8 Reasons College Tuition Is the Next Bubble to Burst
June 8, 2010
Money, Politics
By Avvo Admin
Tuition has been increasing at such an alarming rate that some say we’re witnessing yet another bubble in America — this time not in the stock market or in housing, but in college tuition.
Stephen Burd, of the Education Policy Program at the New America Foundation, explains in this interview how federal student loans became non dischargeable in bankruptcy in 1998, and then private loans became non dischargeable as well in 2005. Taken together, these laws mean that students who are overpaying for degrees now with borrowed money will suffer the consequences for life.
Here are 8 reasons to believe we’re in the middle of a college tuition bubble (that’s about to burst).
1) Tuition is, and has been, increasing at double triple the rate of inflation
On average, college tuition increases at around 8 percent per year, which means the cost of college doubles every nine years. Because colleges know that students will simply borrow more money to cover tuition increases, colleges have been relying on steady tuition hikes to solve all of their money problems. If this continues a college degree will soon cost as much as a house.
2) Students are borrowing more than ever to pay for college
The number of college students graduating with over $25,000 in student loan debt has tripled in the past decade alone. Today, 66% of students borrow to pay for college, taking on an average of $23,165 in debt. Twelve years ago, 58% borrowed to pay for college, taking on only $13,172 in debt.
3) For profit colleges are paying homeless people to take out federal loans to enroll
Because student loans are so easy to acquire, enterprising colleges are paying homeless people to enroll. The math makes sense when you think about it: if paying someone a $2,000 “stipend” gets the college $20,000/year in tuition courtesy of the federal government, that’s money well spent. Unfortunately, many people who accept such “stipend” offers never graduate, become overwhelmed with student debt, and destroy their already bad financial records.
4) Colleges are on a non-teaching staff hiring spree that far outpaces enrollment
Why hire a full-time professor when you can hire an “environmental sustainability officer”? According to the a New York Times article, over the past two decades colleges have doubled their non-teaching staff, while enrollment has only increased by 40%. Often times staff members have exotic duties like monitoring environmental sustainability, or their focus is on student “lifestyle.” Economist Daniel Bennett, who conducted this study, says “Universities and colleges are catering more to students, trying to make college a lifestyle, not just people getting an education. There’s more social programs, more athletics, more trainers, more sustainable environmental programs.” Of course, much this exotic hiring and lifestyle catering is made possible by student loan money.
5) For profit reliance on federal loans has reached an all time high
According to Bloomberg, publicly traded higher education companies derive three-fourths of their revenue from federal funds, up from just 48 percent in 2001 and approaching the 90 percent limit set by federal law. The fact that colleges are almost completely relying on borrowed money to finance tuition, up to the legal limit, means we’ve almost hit the breaking point. If not for the easy student loan money sloshing around, many colleges would go belly up tomorrow.
6) Schools are spending on luxurious amenities to lure in more students
Flush with student loan money and wanting to attract even more, colleges are increasingly spending on luxury dorms, gyms, swimming pools and other amenities.
Freakonomics author Stephen Dubner noted that when he went back to his college, a chancellor told him that “[the gym] was a top priority because parents and prospective students increasingly think of themselves as customers, shopping for the most amenities for the best price, and the colleges that didn’t come to grips with this would soon see their customers going elsewhere.” But gyms are just the tip of the iceberg. At High Point University in North Carolina, students are treated to valet parking, live music in the cafeteria and Starbucks gift cards on their birthdays.
7) College president salaries are sky high, even in a historical economic downturn
USA Today reported that 23 Private College Presidents Made More Than $1 Million in 2008, while 110 made more than $500,000. In case you were wondering, this is not the norm — as recently as 2002, there were no million-dollar presidents. And it’s no wonder the college administrator gravy train continues despite the down economy. After all, when your “customers” have easy access to credit and pay you with money they don’t have, the economy doesn’t really matter, does it?
8) The student loan problem cuts across all schools, for profit and nonprofit
Often times the discussion about high tuition leads to a flogging of for profit colleges. And while for profit colleges are often the worst about shamelessly fattening themselves at the trough of student loans, it’s not a for profit vs. non profit issue. In fact, for profit colleges account for less than half of student loan defaults. Nor is the issue one of “good colleges” vs. “bad colleges.” As this New York Times article illustrates, even students at prestigious non-profit schools like NYU can find themselves in financially ruinous circumstances because of their student loans.
Whose fault is this?
The federal government for making student loans non dischargeable in bankruptcy and loosening lending standards? State governments for refusing to directly fund higher education? Schools for taking advantage of students and relying too much on tuition increases? Lenders for handing out student loans like candy? Students for borrowing money like there’s no tomorrow?
One thing is for sure, things cannot continue as they are, regardless of how we got to this point. The housing bubble gave America a hard lesson in what happens when loose credit leads to unsustainable prices. But unlike the housing bubble, in which foreclosure and bankruptcy allowed people to have a fresh start, the college tuition bubble will haunt young people for life unless bankruptcy laws change.
Wow, I agree with most of the thought provoking posts, but I believe everyone is missing the great large picture. Here it is: The economy is in the dumps, so convince older adults to join in the fun of going to university. Meanwhile, back in realityville, the economies around the world are taking the same dump as America, why, the same reason, a fluffed market. Now does our Govt. care that everyone graduates, the answer, a Resounding No. Given the new Bankruptcy Laws anyone receiving student loan dollars owns the debt for life. Hello to a whole new Market of consumers, or should I say Students. Now the new buzz word is knowledge based economy,yeah knowledge in what, last I checked there are no real new technolgies unless you count how many attributes to a cell phone exists currently, and as for the knowledge angle, most students graduating have very little knowledge. Most universities have dumbed down programs just to get people out the door. So back to the new market place. Those that do graduate only a small percentage will find work in their chosen field while the rest filter out taking any job possible given their debt, or go to graduate school taking on more debt. So, let me break this down…go to college…take on debt for life….possibly find a job…or go to graduate school….if not graduate school…then your degree is on a retention time limit…which means…if you don’t secure a job in your chosen field within a specific time of retention employers will skip you to go fish from new graduates…more simply those that are stuck taking a job outside their field might as well chalk it up to contributing to saving the economy through the new model of….everyone go to university…Furhtermore..most of the youth don’t even know or inform themselves of the economy or their chosen profession. Practically every student asked where will you go, and how much will you make….ready…the same answer…I don’t know…and 60,000…Yeah, where the heck did the idea of informing the student go..Oh yeah, I forgot…don’t inform or give misleading information…and above all else don’t help a student be aware of how much they are spending…just spend…all jokes aside this and much more is occuring all over the United States. Currently, some employers who have cried fowl are saying, A, students are really, D, students, and how do they know, well get ready for this one, they are now giving aptitude tests…love that one. So, if trust is slipping away then the value of that degree disappears. Which leads into a great question if traditional universities are turning into diploma mills how does the Govt. rationalize having an abundance of graduates? It’s not about increasing the number of graduates ladies and Gents. It’s about convincing people to go into debt thinking it will pay off. The truth it won’t!! Once a person steps back into society and realizes how much debt they own plus interest with a horrible job market they really freak, and so they take a job to start paying off a debt that will accumalate faster than the wage they earn. The ultimate truth is our Govt. is using college as a release valve hoping to find an answer as to what will spur a new economy, or should I say new bubble…just look at the Irish…My suggestion stay away from university…take a job where you can…save money where you can…relax…take a breath…evaluate your options for what is the best direction…then if college is on the radar…plan out your finances…this goes for adults ‘n’ youth….don’t get caught up in taking on debt you cannot afford……don’t become a slave to student loan debt….
Wow?- that had been rather detailed, appreciate it.
I hope all college administrators and staff with the exception of a very few dedicated professors starve in the streets.
just dump the public school prison system
See
johntaylorgatto.com
The Teenage Liberation Handbook
sudval.org
Unschooling
I’m just hoping the bubble bursts by the time my daughter (currently age 14) enters college.
These days, I discourage my students from going to graduate school. The law of diminishing returns definitely applies to education these days: Getting an advanced degree won’t necessarily yield a better-paying or more satisfying job.
Just the other day, I left one former student of mine in tears. She has had her mind set on graduate school, but she’s not sure of what she wants to do. And–you guessed it–she’ll have to take out loans, even if she gets an assistantship or even a fellowship. I told her something I don’t normally tell my students: I spent fifteen years as an adjunct before I finally got a full-time position. And while the market for non-faculty staff members has swollen, it’s gotten steadily worse for faculty members in the humanities. Plus, her interests are in more established areas of literary scholarship. The few openings in English departments are as likely as not to go to candidates with backgrounds in composition or in area (e.g., Caribbean) studies.
My eldest son is now in his 2nd semester of college. I continue to question the prudence of spending what will probably be $100,000 by the time he graduates. That same $100,000 could start 2 small businesses. …college has become so expensive, that I’m not sure it makes any financial sense anymore.
[...] Click here to read the full article [...]
Face it, getting a college degree amounts to little more than jumping through hoops, hoping of getting a series of thankless corporate jobs over the subsequent two decades. Most people don’t have the enterpreneurial spirit; that’s fine, but you mustn’t believe that a degree will make the difference between a comfortable living and destitution.
It amazes me that parents and students alike don’t see through the propaganda. When a big tobacco company funds a study which concludes cigarettes aren’t so harmful, people immediately claim that the study is biased and unreliable. When educators talk up the value of a college education, those same people swallow it, hook, line, and sinker, never seeing the obvious bias and self-serving motivation of the college promoters.
#9 – The availability of completely free on-line college education; then CLEP and/or AP test for credit. Follow-up with only technical aspects, if required, at a bricks-and-mortar campus. People will soon catch on that one shouldn’t pay $50k or more for what can be obtained for less than $5k, max.
[...] 8 Reasons College Tuition Is the Next Bubble to Burst | Naked Law by Avvo.com Posted: January 28, 2011 by pointsofhype in Uncategorized Tags: alarming, bubble, college, increasing, tuition 0 URL: http://nakedlaw.avvo.com/2010/06/8-reasons-college-tuit… [...]
It is crazy the tuition and quality of students at some of these private schools. Definitely a bubble market right now. On the flip side I get to teach Austrian economics to students I never dreamed I could reach before.
Search on YouTube for the user named “RetiredProfessor” and watch his video about how to get a bachelor’s degree from an accredited school on the cheap.
Not having a college degree today is a kin to being a high school drop out 30 years ago and yet it is nearly impossible to obtain unless you do go into debt like this or have very wealthy parents. My husband and I both went to school and life happened and neither of us was abe to graduate and then that student loan debt comes due so while you’re working to pay to live and to pay for the student loans you can’t find a way to get back into College This bubble needs to burst the USA needs to rethink its education system and if a college degree is going to be come a necessity for life the govenment needs to make it a REAL reality for EVERY man and woman without a life time of debt… Ever if you’re able to graduate you’re burdened by student loan debt until you’re 40 and thats IF you’re able to find a job using your degree in the first place…
Couldn’t disagree more about the need for a college degree. I employ 26 people at my network consulting / systems integration company and whether or not someone has a college degree doesn’t even enter into my decision when I hire or promote. I don’t have one myself and I feel sorry for the kids I hire who wasted their time getting a degree.
What are you talking about?????
CUNY – City University of New York, SUNY – State University of New York, charges around $2500 per semester, or $5000 per year, less than my children ‘s day care center. Check your State university, it won’t be higher, maybe even less.
Right . If you live in a urban area that is the way to go The biggest suckers are those who go away from home and incur the room and board debt. But of course that “campus experience” is so important in personal development. It’s like spending 40k for a 20 k car. Why would you do that?
[...] January 29, 2011 in Uncategorized | Tags: bubble, college, next bubble, reasons college tuition is, tuition Amplify’d from nakedlaw.avvo.com [...]
Well articulated and researched article. Looking at professional paths and Collages with our 17 year old daughter shows all this. However one BIG point that is missing in this article is that collages have managed to add many unnecessary classes/credit hours to degrees. Adding now 1 to 2 years of college to many couriers. For example after 12 years of English, Math and History in high school, way dose some one seeking to work in the medical field as nurse, therapist ect still need so many more credits that do not specifically teach and belong to the chosen fields….???? $ and keeping our young longer in the Collage culture!!!
So a nurse doesn’t ask his patient, “way does” it hurt?
That can’t even be a typo, “h” is in the middle of the keyboard and “a” is on the left.
[...] interesting post over at Naked Law has some interesting facts on tuition levels in the US. Just about everyone on earth is aware that [...]
[...] This article about the “college tuition bubble” is interesting, but its content doesn’t support its assertion. The assertion: College tuition is in a bubble that is about to get pricked. The content then gives eight reasons why college tuition is outrageously priced, but only one of the reasons explicitly supports the idea that the bubble is about to get pricked: According to Bloomberg, publicly traded higher education companies derive three-fourths of their revenue from federal funds, up from just 48 percent in 2001 and approaching the 90 percent limit set by federal law. The fact that colleges are almost completely relying on borrowed money to finance tuition, up to the legal limit, means we’ve almost hit the breaking point. If not for the easy student loan money sloshing around, many colleges would go belly up tomorrow. [...]
[...] bubble in graduates isn’t the only bubble. At NakedLaw, a recent article provides “8 Reasons College Tuition Is the Next Bubble to Burst,” [...]
[...] Bankruptcy provides no escape from student loan debt. Americans can hand back their house keys and walk away from their unaffordable mortgages but not their college degrees. And many never reach graduation. [...]
“The borrower is slave to the lender.” Proverbs 22:7. The ruling class gov’t seeks to enslave everyone–the poor through their dependency on social programs like Medicaid, SS, and Welfare. Now they can enslave the middle class with huge students loans that will last them for 10-15 years with no escape. If these groups are enslaved, the “rich” will steadily shrink. The gov’t needs to stop being a lender, and stop spending like drunken….congressmen.
I’m agreeing with the above poster who recommended learning from the internet for free and then doing CLEP or AP tests. In fact, there are credit-by-exam colleges where you can do the whole degree this way. Also, you can do it at home in your spare time, so that you don’t have to put your life on hold for 4 years.
[...] seen a string of articles on whether or not college is worth the money or the fact that the college tuition is a bubble about to burst. And to that I respond let it burst and let’s let the federal government help it along, because [...]
[...] That’s a puzzle which I don’t fully understand, why education has become more expensive. [Ed.: Here's some extra reading on the reputed causes of increasing higher education costs, and whether it's creating a bubble.] [...]
[...] That’s a puzzle which I don’t fully understand, why education has become more expensive. [Ed.: Here's some extra reading on the reputed causes of increasing higher education costs, and whether it's creating a bubble.] [...]
[...] not for the easy student loan money sloshing around, many colleges would go belly up tomorrow." – 8 Reasons College Tuition Is the Next Bubble to Burst | Naked Law by Avvo.com Similar situations occur with the health-care problem as well. Govt throws sooo much money at [...]
I dont see how people can even afford a 4-year college anymore. I foresee a huge spike in attendence at junior colleges in he next decade. Hopefully they can accommodate the influx of students.
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[...] this Naked Law article provides eight reasons why college tuition will be the next bubble to [...]