Shell Game

The higher education student loan bubble keeps on delivering:

Laura Sayer, unsure of what she wanted to do after graduating from college in 2006, figured a master’s degree was “a safe bet.”

With $5,000 in undergraduate loans from her time at the University of Cincinnati, Sayer was set back $50,000 more after completing the Interdisciplinary Master’s Program in Humanities and Social Thought at New York University. The 27-year-old now makes about $45,000 a year as an administrative assistant for a nonprofit group, a job that didn’t require her advanced degree.

More people are losing the same gamble as a 33 percent jump in U.S. graduate school enrollment in the past decade, coupled with an 80 percent surge in tuition and required fees, runs headlong into a weaker job market. Universities are fueling the trend by offering more one- and two-year programs in areas from environmental science to sports management that rarely come with financial aid other than the option for loans.

More: Trapped by $50,000 Degree in Low-Paying Job Is Increasing Lament

I was just wondering how specializing in Humanities and Social Thought could be considered of safe bet. (Don't bother... I know... there's a huge and growing need for people with that kind of formal training.

And why would you borrow money to attend college without a definite career plan? (I think I already know the answer to that one as well.)

Via: Market-Ticker.org, where Karl Denninger deconstructs this insanity with great enthusiasm.

I've written about the higher education and student loan bubble previously. It's no secret that I think the recent and current situation is unsustainable.

Higher education is experiencing a financial bubble much the same as the financial and housing sectors have. And it's going to collapse, as surely as the others. It's only a matter of time.

The other student loan problem: too little debt brings us the latest bad news in the student loan arena:

• New borrowing flattened out last year, and actually declined on a per-student basis after taking the official inflation figures into account:
  

  But getting almost no notice in recent reports was another stat: New borrowing nearly flattened out last year, according to the College Board, and actually declined on a per-student basis after accounting for inflation. Private borrowing (generally more dangerous to students) has dropped from about $24 billion in 2007-2008 to about $8 billion last year. A major factor is likely increased federal grant aid. But another may be students making more sacrifices to avoid loans.

• More students are opting for less-prestigious schools, choosing those with lower tuition.
• Students are more likely to drop out (or not receive a college diploma or degree) if they don't take out student loans. And of course, there's a racial component:
  

  Student debt aversion is most pronounced among Hispanics and Asians, who borrow at lower rates than whites despite having higher financial need. And it appears to have the greatest consequences for Hispanics and blacks.

  Fifty-one percent of blacks who had financial need but decided not to borrow had left school within three years without a degree, compared to 39 percent of those who borrowed, the study by Excelencia and IHEP found. For Hispanics, 41 percent of non-borrowers had left, compared to 32 percent who borrowed.

  Need I point out the obvious? Those who drop out without having borrowed do so unfettered by crushing debt? And that there's a shockingly high dropout rate even among those who chose to borrow?

• Schools and other higher education proponents will have to work harder to 'educate' prospective customers students. They'll have to put out a 'nuanced' message to convince customers students that some level of debt is actually beneficial:
  

  But it's so important to move students through community college expeditiously, he says, that he's concluded debt aversion is a more dangerous problem overall than student debt.

  "The longer they're in school, the more opportunity they have to be distracted by life events, jobs, families, situations that change in their own families," says Oakley, whose student body is 41 percent Hispanic and 16 percent Asian. "If we can minimize those exit points and shorten their time to degree, that's much more advantageous to them."

  The solution is helping students better understand the complexities of financial aid: the difference between government and private loans, how much debt is manageable, the likely returns on various degrees and majors.

  "It's hard to get a nuanced message to students so they can act prudently and get their education," Santiago said. "We have to show there's a level of financial aid and loan amount that's reasonable."

It's sad that powerful virtues (thrift, hard work, paying your own way, avoiding debt) are warped into liabilities by the higher education marketing establishment. I hope that their prospective customers students can resist the marketing hype and continue to adapt to the realities of the higher education market: ever-increasing demand has caused unprecedented tuition inflation (sustained only through 'easy money' in the form of readily-available student loans.)

(Hat tip: Nine Pound Sledge)

On a somewhat lighter note, Scott Locklin gives us this excellent takedown of the recent (and quite bizarre) 'space aliens are gonna come kill us because we're not enlightened enough' meme.

Today's word of the day: Banktatorship.

Banktatorship: n. Autocratic rule by bankers.

Stash this one for future reference. It's starting to look like it'll be useful.

Source: Picked up this gem in a thread over on market-ticker.org.