What’s the next industry to bubble up…pop…and collapse?
“Student loans,” said our new friend, Barry Dyke.
From the far north…well, from New Hampshire…Barry has been following the money. And he sees a lot of it going to the education.
“It worked just like subprime,” he explained.
The feds bankrolled it. Guaranteed it. Regulated it. And conveniently didn’t notice as it got to monstrous proportions… And then, when it blows up…they’ll be there again, pointing fingers and promising to “regulate” more heavily.
“When you pay for something, you get more of it,” says presidential candidate Ron Paul.
The feds paid for one heckuva a lot of US education…subsidizing students and colleges…with trillions of dollars. They pay for GIs to go to school. They give grants to the schools themselves. And they hand our hundreds of billions in loans, at low teaser rates (just like sub-prime!) to students…often to students who are unqualified and unlikely to get much out of it.
Here’s the Washington Post, story:
As the nation amasses more than $1 trillion in student loans, education experts say a vexing new problem has emerged: A growing number of young people have a mountain of debt but no degree to show for it.
Nearly 30 percent of college students who took out loans dropped out of school, up from fewer than a quarter of students a decade ago, according to a recent analysis of government data by think tank Education Sector. College dropouts are also among the most likely to default on their loans, falling behind at a rate four times that of graduates.
“They have the economic burden of the debt but they do not get the benefit of higher income and higher levels of employment that one gets with a college degree,” said Jack Remondi, chief operating officer at Sallie Mae, the nation’s largest private student lender. “Access and success are not linking up.”
The plight of “non-completers” has grown in magnitude as student debt tops $1 trillion, according to the Consumer Financial Protection Bureau. In addition, the sputtering economy has forced a growing number of students to make difficult choices between the benefits of a degree and the burden of paying for it. More students are balancing their studies with full- or part-time jobs or signing up for a reduced course load to save money, increasing the likelihood that they will not graduate.
Colleague, Justice Litle, is on the case too:
We have all heard it said: “You can’t put a price on a good education.” But this is silly – of course you can.
It was the thoughtless peddling of such a mantra that allowed institutions of higher learning to raise prices with impunity… year after year, at a faster rate than inflation, as costs spiraled out of control… with government-sponsored loan programs fueling the whole thing.
Echoing subprime, the college bubble even has its own version of the “principal-agent problem,” in which the financial interests of the college (which profits from the loan money) have no alignment with the students (who voluntarily drown themselves in debt).
Soon these (literally) poor, debt-burdened waiters and waitresses of the future may realize they were snookered, and wake up angry… not unlike the legions of starry-eyed home buyers who, caught up in the rush of the American dream, chained themselves to a grossly inflated asset at a price impossible to pay.
Geez. It looks like college students have been the chumps in this story…flimflammed by the feds and the universities.
But, remember, we are grateful to the patsies. They’re the ones who keep the whole scammy economy going.
Imagine what would happen if young people decided to learn something instead of going to college? They could get a job learning from a plumber or a machinist…or apprenticing to a furniture maker…or just sitting in the library with a big stack of books and a notepad. No tuition payments…no beer parties…no orientation programs (No means no!)…no graduation programs (You can make a change!)…no research labs…no football stadiums…
…imagine if a group of them got together, hired a teacher…and learned the classics…or theoretical physics…or quantum mechanics…or linguistics…the old fashioned way? Let’s see, pay the teacher $80,000…split it among 7 students… Good teacher/student ratio…much better than sitting in a lecture hall with 150 other students. And $8,000 each.
A lot better than the $40,000 we spent to send our five children to college. Yes…we spent about $40,000 for each of them, per year. You can do the math. It adds up to $800,000. And we’ve got one more to go!
That’s why we’re still writing these Daily Reckonings…we can’t afford to stop.
And it’s kinda fun, frankly…as long as you don’t take it seriously.
But let’s not talk about us. Let’s talk about them. Those poor young people…leaving school with $25,000 in debt (approximate average)…and a punky job market.
If they got a degree in math or science, they can probably get a job. But what if they got a degree in the social sciences? Or the arts? Or no degree at all? How many baristas can Starbucks hire?
What can they do?
Go to work for the government! Or at least go to work in ZombieTown. You don’t need to know anything to work for the feds. No kidding.
There’s a “Bubble on the Potomac,” writes Andrew Ferguson:
Every week brings fresh evidence of continuing prosperity: a new restaurant, a new nightclub, another restored 19th century townhouse in a previously dodgy neighborhood selling for $1 million or more. Start-ups are hiring through Craigslist, and just opened lobbying firms have no trouble collaring clients. Storefronts that stood abandoned five years ago fill with pricey gourmet-food shops like Cowgirl Creamery, a cheesemonger that has opened its only store outside Northern California on F Street downtown. Its Mt. Tam cheese goes for more than $25 per pound. It’s organic.
Another Northern California import, a limousine service called Uber, launched in December after great success in San Francisco and New York City. “The growth here has been unique in our experience,” says Rachel Holt, who oversees Uber’s burgeoning D.C. operation. Uber is Web-based and cashless: customers call for limos with a smart-phone app and pay with a credit card on file. It’s also deluxe. Riders expect nothing lower on the limo food chain than a Town Car, with offerings going up to Mercedes and beyond.
Holt says with some surprise that locals are using Uber as everyday conveyance for commuting and shopping. Uber exploits Washington’s unique combination of heavy use of social media, a young and often carless population and customers with fistfuls of disposable income. When the D.C. taxi commission made a move to shut down Uber earlier this year, Twitter erupted in indignation under the hashtag #Nevergoingback. Welcome to über-Washington.
Other big cities, of course, have made it through the recession in one piece. But few eased through the crash as lightly as D.C., much less prospered so widely on the rebound. The local unemployment rate, at 5.5%, stands well below the national figure of 8.2%…
How’s a country to make sense of a national capital whose day-to-day life is so much more upholstered than its own? Increasingly, it cannot. Recently Washington passed San Jose in Silicon Valley to become the richest metropolitan area in the U.S. Since the 1990s, says economist Stephen Fuller of George Mason University, the region has led the nation’s metropolitan areas in overall employment rate.
The median household income in the metro area in 2010 was $84,523, according to calculations by Bloomberg News, nearly 70% over the national median household income of $50,046. Nine of the 15 richest counties in the country surround Washington, including Nos. 1, 3, 4 and 5. Per capita income in D.C. is more than twice that in Maine. All this explains why Gallup’s Well-Being Index rates D.C. as the most satisfied large metropolitan area in the U.S.
The pollsters were especially impressed with the region’s low smoking rate (15%) and the 72% who visit the dentist annually for a checkup. Washingtonians are skinnier, exercise more, eat more vegetables and are more likely to have health insurance than the average American. They’re also more optimistic – about the economy and about the future in general.
According to a 2007 report by the Tax Foundation, for every dollar in taxes Washington sends to the federal government, it receives five in return. Fuller says that over the past 30 years, the federal government has spent $860 billion in the D.C. region, two-thirds of that since 9/11.
Aside from its wealth, the single defining feature of über-Washington is its youth. Most of the people who have moved to Washington since 2006 have been under 35; the region has the highest percentage of 25-to-34-year-olds in the U.S. “We’re a mecca for young people,” Fuller says. One recent arrival says word has gotten out to new graduates that Washington is where the work is. “It’s a place where a liberal-arts major can still get a job,” she says, “because you don’t need a particular skill.”
That explains it.
for The Daily Reckoning Australia
From the Archives…
When Capital Comes A Knocking
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2012-04-28 – Dan Denning