowing 10% of the GDP every year is sustainable without any consequences, let's pretend the stock market actually reflects the economy rather than Federal Reserve monetary intervention, and so on.

We also have a "let's pretend" education/student-loan game running: let's pretend college is "worth" the investment, and let's pretend student loans are about education. There are three dirty little secrets buried under the education/student-loan complex's high-gloss sheen:

1. Student loans have little to do with education and everything to do with creating a new profit center for subprime-type lenders guaranteed by the Savior State.

2. A college diploma's value in the real world of getting a job and earning a good salary in a post-financialization economy has been grossly oversold.

3. Many people are taking out student loans just to live; the loans are essentially a form of "State funding" a.k.a. welfare that must be paid back.

We've got a lot of charts that reflect reality rather than hype, so let's get started. Despite all the bleating rationalizations issued by the Education Complex, higher education costs have outstripped the rest of the economy's cost structure. Funny how nobody ever asks if there is any real competitive pressure in the Education Complex; there isn't, and why should there be when students can borrow $30,000 a year?



Student loans are skyrocketing--yes, America, we have a growth industry and it's called debt-serfdom. Debt serfdom is most effective when it starts young, so graduating with $100K in student loans and a couple thousand in high-interest credit card debt is the perfect start:



This is a chart from Zero Hedge drawn from a Federal Reserve spreadsheet: Name The Bubble. Of related interest: Student Loan Bubble To Exceed $1 Trillion: "It's Going To Create A Generation Of Wage Slavery" And Another Taxpayer Bailout.



Though we pretend a college degree promises a middle-class income, the reality is somewhat less rosy: earnings are flat to stagnant. Since about 30% of the workforce has a college degree now, the "edge" provided by a diploma has dulled considerably. It's supply and demand: the supply of those with college degrees exceeds the demand.



Student loans enable young people to "stay in school" or "go back to school". Waiting for the economy to pick up may or may not be a good strategy, but piling up debt to do so is a horrendously bad strategy--yet it is the one we enable and encourage.



Here's a snapshot of the employment picture. The bogus "unemployment" rate can drop to zero but that won't mean more jobs are being created.



The "engine of growth," small business, is in a tailspin. Gee, could it have anything to do with the supremacy of crony-cartel capitalism, over-regulation imposed by the Central State and local government, and skyrocketing healthcare costs?



Here's the reality. Large global firms, i.e. corporations, have been the major source of job creation in recent years. But due to a number of thorny issues such as skyrocketing costs of sickcare insurance in the U.S. and the need to develop resources within overseas markets, global companies are hiring overseas, not in the U.S., except for those with high-level experience in specific computer-software skillsets.

Even having a computer science degree isn't enough any more; employers want years of experience with a suite of software tools and they would rather poach an experienced coder from a competitor than go through the trouble of training a FOOS (fresh out of school) CS major.

The truly pathetic part of the student loan scam is that is often the only State funding available to marginalized populations. Here is an on-the-ground report from Dr. M.H., who serves the woefully under-served segment of the populace with severe mental health and poverty issues:

An amazingly large portion of my patients ( drug and alcohol addicted and the psychiatrically ill) are fleeing into student loans and grants to escape homelessness.


I even have previously middle-class patients ( many with previously missed "soft" bipolar illness which has got them into deep trouble due to depression and impulsiveness), some in their sixties, who are taking this route for want of any plausible alternative.

Student loans are a $1 trillion "business." Here is a "clock" of student debt.

$1 trillion is equivalent to the external (national) debt of Canada. (List of countries by external debt.) So let's pretend that loading up our students and future taxpayers with a debt load equivalent to that of an entire nation is an excellent strategy for furthering future growth and education.

What that $1 trillion does further is profits and debt serfdom. Here are a few other resources to review:

The $1 trillion student loan market begins to implode Department of Education shows two-year default rates at for-profit colleges up to 15 percent. Student loan debt increasing at a rate of $170,000 per minute.

Grading Student Loans (Federal Reserve Bank of New York)

35 Shocking Facts That Prove That College Education Has Become A Giant Money Making Scam

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ZippyBananaPants's picture

Time out:

Peyton Manning is a class act!

true brain's picture

Who cares who this Manning is. probably another brain damaged moron who will poor soon enough. Most of them will end up poor and forgotten. Name one of these football morons who used his fame for any good. Don't tell me it's OJ Simpson.

MillionDollarBonus_'s picture

Sorry but this article is yet another example of libertarian ignorance. Almost every top entry level job in America requires a college degree. In fact, if you're thinking of applying to a top tier investment bank (or bulge bracket) you can kiss that dream goodbye unless you have an exceptional GPA, preferably from an Ivy League college in addition to extraordinary extra-curricular achievements. A college degree demonstrates that you have the drive and ambition to excel at life and it is absolutely essential to have one if you want to be accepted into the highest levels of society.

eatthebanksters's picture

That's why Bill Gates, Steve Jobs and Mark Zuckerberg have been so openly accepted into the top levels of are such  a douche.  Either you're a total snob or you're a wannabe.

flacon's picture

If people were better educated, they wouldn't be making the mistake of going into debt to be better educated. But that sort of "common sense" education gets deprogrammed right from grade 1. 

CharlieSDT's picture

Sarah Lawrence College costs.  $59,170.

What for? I don’t hear much about alumni from Sarah Lawrence College going on to make a bunch of money as CEO of GE or some other criminal organization like Goldman Sachs. No, Sarah Lawrence is just another one of many of America’s snooty overpriced liberal arts colleges mainly composed of girls (73% of the school is female) who think they’re sensitive and gifted and special and smart and major in Women’s Studies, Victorian Literature, Environmental Policy or some other equally useless bullshit.

A quick perusal of a list of alumni of Sarah Lawrence on Wikipedia reveals very little in the way of business leaders, political figures other than that scumbag Rahm Emanuel, any good musician other than Carly Simon or any A-List actor of today except for Kyra Sedwick. There’s a couple of sort of well-known authors but nobody major except Alice Walker. Really it’s an unimpressive list, especially from the most expensive college in America.

ebworthen's picture

There is a high demand for trophy wives that know govspeak?

Tijuana Donkey Show's picture

At a 70% female school, you should look up some of the grads by their stage names, and their PHD, or pro at holding dildo, that they earned in college. That's how Rahm lost his finger, in a mousetrap, right?

goldfish1's picture

Bill Gates sucks.

Bill Gates backs climate scientists lobbying for large-scale geoengineering

Monsanto Investor Bill Gates says GMO Crops needed to fight starvation
Atomizer's picture

Steve Jobs? Bill Gates? Nevermind..

Tijuana Donkey Show's picture

Steve Gates with GMO liver toxins......

taniquetil's picture

But see here, MDB, the concern isn't with the person that takes out loans to go to college, works hard, and gets a good job. This is like looking at Bill Gates and saying "well he's a billionaire, the economy is fine"


The issue is with the millions of kids who go to university taking on debt because they don't know the implications, not necessarily having a career goal in mind because they're 18, and going to college simply because that's what society expects of them. For every one kid who took out loans and was successful, there are many kids who took out loans that aren't successful. And even if they manage to pay back student loans, they've missed out on retirement savings/mortgage savings for years and set themselves back.


Or, to put it simply, how many "top entry level jobs" are there vs how many people NEED "top entry level jobs"

FlyoverCountrySchmuck's picture

I know people LIVING on Student Loan Money so they don't have to work, carrying just enough classes to keep the gravy train going. One single mother I know even gets her rent and utilities paid for, and a transportation stipend for her car.


stormsailor's picture

someone i know told me that their brother, who had been in prison for 15 years just got out and took the money from his daughters student loan and bought a mercedes g wagon.


its the guy that washes my car and he told me about in "disgust".

Zero Govt's picture

another public-private shambles/sham/shitshow

only the Free Market (no rules) works

Strider52's picture

FlyOver: Yep, I know several people that got student loans, they are living off them, barely show up for class, get C-, just enuff to pass and keep the checks coming in. They use the $$ to get drunk, eat, and be merry, but have ZERO plans to repay.

New World Chaos's picture

Sounds exactly like three of my previous flatmates.  They lived a parasitic lifestyle in other ways and the system didn't care.  It is encouraged.

mr. mirbach's picture

MDB - you forgot to use the /sarc tag.


true brain's picture

Hey Million Dollar Idiot.

The article is talking about a societal problem and colloboration of educational institution and government's enablers to defraud and deluded millions of very average people into thinking they can and should have a college degree. The result is millions of people who have degrees in uselessness (as Gerald Celente said) and have insurmountable debts. They will be indebted to the banking system for life. These people can be better served with trade school education, where they can learn real skill with zero debt. The democrats and republicans have successfully made higher education into a right; it's not. Most people in college are so dumb; they wouldn't be in college if the money wasn't there in the first place.

We're talking about a societal problem; not you Million Dollar Idiot in particular because you probably went to some brand name school on a legacy admission slot. 

battle axe's picture

For the love of Christ, MDB is joking, he always does this in order hook some suckers. Great job as always MDB

Lednbrass's picture

Its like watching a master fisherman at work- the lure hits the water, the bass hit the bait, and he has a stringer full by the end of the afternoon.

Toolshed's picture

Geeez MDB, you're shit is getting old and tired. At least you USED TO BE mildly amusing. Now.........sigh. Your post is sooooo very flawed. It's obviosly a scam due to the fact that there obviously won't be any "top tier investment banks" left by the time these young newbs graduate. I mean come on man!

LongSoupLine's picture

MDB has a point (bear with me) in that the current culture of hiring at upper level "corporations" requires the piece of paper from an elite institution of higher "learning".  The reality however, is that the "piece of paper" has no real value added weight due to the educational system of real learning being completely broken for various reasons.

Nobody For President's picture

You are absolutely correct - but the exact same thing was true in 1961 when I got my piece of paper (MBA) - it was just a matter of getting my ticket punched.

The difference is college was affordable enough that I could work my way through and graduate, as did every peer I knew, debt free - student loans didn't exist.

What a fucking scam, and a national shame - and our bought and sold congress went along with the scam by making student loans exempt from bankruptcy. Fuck.

moonshadow's picture

you totally missed the point genius. it's about perception/ real value and how what was once a way of helping students now has been morphed into a profit-making scheme. can you say 6 to 12% interest rates? that's even for credit worthy parents/students. while big banks are paying let's see...0 to 1% to loan it out to the next generation? also yes it is true that costs have gone up at institutions of higher learning BUT out of proportion to the HUGE increase in tuition rates! shame on TPTB in colleges/universities And banks/lending institutions/fed government to allow the enslavement of our kids!!! show me who to hit- this is pathetic. parents and students trying to do the right thing to get ahead and they are shafted instead. we should be looking more toward small local colleges.also realize that parents/students should evaluate risk/return in view of what will be realized. i.e.-steer toward tech/math/engineering/medical for the best value. remember you are less purchasing an experience than a product now so view it that way.  and  thankfully the value message is getting out. thanks tyler great article!

sangell's picture

We need to distinguish between the top 100 American schools where a degree is very valuable. Perhaps too valuable in our over credentialed society and the rest of the college degree programs. Yeah you'd be well advised to beg, borrow or steal to get degree from Stanford or Yale but borrow $40,000 to graduate from a school where the average student SAT scores are 1000 with a degree in the social sciences. Come on. You'd be far better off becoming an electrician or HVAC technician and you can earn while you learn in those fields. Got any ambition you can start your own contracting business and do very well indeed.

ilovefreedom's picture

How much did college COST while these current captains of society went through the system? All this article is saying is that the COST and LOAN DEBT to fulfill these degree product price requirements has skyrocketed since the 70s over 1000%. While some students overcome the cost and burden of loan debt many more per year increasingly take on in some cases HUGE debts that due to inflation and demand stronger than even the housing bubble has made for a perfect storm of cost and unrealistic loan debt guarantees.  How many people have six figures in loan debt with only an underperforming degree "asset" to show for it?

Omen IV's picture

to your point:

MBA - NYU - SEPTEMBER 1971 FINISHED - "all in" $5,500.00 w/o room and board  

in contrast ! - my son - NYU - BS degree - FINISHED 2003 - $165,000 w / room and board in east village.

Ura Bonehead's picture

All this article is saying is that the COST and LOAN DEBT to fulfill these degree product price requirements has skyrocketed

Love, I think the article is saying a lot more than that.  The article (and the stream of other articles, programs, debates.... on the subject) are questioning the added value of the degrees being received.  That, to me, is the most important consideration.  If the product and value of buying/financing same were increasing at the same rate as the cost then I doubt there's a discussion.

jcaz's picture

MDB-  Drinking the Kool-Aid Since 1987......

Nice to have his comedy routine to amuse me while waiting for my puts to kick in.......

goldfish1's picture

it is absolutely essential to have one if you want to be accepted into the highest levels of society

The "highest levels of society" today have nothing to do with what is good and right with the world.

indygo55's picture

Hey MDB, my uncle has been a plumber for over 25 years and he has 5 plumbers working for him, 6 vehicles all paid for, his shop is paid off as is his home. His wife works the phones and his two boys are joining him in a few years. They do real work for real money because pipes break. When you flush your fucking gold plated toilet and your bull shit plugs the drain who you gonna call? A plumber because your head is so far up your ass with trying to figure out how to fuck your fellow Americans and call it “work” you forgot about all the real people who make your life possible.

Oh, and he didn’t even think about going to college, or working at some top bank/hedge fund engineering the latest derivative device to re-hypothecate and fractionally fuck the whole world and call it all good.  

He does real work and produces real value with real labor and subsequently makes real money and has a real life. And there are electricians and carpenters and all kinds of real workers all over this great land who are doing the same thing, albeit less so today because of fuckers like you and all the other financial terrorist running around. You and they should be the ones in the FEMA camps and hopefully you and they will.

So stick your head back up your lousy stinking ass and hide behind your desk cause if I don’t get you, trust me, there are plenty of terminally ill vets with guns and an itchy trigger finger who would jump at the chance.  

Clark Bent's picture

MDB, you never disappoint. You are an artiste. 

Ura Bonehead's picture

In fact, if you're thinking of applying to a top tier investment bank (or bulge bracket) you can kiss that dream goodbye...

So what you're telling us is that without a constant pipeline of (over-priced) Ivy League education sheep, top-tier investment banks would be hurting for talent??  Huummmmm...? Well that certainly adds a new dynamic to the conversation, doesn't it??  This INDEED makes one wonder about the value of a college education! I mean, without healthy investment banks America might have to.... I don't know... actually start building stuff again?  Create and invent things other than financial weapons of mass destruction?  Return the equity markets to their intended purpose?  Have more concern for our fellow man (rather than the size of our bonus)? 

Or do college actually teach all that outdated crap anymore?  Probably not.  All that probably went out with a rigorous ethics curriculum.  Cost cutting, of course.

I mean, without those Ivy League 'educated' investment bankers, what would our quality of life be like; the HORRORS of not being able to enjoy all the benefits of all those bailouts and an endless pipeline of K Street lobbyist and Treasury/Fed officials!!! Where would we be without Dark Pools, HFTing, hedge funds, co-location, algos.... HORRORS!!!!!!  <sarcasm off>

These guys and gals didn't pay for their Ivy League education, the rest of us did.  And I want my money back!!

ebworthen's picture


"A college degree demonstrates that you have the drive and ambition to excel at life and it is absolutely essential to have one if you want to be accepted into the highest levels of society."

In other words - purchased nobility; hardly a prescription for a cohesive, functioning, and just society.

Cromwell and Napolean come to mind...


The trend is your friend's picture

A tale of 2 of my friends: Both are intelligent

Friend one went through a rigourous 5 year pharmacy program, took out lots of loans and in the end got a good job and a 6 figure salary.

Friend two did not go to college. Took some courses in networking cuz it was a hot market at the time (10 years ago) got a good job, networked and without a college degree moved up in his company and makes more then friend one with NO DEBT.  I can repeat this same story 10 more times with different people i know.


ZippyBananaPants's picture

Time out:

Peyton Manning is a class act!

ZippyBananaPants's picture

Time out:

Peyton Manning is a class act!

Hippocratic Oaf's picture

Yea, well........if you looked at Sallie Mae bonds you'd never know that there's a bubble.


LawsofPhysics's picture

Big difference between knowledge and wisdom.

mayhem_korner's picture



In "student" loans, the students are simply the vehicle for transferring funds confiscated from private citizens to University ejucaters.  Works great - University beaurocrat votes are secured for the central planners, and graduates are enslaved through the debt service.

Ponzi on, Garth.

tempo's picture

The real issue is that the worldwide labor glut (due to the internet) has caused an enormous wage differential which will only grow worse over time. In India, China and many other countries the prevailing wage is $25/day (thats good, look at foxconn)requiring 12 hours/day, 6 days per week w/o vacations or health care or retirement and mandated living 20 persons per dorm room w/o twitter, facebook, computers, smartphones or education. Just work. IN the West we have entitlements, debt and MTV. So we buy domestic peace by pretending pensions will be paid and a college education (ex engineers and doctors) is a good investment. Be thankful if your parents have money which will cover you for a few years. For the vast majority, your screwed. Student loans will be the next subprime bailout

mayhem_korner's picture



Such a work ethic would do wonders in the West if those folks simply moved to places with higher prevailing wages.  :D

As for your "be thankful if your parents..."  Some of us at ZH ARE the parents.

jm's picture

Depends on what degree you get.  If you are there to get a degree in women's studies or similar other goop, then you deserve a fleecing.

i love cholas's picture

I'm so sick of this argument. All degrees are worthless without work experience.