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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Physicist's picture

You use the word work; is it a real thing, imaginary, or a complex?

dwdollar's picture

Me too and yes. However, the most important hook for any good job is connections. Welcome to crony capitalism and the American nightmare. People who say otherwise probably haven't been young and looking for a job in the past 10 years.

Clark Bent's picture

Crony capitalism is Socialism. This is the brave new world of no advancement for the serfs. Same as it ever was in despotism. The secret solution is liberty. You cannot have personal individual liberty without economic liberty. Neither can you expect to have equality before the law unless private property rights are secure. Remember that global warming druids, your nonsense about the climate is undermining property rights, which undermines individual freedom which undermines opportunity. Perhaps you think that your penniless existence is valuable to Goldman Sachs...consider in what ways that might be so. Then think about this when you consider running to the government to fix things for justice and fairness.  

Dane17's picture

Really well said Clark!

jm's picture

Tell that to your cardiologist, moron.

VulpisVulpis's picture

College -- for a clear majority, 'One continuous party' that costs tens of thousands in borrowed money. Most are 'living the dream' on borrowed time and money, studying underwater basket weaving and majoring in 'whatevers easiest' . There are exceptions, of course, but we know this to be true.


For the lenders, it's almost too easy...

TheFourthStooge-ing's picture

VulpisVulpis said:

For the lenders, it's almost too easy...

That's what it's all about. The student loan racket is just another form of taxpayer funded welfare for the TBTF lenders.


stocktivity's picture

What time do you predict Apple starts selling off? I predict 1:45pm.

taniquetil's picture

DUDE, they're announcing a new iPad today.


Forecasting an Apple sell-off in front of a new iPad (which clearly, all Americans must buy with the money they're making) is like, treason, man.

Mercury's picture

Well, at least for now you can choose to not take out a student loan and/or forgo a college degree...and still have an array of opportunities available to educate yourself by other means and build a successful career/life.

For now.

Given the current situation it will eventually become obvious to almost everyone that:

1) If you get into a top school, you should find a way to attend.
2) If you can find someone else to pay for any college you should probably go (college can be fun even if you don't learn much).
3) Any other situation involving college that is not 1 or really need to do some serious math first.

The next logical step for the government/college industry (especially in light of the above realization) is to use regulation to require a college degree for as many occupations as possible.

No restaurant management degree, no restaurant licence, No restaurant business.

Then you're really screwed....paying for the opportunity to have a job indeed.

MachoMan's picture

Why would they need regulation?  If every available job is oversubscribed by 1000s of applicants, all of whom have college degrees and some graduate degrees, then practically speaking, how is a degree not already a requirement?

Mercury's picture

Well, at some level employers are aware that a 'Global Studies' degree isn't necessarily indicative of much of anything in the way of ability.  The marketplace will work that out sooner or later.

But it's a whole 'nuther ballgame when officially recognized education qualifications become part of regulatory requirements. The last 10-20 years has seen a huge spike in the number of industries and job titles that never did but now require licenses.

Some will claim that this ensures a certain standard of professionalism or quality but I think many more will recognize it as simple rent seeking by the government(s).

When the government, in an attempt to prevent people from fleeing the college loan system/industry, waves its wand and changes the expensive, empty suit college degree from a culturally accepted, but optional "best practice" into an official requirement for thousands of jobs, there will be no question what the motivation is.


MachoMan's picture

There is no legitimate reason to require a college degree on top of passing a certification exam...  whether it be accounting, law, or any other profession...  if you can pass the bar, then you should get to be an attorney...  no need for 3 years of babysitting.  Same for any other.

Academia and its supporters do not understand that theoretical models teach very little as a percentage of one's work day and productivity...  rather, most folks learn on the job...  including those with degrees AND certificates...  the founder of the most famous law firm in my state stated it took on average 10 years of practice before a person became a lawyer worth a shit... 

azzhatter's picture

I have an associates degree and have made as high as $450K in a year. Average for the last 10 years has been $350K

battle axe's picture

Well then just think what you could of made with a full degree....

goldfish1's picture

The ponzi scheme and its subsidiaries at work for you.

ali-ali-al-qomfri's picture

azzhatter, the real question is what did you do with the 3.5m?


Benjamin Glutton's picture

Sure why's one for the collection. JCC General Dempsey testifying at Senate Armed Services Committee today...


"...... the cost of a Syrian intervention will be zero...because we take the assets from somewhere else and use them it's a zero sum game."


it's Washington that has seceded,imo.

taniquetil's picture

I cannot recall a single time when the government decided to fuck with capital markets that turned out well for the general population.


Anyone have any examples?

Robot Trader's brother's picture

 Food Stamp Act of 1964

The Food Stamp Act of 1964 appropriated $75 million to 350,000 individuals in 40 counties and three cities. The measure drew overwhelming support from House Democrats, 90 percent from urban areas, 96 percent from the suburbs, and 87 percent from rural areas. Republican lawmakers opposed the initial measure: only 12 percent of urban Republicans, 11 percent from the suburbs, and 5 percent from rural areas voted affirmatively. President Lyndon B. Johnson hailed food stamps as "a realistic and responsible step toward the fuller and wiser use of an agricultural abundance."

Rooted in congressional logrolling, the act was part of a larger appropriation that raised price supports for cotton and wheat. Rural lawmakers supported the program so that their urban colleagues would not dismantle farm subsidies. Food stamps, along with Medicaid, Head Start, and the Job Corps were foremost among the growing anti-poverty programs.

President Johnson called for a permanent food-stamp program on January 31, 1964. Agriculture Secretary Orville Freeman submitted the legislation on April 17, 1964. The bill eventually passed by Congress was H.R. 10222, introduced by Congresswoman Sullivan. One of the members on the House Committee on Agriculture who voted against the FSP in Committee was then Representative Bob Dole. As a Senator, Dole became a staunch supporter of the program. The law was intended to strengthen the agricultural economy and provide improved levels of nutrition among low-income households; however, the practical purpose was to bring the pilot FSP under congressional control and to enact the regulations into law.

Robot Trader's brother's picture

My sister-in-law is complaining about the upcoming (25k per year) student loan debt for her only child, which starts next year.  

I suggested that there are alternatives to an expensive 4 year university education.

She countered with; "We are doing it for the experience - I want her to have that experience."

I think about what she says, and where we are heading, and my only though is..'keep buying more physical silver'......

goldfish1's picture

"We are doing it for the experience - I want her to have that experience."

Maybe she's right. My kids are opting out of paying for that experience.

MachoMan's picture

The only differences between a bachelors degree and high school are: (a) you can wear pajamas in college; (b) you can cuss in college; (c) if you skip a college class, the police don't come and arrest you and your parents; (d) lunch isn't $1 in college; (e) fucking your teachers is less frowned upon in college; (f) there are a lot more copies of your tests and lectures floating around in college; and (g) college costs a fucking lot more.

What kind of bullshit, contrived experience is it she thinks she's paying for?  We want suzie to have a 4 year vacation where she can get train run on her by the basketball team, can get roofied a few times (and wake up with a sore asshole), get a chemical dependency, AND have to take remedial english and math courses because she fucked them to high hell in highschool?  Give me a break.

Tell her that her daughter needs to get an HVAC or mechanics license and start making money.  

moonshadow's picture

$100K in debt will be an experience she won't forget

EmileLargo's picture

Marc Faber mentioned a very interesting study in one of his newsletters about the inflation of US student fees. Apparently, one factor in the inflation of tuition fees is, believe it or not, Football Coaches! The average college professor has seen his salary rise by 32 percent since 1985 (in nominal terms). In real terms, he has probably taken a significant pay cut. College Football coaches on the other hand have seen their pay rise 730 percent since 1985.

This is what the average schmuck going into College is paying for today. The cult of Football which, with a few very small exceptions in the case of gifted athletes, adds zero value to the student's career prospects long term. It is of course one of a number of factors behind the inflation in tuition fees but it is a factor. That was another reason I chose to study in the UK rather than go to a US school. I finished my degree with few debts and have lived debt free since.  

Tsar Pointless's picture

But football brings SO MUCH MONEY into the coffers of universities! And, what would all of those dumb hillbilly` rednecks and inner-city thugs do without football? How would they get into college, a place where formerly well-deserving and studious individuals only were allowed to gain entry?

People can bitch and moan about womens' studies and other "worthless degrees" being the ruination of higher education, but in reality, it's sports - especially football.

It's ruining secondary education, too, BTW.

If you want your idiot offspring to play a sport, don't expect me to pay for it. Pay for it yourself, you goddamn leechfuck. I have more important things to do with my money, such as buying lube and pornos.

i love cholas's picture

in defense, I'm sure the top 10 football programs are TV revenue driven but for the rest of D-II schools, they should not have a football program.

eatthebanksters's picture

But college footbal coaches, in the big picture, are revenue producers while professors are cost centers. If a professor can net $20 million (after all expenses) or more a year for his school he should make a bundle as well.  Not to mention, many (smart) students include 'football schools' in their selection criteria for a college...all part of the college experience.

Tsar Pointless's picture

Fine. Then drinking all weekend, getting high non-stop and finding the best colleges for all-night gang-bangs should be acceptable reasons to cite for selecting a particular college.

Sports is the ruination of this country. Above all vices, that's the worst. By far.

You can argue about movies and video games and teevee shows being our downfall, but when in the hell was the last time you saw some idiot running around with the name of a Broadway or Hollywood star on the back of their shirt? Or with a decal on their vehicle of some teevee show or movie?

Cities and states didn't spend billions upon billions of dollars building arenas and venues for showgirls over the past two decades, did they? But they spent that much money on stadiums and arenas for overpaid, overpriveleged, overworshipped, undereducated twits in sports uniforms.

Where did the majority of the deadly municipal debt come from? See above.

EmileLargo's picture

There is a lot of truth to this. It is the same story in Britain where the antics of numb nut soccer players occupies so much of the people's time with their idiotic stories in the tabloid press, it is probably one of the major reasons the country is in utter doo doo.

But the question you have to ask is that if the people didn't have sports (among other distractions), what would they actually do with their time? Bread and circuses have their uses. Your average joe is not going to spend his leisure time listening to Beethoven, read Shakespeare or learn about the genius of the great painters of the Renaissance. He needs instant , cheap and easy entertainment. And football in the US (and Soccer in the UK) provides him with that.

StychoKiller's picture

When did hangin' out at the milk bar with yer droogy friends become passé?

LawsofPhysics's picture

For the average moron, sports provides the outlet.  It is either that or war, take your pick.

LFMayor's picture

Don't forget the bread (WIC, EBT) that goes with the circuses.

I've read this story before, in History classes at school, even!   We are fucked, but good.

pvzh's picture

Does not seem to reduce wars. When was it last time that USA was not at war with anybody?

drB's picture

Not true. You need to look at the whole athletic department instead of just football program. For each football scholarship they will give a womans' lacrosse scholarship and that will not generate any profit. In general, only 5-10 athletic programs in US generate money as a whole. Please see

Tsar Pointless's picture

You are missing the point.

GET RID OF ALL COLLEGE-FUNDED SPORTS. If you want to play, YOU pay. Not the government. Not other non-sports playing members of the student body. YOU.

That goes for football and womens' lacrosse or field hockey or bocce ball or what have you.

It's LONG past time where education centers stop funding things that are NON-education related.

drB's picture

That I completely agree with - sports should be self-funded/separate from University since it has no educational value. My argument was that very few sports programs generate money as a whole, despite what people think.

FlyoverCountrySchmuck's picture

You haven't seen stupid until you have dealt with a State-run University as a non-student. They are nothing but giant JOBS PROGRAMS, too politically powerful to stop. There is ZERO incentive to cut costs.

r101958's picture

Panem et circenses Baaaaaby!

perelmanfan's picture

The problem with comparing the incomes of college grads to non-grads is that the latter group includes the mentally handicapped, prisoners, druggies and assorted unmotivated types. A useful comparison would be to contrast the incomes of college grads to those of motivated, intelligent non-grads. I've met a number of people who skipped college because they were so damned smart and motivated that they did not have time to wait through four-six-eight years of bullshit, they wanted to get to it. Two famous examples are Bill Gates and Elon Musk - the latter runs Tesla Motors, SpaceX and Solar City. But there are also plenty of six-figure plumbers, electricians, Mercedes mechanics and entrepreneurs of all stripes in this category. If your kid has drive, use what you'd devote to his college tuition for a startup stake in his enterprise. You might both get rich.

TheFourthStooge-ing's picture

perelmanfan said:

The problem with comparing the incomes of college grads to non-grads is that the latter group includes the mentally handicapped, prisoners, druggies and assorted unmotivated types.

The former group also includes those types. In fact, college administrators and professors include those types as well, as long as you count mental illness as a mental handicap.


Gringo Viejo's picture

Student loans: The greatest scam since the '70s when a guy came up with the idea of selling apartments to people, charging them monthly HOA fees and calling them CONdominiums.

eatthebanksters's picture

If student loans were distributed like construction loans, out of escrow or from the lender directly to schools, text book stores, food centers and living space providers, I bet you would see the dollar amount of student loans drop dramatically.  The stereo and auto markets would suffer as would the growers in NorCal.

DC Exile's picture

Au contraire. If the loaned funds went directly to the student instead of the specified institution, we would introduce some competition in higher education pricing. The student should be free to shop around for classes and a degree without being locked into a particular institution. As it stands the higher learning system has quite the racket going. Student loans -- in the name of individual student -- go directly to the coffers of the higher education institution. After they take their cut, usually up to 80% to cover tuition, fees etc, any remaining funds are issued to the student usually on a bank issued debit card with high usage fees. If the student is to be saddled with non-dischargeable debt for the rest of his life, he should have as much discretion as possible on how to spend it. As it stands today, colleges and universities have partnered with the worst elements of the banking and political class to create a permanent caste of debt slaves out of well-intentioned yet often naive young people.

baby_BLYTHE's picture

Ben Bernanke Says That His Son Will Graduate With $400,000 Of Student Loan Debt

If Daddy can print to bailout his buddies on wallstreet, why not print to bailout his own flesh and blood?

drmfh's picture

And this is the son of the guy that's pulling the levers on our economy. Hell, just use daddy's influence and forget the education cost. The kid could get a degree from U of Phoenix online  or the local community college and be running (ruining?) the economy in just a few short years...