Back in May 2014 [13], 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 [14]." 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:
[15]
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 [16]:
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.
[17]
And while we have previously reported that a shocking amount of the loan proceeds are used to fund anything but tuition payments [18], 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 [14]...
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.
[19]
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 [20], 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 [21], 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.
