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.
73 comments
ivl products coupons
Woah! I'm really loving the template/theme of this website.
It's simple, yet effective. A lot of times it's tough to get
that "perfect balance" between user friendliness and visual appearance.
I must say you've done a great job with this. Additionally, the blog
loads extremely fast for me on Chrome. Excellent Blog!
Camille
Ever hear of 'PREDATORY LENDING"?
Moral outrage!? Debt, Credit, Bankers delight. An open letter to Cons. « thecorporatechronicles
[...] And this is how some of those colleges and universities are acting toward the taxpayer http://voices.yahoo.com/colleges-lure-homeless-pay-tuition-taxpayer-dollars-7503880.html http://www.businessweek.com/magazine/content/10_19/b4177064219731.htm http://nakedlaw.avvo.com/2010/06/8-reasons-college-tuition-is-the-next-bubble-to-burst/ [...]
Will college tuition be the next bubble to burst? | The Thinker
[...] this Naked Law article provides eight reasons why college tuition will be the next bubble to [...]
bestrate home loans
Magnificent put up, very informative. I ponder why the opposite experts of this sector don't understand this. You must continue your writing. I'm confident, you've a huge readers' base already!|What's Taking place i am new to this, I stumbled upon this I have discovered It absolutely useful and it has aided me out loads. I'm hoping to give a contribution & help different users like its aided me. Great job.
Online accountancy tuition
Wonderful beat ! I wish to apprentice even as you amend your web site, how can i subscribe for a weblog site? The account aided me a acceptable deal. I have been a little bit familiar of this your broadcast provided bright clear idea
Todays Math Problem…….. You Borrow $212,000 – Talk Delaware Online
[...] [...]
hard money lenders chicago
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.
Ron Paul for President – Page 53 – Fires of Heaven Guild Message Board
[...] 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 [...]
Ask an Economist: What’s the Deal with College Tuition? By Michael van Baker «
[...] 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.] [...]
Ask an Economist: What’s the Deal with College Tuition? | The SunBreak
[...] 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.] [...]
Laws for the GOP to Pass: End Financial Aid for College | The Conservative New Ager
[...] 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 [...]
cpascal
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.
Nathan S
"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.
Bureaucracy grows in the education cartel | ISOwatch
[...] 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 College Graduate Bubble: One Student’s Story | Light from the Right
[...] bubble in graduates isn’t the only bubble. At NakedLaw, a recent article provides “8 Reasons College Tuition Is the Next Bubble to Burst,” [...]
The Daily Eudemon
[...] 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. [...]
The US College Tuition Bubble « James Williams
[...] interesting post over at Naked Law has some interesting facts on tuition levels in the US. Just about everyone on earth is aware that [...]
Me
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!!!
You
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.
LawsOfPhysics
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.
Al Camus
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?
Dea
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...
Tim
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.
ToddZ
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.
economics9698
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.
FlyLadyFan
#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.
Cameron
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.
The College Tuition Bubble | White Rose Institute
[...] Click here to read the full article [...]
S
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.
bookbabe
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.
Stephen S
I'm just hoping the bubble bursts by the time my daughter (currently age 14) enters college.
phobelexx
just dump the public school prison system
See
johntaylorgatto.com
The Teenage Liberation Handbook
sudval.org
Unschooling
Don Howard
I hope all college administrators and staff with the exception of a very few dedicated professors starve in the streets.
eye cataract surgery video
Wow?- that had been rather detailed, appreciate it.
News Flash
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....
College Tuition: The Next Speculative Bubble To Burst — 1389 Blog – Antijihadist Tech
[...] Avvo.com: 8 Reasons College Tuition Is the Next Bubble to Burst 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. [...]
College is like a Frat Boy… | Rico Penguin
[...] I would like to cite NakedLaw. They mention much of what I have above with sources and with eloquence that only a lawyer can [...]
steve job
one digital lecture can reach 2-4 billion people
college gone by 2020 2030
Worth Reading » The next bubble to burst
[...] College tuition. 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. [...]
Politickles » Blog Archive » Is the Ed Bubble about to Burst?
[...] Is the Ed Bubble about to Burst? July 7, 2010, 4:04 pm 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. – NakedLaw.com [...]
marc
What is the percentage of grads actually finding what they want with their degree? I've a business school diploma which I never "needed".
How's about the percentage of folks nearing fifty getting degrees? Any point in that (besides personal satisfaction; tho via main stream lies)?
c-love – Burn My Biscuits
[...] While you’re doing things I say, you’d should read this article. [...]
Jeff Kelly
A great step toward ending this bubble would be to change the bankruptcy laws and allow student loan debt to wiped out in bankruptcy. By making all student loans nondischargeable, we are creating a large class of economic slaves.
MBA Underground
It's a huge bubble. Anyone with a pulse can get a college degree or an MBA. It has become a joke.
http://www.mbaunderground.blogspot.com
Is college tuition a bubble that’s about to burst? « Get Out of Bankruptcy Blog
[...] There's a fascinating article on Avvo's Naked Law site, titled 8 Reasons College Tuition is the Next Bubble to Burst. [...]
RL
The strategy here is to slowly, but SURELY, aim America towards a third world country, where only the rich and poor exist. Making higher education so expensive that only the rich can afford, will permanently eliminate the middle class. Intelligence will no longer prevail, only deep pockets. How pathetic.
G. Wright
Yeah, and....?
The author titles this article: "
8 Reasons College Tuition Is the Next Bubble to Burst" yet fails to tell the reader what does it mean if this "bubble bursts?" What happens? Does tuition drop like home prices did when the real estate bubble burst?
I read and read and yet nothing about this from the author as one would otherwise expect.
Very disappointing.
john in brooklyn
I teach at a major university - both online and in the classroom. I much prefer in the classroom because you get the discussion back and forth. Teaching online is much more a one-way street. I also get the impression that schools are looking at online classes as huge money makers and that classroom quality isn't as important as building out the classes and filling them up with students.
john in brooklyn
I think another problem are these "national rankings" of schools that make high schoolers think that a private $50,000 year a school is so much better than a $10,000 a year state school. There's also such a distorted emphasis on the prestige of a school even though most of us over the age of 25 learn that once you're in the workplace it rarely matters where you went to school. Unless you're trying to get a job in the Obama administration or on the Supreme Court, an expensive private school education isn't a necessary requirement.
Education123
Agreed
You make such a good point about how in the "real world" or business world really The name if the school is "not that big of a deal". In addition you bring up the other great point of the "national ranking" systems for colleges. These college guides are just great sales and advertising tools. Yes these guides contain great information, but agian there is no real scale to compare schools. Companies like the "Princeton Review" come up with all these scales that apparently give the school a score which measures the worthiness of the school. If anyone has some spare time you should research the schemes that schools are getting in trouble for in attempts to boots their scores given to them by ranking guides. At the institution where I earned my undergrad degree there was a big investigation by ( I think the Wall Street Journal or the New York Times) about how one of the factors that contributes to a schools score by these guide books, is the percentage of the schools alumni that donate money. Every freshmen entering the college is required to make a $150 deposit to attend school. If you leave the college before you graduate you loose this deposit, and if you graduate from the school you get it back after graduation. However what my college was doing was not refunding this deposit to graduates unless it was asked for. This deposit was then calculated as an alumni donation.In what my school called "an error" and issued a statement went unchecked and noticed for years. And in case you were wondering : yes it is a little small private college which charges yearly tuition in upwards of $40,000 annually. The type of school which these guide books are perfect for.
Jill Andrews
....are we wasting time sending so many to college? The jobs have disappeared to countries where the work ethic is stronger and the paychecks lower and without all the so-called safety insurances (retirement, healthcare, recreation, etc.,) attached here in the states.
Personally I think if you have college age sons and daughters--teach them a trade. Trade schools should be a large part of any high-school system. Right now, the No-Win Wars keep going because young folks find there are no jobs available. Yeah--Our kids are fodder for the "finer" folks running these ridiculous systems.
uh huh….
So the problem is that bum students can't discharge their loans in bankruptcy-? The article made a lot of sense until that idiotic conclusion.
Looks like they took away the plan of action for fools who major in frisbee playing and the history of consciousness (to graduate & default). Well boo-hoo f-ing hoo. I have no sympathy for retards who plan bankruptcy in advance.
You might want to look at the very existence of federal student loans in the first place. Without the crack cocaine of guaranteed student loans, there would be no such problem as demand would drop for worthless degrees, be they from profit or non profit schools. Blame everyone else all you want, but when the loans were cheap and your congressman told you he would "make college more affordable" you cheered when the student loan program grew even more. Now it's time to pay the piper, bitches.
See you in China - where you might be lucky enough to shine my shoes!
Randall
I teach at a community college and my husband teaches at a private university. Our salaries have not kept up with inflation.
Far worse, however, is the plight of the adjunct instructors who comprise almost 70 per cent of our faculty. Meanwhile the percentage of administrators and staffers constantly increases.
These priorities are a disgrace.
When advising students I warn them to minimize debt even if holding an extra job prolongs the time spent in school.
Surrounded by Bursting Bubbles in the Land of Opportunity
[...] According to the National Association of Colleges and Employers, more than half of all 2007 college graduates who had applied for a job had received an offer by Graduation Day. In 2008, that percentage tumbled to 26%, and to less than 20% last year. Statistics like these do not inspire confidence in a college degree, but they may have inspired a recent posting at Nakedlaw.avvo.com entitled, “8 Reasons College Tuition is the Next Bubble to Burst.” [...]
JC
I visited a college with my son recently and all the admission guy wanted to show us and talk about were the great 'amenities, the pool that looked like it belonged at a resort in Cancun, the health club that had literally hundreds of pieces of equipment with 6 full size b-ball courts, the brand new doorms, brand new football statdium, open air mall with starbucks, pizza places, etc, etc, etc. I went to college on the GI bill, worked and paid my own way, and the only 'amenity' people bragged about was the new library they had built a couple years before. Times they are a'changing. The good news is that he's way smarter than me and has a scholarship.
Intelligencer
I work in the industry... and I see problems with any government subsidy because it does change the market landscape.
I can buy a Timex watch that will last for years, if not my whole life for about $20. I can also buy a watch with a polished movement, gold case, emerald crystal... and a name like Vacharon or Patek Phillipe or Rolex... for $100K. There are people making a living selling $100K watches when a functional watch can be had for $20.
A liberal arts degree is the same. Anyone can get a degree to hang on your wall for a couple thousand dollars if you go through community colleges and state schools... but students keep choosing luxury schools... starting at $40K to $50K a year. For some of those students it's no big deal. Daddy can buy it without thinking twice... and they drive there in a $60K car and have a $20K wardrobe and take Christmas in Aspen and Spring Break in Jamaica... and life is a dream.
It's the aspirational spenders at those places that are a concern. The students who can't quite afford it but are willing to stretch and take on debt. In economic terms we say they are leveraging future earnings and most of the time this is still a viable model that over the course of a lifetime comes back into the black for the student and his or her spouse and children. A student should be making that sort of decision with eyes wide open, though.
Distortions in the higher education market? « Renovo: The Catholic Higher Education Blog
[...] I’m seeing more and more references to an “education bubble.” (See here and here, for instance.) If this analysis is correct, and we are seeing unsustainable distortions in the [...]