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Source link: http://archive.mises.org/12691/the-education-bubble/

The Education Bubble

May 12, 2010 by

The average range of tuition inflation is normally 8% annually, and prices have not fallen or stabilized once since 1977, regardless of economic climate. This symptom may be attributed to cheap and accessible money. FULL ARTICLE by B.T. Donleavy


Todd S. May 12, 2010 at 5:11 pm

I just recently (as in, last week) re-enrolled in school to finish a degree program I previously stopped. I was flabbergasted to find that tuition – at a public school – had risen nearly 60% since I last attended just 7 years earlier.

Jake_nonphixion May 12, 2010 at 5:55 pm

I recently came across a pamphlet on my campus that states the goals of a campus organization dedicated to improving the education system. These stated goals were as follows:

-Unlimited funding for as much higher education as a student desires

-To help with unemployment, cut back teachers hours to 30hrs/week with the same pay, and hire more teachers to fill in the extra 10hrs/week

-increased federal grant money to pay for living expenses

And a few others that I cannot recall at the moment. It is obvious the people responsible for this pamphlet were not Austrian economists… The fact they think the teacher employment goal would be good for the economy is evidence of Keynes’s theory, that digging ditches and filling them up again being economic activity, now being a part of mainstream dogma. The same result at 1.25x the cost being a productive gain only makes sense to a Keynesian…

I tried discussing these goals with several classmates on campus who clearly saw their benefit. The argument goes: education is an investment that makes people more productive, so the return is net positive for society. I admit at least initially this point is well received, until I think of the students at my school. Many that I have spoken to have never worked a day in their lives, most do the bare minimum to pass their classes, and almost all of them use their loan money on drugs and alcohol. They are loving this “free” lunch, and without any earned sense of responsibility or character they are going to ride it out until they are forced to wake up with debt pouring out of their ears and no marketable skills other than a piece of paper that states you can take (or fake) a test well. I also wonder sometimes that, if this is what it’s like in engineering school, I would hate to see what the liberal arts or alternative medicine degree students are like (no offense to anyone pursuing these degree programs).

This is the first time in human history where society has been rich enough to allow children the luxury of avoiding labor until they were at least 16 years old. It’s wonderful that they have the opportunity to develop intellectually without the added stress of fiscal responsibility, but there comes a time when it begins to detrimentally affect one’s ambition. Laziness is hard enough to overcome without being coddled until you are 26-28yrs old.

But, alas, it seems hopeless to try and afford college while working. And that’s because it is hopeless. I was fortunate enough to work a commission only sales job with an extremely flexible schedule and make $500-$800/week, but with tuition being 10k+ twice a year and 5k+ in the summer time this was more than 65% of my income. So I had to take out loans. When I went and applied I found that I was making to much money to be eligible. Plus being 23yrs old I still have to claim my parents income on my financial aid in addition to my own.

So the signal is strong. Don’t work, because you won’t get any money.

I’ve got a 3.9GPA and thought for sure I would be eligible for scholarships, I’m 1st in my class for civil engineers after all. When I started applying for them I quickly found that almost all were determined by financial need. I didn’t qualify for 75% of them.

So the signal is strong. Don’t work, because you won’t get any money.

This system is so backasswards that it only rewards laziness and unproductive behavior. It saddens me how few of my generation understand how it got this way. It’s not the “evil” schools, they are just taking advantage of the system as anyone would. But without the system they would be forced into scaling their costs to a reasonable level, because noone could pay for college at these prices.

The only thing the government can do is make it worse by further distorting the signals of the market. It not only hurts the students that won’t be able to pay the loans back because they couldn’t get jobs with their meaningless degrees, or the taxpayers that have to foot that bill, but it also hurts students like me who are hard working, passionate, and driven to succeed but are trapped in a system that doesn’t reward those things (at least not yet).

Sorry for the length, I’ve got a lot to say on the subject…

Russ May 13, 2010 at 12:17 am

Just fill out applications for scholarships, grants, etc., claiming that you are a Sudanese lesbian paraplegic. You’ll get more money than you’ll know what to do with.

Jake_nonphixion May 13, 2010 at 2:43 pm

Wow, that is really funny because it’s so true… There are great benefits these days for being “underprivileged”, the problem is that the definition of underprivileged is inherently racist, sexist, and sectarian. The worst thing you can be born as these days (at least where funding for higher education is concerned) is a middle class Caucasian male. Qualification has little to nothing to do with individuals and their merit, but rather societies’ egalitarian goal. Russ explains it perfectly below “any actual inequalities must be caused by “injustices” that can be cured by education.” With this as the intended objective it’s easy to see why policies are they way they are.

This causes problems in three major ways. One is the focus put on individuals regarding their differences. I remember in my high school, which was predominately white, my black friend told me about the mandatory cultural awareness meetings that he and the other dozen black kids had to attend. There they had to talk about what it was like to be different. I mean, wow, that’s really racist to separate people according to their race and make them talk about their peculiarities… Well intentioned, I’m sure, but nonetheless racism cannot be defeated with policies that are inherently racist. It is almost as if many of these bureaucrats are obsessed with race, and while this is different from the hatred driven racism in the past, it is still by definition racist. Another problem comes from the dependence on the system that always comes from receiving something from nothing. When responsibility is lifted from an individual to provide for themselves complacency begins to settle in. It’s like the wild animal (excuse the analogy) that is taken in and fed from birth. When it is eventually is released once again to the wild, chances are it will starve because it lost the ability to hunt for itself. The third problem that is similar to the first, in the sense that it perpetrates racism, is the resentment that such preferential treatment builds in those to which it is denied. This resentment is almost always lain on the shoulders of those who were unjustly rewarded and not the system. Most people are too narrow minded to look at the root of the disease, focusing merely on the symptoms.

So I guess there’s another problem to the way the whole education system is set up… It kinda makes people racist

RTB May 12, 2010 at 9:46 pm

Thank you. Well written and well said. If you are only 23 then there is still hope.

Jake_nonphixion May 13, 2010 at 2:48 pm

Thank you. And with as many people as I talk to that are blind to economics, there are actually a surprising many who have recently come on board the Austrian tradition. I forward these daily articles to a lot of my class. Young people are very excited by the idea of liberty, especially when it is obvious we are paying into a ponzi scheme with no hope of cashing out before it crumbles.

Dave Albin May 12, 2010 at 10:10 pm

I don’t think high school students ever hear this side of things…..

Frank G May 12, 2010 at 10:29 pm

Not that long ago I was talking to an acquaintance that works in the admissions office at my my alma mater. The subject of where my two high-school age daughters might attend university came up when we were talking. I told her that while I appreciate the schools prestigious academic standing, I did not see enough value in their undergraduate education to justify the extremely high price to attend and thus I doubt my daughters will apply without some kind of decent scholarship offer. She was literally floored and had the look like you get from a Dr. when you price shop a procedure. I told her that for $50k a year (tuition, books, room and board) or almost a quarter million dollars for an undergraduate degree was an insane amount of money. Well, you would have thought I had called her something awful becuase she went on for 3-4 minutes making every sales pitch she had to convince me otherwise. She basically in 10,000 words insinuated I was an dolt for thinking the way I did. Her main point was that you can’t look at an education in dollar and cents and that you have to consider the intangibles that can’t be priced. I left it at that, but come on…intangibles…priceless? What about reasonableness and usefulness? Hey I love education and some day I hope to go back and get my Phd, but it makes no sense to spend so much on an undergraduate degrees which is quickly becoming the equivalent of yesterdays high-school diploma.

Russ May 13, 2010 at 12:13 am

I don’t think this admissions bureaucrat is necessarily a bad person. She’s just a typical American who buys into the fiction that all inequalities and problems in life can be cured by education. This follows from the whole leftist mindset, which is that everybody is literally “created equal”, i.e. with equal potential abilities. If this were true, then it would logically follow that any actual inequalities must be caused by “injustices” that can be cured by education. People also believe that public education is necessary for democracy to work (like that has worked so far). In fact, our voting public is so uninformed that even nominally well-educated people can’t understand why socialism is bad. But these attitudes towards education are among the myths that we live by.

collegeloanconsultant May 13, 2010 at 11:03 am

The only solution is to force colleges and universities to share the burden of defaults with taxpayers. The problem is that this would end up limiting the number of loans written and (politics aside) the government cannot allow this to happen. With the passage of SAFRA, the government now has a profit motive. All unsubsidized federal loans, but especially Direct PLUS loans are being used to finance subsidized loans and Pell grants. Without a high volume of unsubsidized loans, these programs could not be financed.

C. Cryn Johannsen May 13, 2010 at 12:34 pm

You say “impending” student lending crisis? Really? I encourage you and your readers to explore Education Matters – I am an advocate for people who are struggling or unable to pay off their debt, and have been writing, researching, and connecting with people in the White House, on the Hill, etc., etc. about the serious problem of student loan debt.

It’s not impending. Not in the least. In fact, it has already arrived, and the results are disastrous for the U.S. (on so many levels).

If you are part of the indentured educated class, please don’t hesitate to reach out to me via Facebook (I can easily be found) or email (that’s listed on my site’s page). I also created a group on Facebook called “The Support Group for the Indentured Educated Class.” Reach out to me and others today!

-Ms. C. Cryn Johannsen
Founder of Education Matters

Affiliated Partner of SponsorChange.Org and Senior Blogger at Philanthroteer

Ohhh Henry May 13, 2010 at 8:43 pm

I believe that the politicians will use student loan “relief” in order to conscript millions of young people into military or civilian service. Already, according to this article, the new law is more lenient on loan forgiveness for government employees. The trend will be toward progressively greater loan leniency for progressively more onerous “service” to the imperial war machine and the domestic police/welfare state. Just like the GI Bill except in reverse.

john May 14, 2010 at 7:31 pm

Agree entirely with the piece, but…

> The department’s website states that “department programs also provide grant, loan, and work-study assistance to more than 14 million post-secondary students.” That is roughly 4 million short of every college student in the country. Does this mean that only 22% of students in the United States have adequate means to pay for college?

I dunno, does it? Does “post-secondary” include community colleges? Are community colleges students covered by the program? What about for -profit institutions? Are they included in the number and/or the program?

Aaron Green May 22, 2010 at 12:12 am

I attended college because I had been encouraged to since I have a physical disability that restricts my ability to work long hours on my feet. I have been taught to make myself useful.
I attended and completed it receiving a bachelors of science in psychology. I wanted to help others with disabilities by being employed in social programs etc.
I was able to become instantly employed because a Missouri government office gave incentives to a mental health agency who hire me. (I discovered this later… big upset… I did not earn my first professional job…I was handed to me…Like a hand out…)
Following a year of employment I was let go in the most awful manner. I could not fix the situation. The agency forced me out after their agreement expired. They made the job too difficult for me keep up with. I suspected they lied about some things to get me to leave and I challenged their accusation with a request of proof. The following Monday I was told not to come in. After filing unemployment I was told I could not have it because I left voluntary. I was told not to come in. How could I prove that???)
After 3 months unemployed and forced to live with my parents, I finally received a job again in the field of psychology that only paid $9.00 per hour and they asked if they could request that the agency that helped me through college could re-open my case since they would pay for part of my training. (Ouch…my degree with worth that much and they make the government agency pay for me to work their as long as they can…
Now I am partially homeless while living with my parents. I have $50,000 in student loan dept. My lenders are the direct loans and Sallie Mae. I can place direct loans on forbearance (luckly… rather been able to pay it off…). Sallie Mae informed me that it is cheaper for me to pay the interest only rather than pay monthly for the forbearance which they informed me will cost $50.00 per loan each month. I had taken out 5 with the recommendation of my financial aid department at college… If I had any idea what I was getting into. I trusted them to guide me right. I guess Sallie Mae was easy and they had to do less work. I do not really know.

So, I can see now that college was not worth it. The drive to make something of myself was for not. I was better off financially before I went for an education. At least then it would have been cheaper for others to support me. I would have taken less of their funds since I am too much of a coward to kill myself. For this I would have supported euthanasia of a physically disabled person in-case they would risk being the defect I have been.

I am educated.
I am with too much debt.
I am with no choice but to live within a higher income bracket that is barely attainable.
I am now having to ask my family for help with my bills.
I am unable to live independent.
If I did not have a computer my family could let me use, I would be forced to ask for help to get to the Missouri Career Center in the nearest town so I could adjust my resume and type cover letters on the computers available.
I cannot afford to buy health insurance. I do not believe in taking tax payer money to pay for my health care. That is just wrong for me to take from those who already within a heartbeat could have less than I.
I need a corrective surgery on my legs within the next 3.5 years so I may be able to continue to walk what little I can still.
Truly my decisions have been my failure. I am not any other persons responsibility. Working with others who are mentally ill I have had a good look at mental illness. I am afraid I am developing one or might have had one because only a crazy person could possibly would have allowed themselves to get in my situation possibly.

I have become the statistic that I so blindly fought desperately. I leave this post for your viewing pleasure. Feel free to contact me for details if you got my email. I would be glad to share my story.

ganpalou May 23, 2010 at 11:45 am

This article gives a clear example of what the Austrians term “mis-investment.” In a society based on competitive economic production, we delay the productivity of the individual to age 22 to 35; then we encourage withdrawal from productivity after about 30 years, at age 55 to 65, for another 30 years retirement. Even using cocktail napkin math, this is untenable.
It is not alarming that the younger generation is using education as their “pre-employment retirement plan,” financed by their parents and taxpayers, as those are the folks who squandered any chance of post employment retirement for the upcoming generations.
It is alarming that the institution of education has not adjusted to the new cultural realities. We are simply investing too much money in educational buggywhips and harness oil.
While the young folks are enjoying pre-employment retirement, we should be encouraging them to get their child-raising duties out of the way. That would meet their biological clocks, and offer them a self-image not defined by curmudgeon institutions. It might even thin out the prisons. Child-care incorporated into the educational institution would give new meaning to the “It Takes a Village” crowd.
I am not sure, but I suspect that the younger generation would actually be interested in some of the great concepts of math, science, philosophy, humanities, even music and arts, if they were presented by first rate minds, not by second and third rate minds who dont understand the implications and limitations of the concepts they are teaching. I, personally, had only one such professor, and he was so busy being a consultant that he showed up only three times for my 2nd semester statistics class. Nonetheless, he was clear enough that I was able to evaluate actuarial and statistical input as an executive thirty years later. I still appreciate those three lectures, and I am not such a mysanthropist that I believe others would not.
First rate minds are not that hard to find. It is a shame that we invest so much money creating an “educational” firewall between those minds and the younger generation. Current technology could easily make those minds available to the huddled masses, at improved payment to the possessor, and at substantially lower price per student. I find it embarrassing, as an American, that Pete Carrol, head coach of USC football, is the highest paid employee of USC.

Nora May 25, 2010 at 12:26 pm

Thank you for posting this. I’ve been seeing a financial aid bubble coming for a long time. The real winners in this are the lenders. The real winners with all the bubbles are the lenders. They tend to make their money back many times over…even if the borrower is not very responsible and suffers from patchy employment after college.

I think that education and training should be something that our society provides to its up and coming workforce in order to reap the rewards of the efforts and service its citizens deliver. The loyalty and service are worth a lot. If we were to step back and look at the model…it is flawed. We are not creating the ethical and balanced society and training our citizens to fill roles in that society. Rather, we are allowing the flow of money itself to create the society…

John Baron September 5, 2010 at 10:47 am

Wow what an eye opener. How will the future generations be able to afford a college education.

Tom L. September 19, 2010 at 8:09 pm

Education should be free for all from Kindergarten to PHD, whether studying art, philosophy, or a vocation. That is a human right, and it works extremely well in other countries; studying is work, going to school is work, and students be provided with a stipend as well.

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