Posted by: New Class Traitor | June 10, 2010

8 reasons why college tuition is the next bubble to burst

Via Insty and others, a nice summary of 8 reasons why college tuition is the next big bubble to burst: (the article is apparently so popular the site exceeded its bandwidth limit, here is the Google cache)

1) Tuition is, and has been, increasing at double 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 ice burg.  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 a 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.

Shanghaiing homeless people into enrolling in college so they can get student loans… This is the sort of absurdity that one normally encounters in over-the-top satirical novels…

Advertisements

Responses

  1. Hello,The theme of your blog is very good to me, I hope more interflow with you this Topic.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: