EduBubble

Here’s a wonderful poster from collegescholarships.org and byJess.net:

Infographic by College Scholarships.org

Andrew Gillen over at the College Affordability Clubhouse just produced a better estimate of the unreported or shadow debt. That is, the amount that parents borrow or raid from their 401k. The standard numbers usually focus on the kid not on the family unit and so they can hide much of the debt that the parents take on.

My guesses at these values were semi random although I tried to use some real numbers from 401K news stories. Gillen’s is a better attempt and one that should be studied. My only reservation is that it seems a bit too low, but I’m just basing this on the anecdotal stories I hear from parents and friends. Many parents I know take on even more debt than their kids.

But empirical evidence should weigh heavier than some guy yakking over beer to his friend about the huge home equity loan. So let’s welcome this and hope they’ll inspire more and deeper study of the shadow debt. This is great.

Perhaps you’re paying tuition to an “upscale law school” in New York. Perhaps you’re guaranteeing the loans of someone going to an upscale law school– something that taxpayers are doing in many shapes and forms. Well, one glance at this Craig’s List job will tell you how some of that money is being spent:

Gotham Personnel seeking knowledgeable, hardworking individual to fill Head Chef position on a temp to Permanent basis for the special events department at well know upscale Law School.Head chef will be responsible for creating and introducing new menu items, manage all aspects of the BOH kitchen with team of up to 5 kitchen personnel, must have all proper certifications/Credentials.

I love the idea that the Executive Chef must make sure that all of the folks responsible for chopping, mixing and making everything yummy have the proper certifications and credentials. Maybe this is what Paglia means by “revalorizing the trades”. If anyone has to maintain the hegemony of pieces of paper, it’s the college industrial complex. Bon Appetit!

I love Camille Paglia and think she’s spot on in many of the points that she makes in this short piece for the Chronicle of Higher Edumacation:

• “When middle-class graduates in their mid-20s are just stepping on the bottom rung of the professional career ladder, many of their working-class peers are already self-supporting and married with young children.”
• “The elite schools, predicated on molding students into mirror images of their professors, seem divorced from any rational consideration of human happiness.”

Still I can’t help but wonder how the college industrial complex will react to her meme calling for “a sweeping revalorization of the trades.” Well, yes, it’s a good idea. But I’m guessing that plumbing is doing just fine without the benefit of fancy, college-grade worlds like “valorize.”

She’s looking around and seeing that the plumber is making more than any of her students will ever make. What does the college industrial complex traditionally do when it spots an area where people are making money? Create a degree program that gives people the proper foundation for making that money, allowing the talkers to make some cash from the doers.

And so the valorization of the plumbers will begin with plumbing theory and the introduction of some latin or other fancy nomenclature into the dialect. Where before a plumber might “run a pipe” to a new sink, the future plumbing theorist will “revitalize an arid space in the housing envelope by carving a wormhole through ordinary space time for water propagation.”

Then some plumbing theorist will discover the same Gödelian logic bombs in the piping domain and everyone will fret about unbuildable homes where the water never reaches the people. Someone will write Gödel, Escher, Bach and Möe the Plumber, and then some Generals will read it and everyone will sit around asking DARPA for research funding to find a way to weaponize these unworkable plumbing schemes. Eventually some Navy Seal will slip into Kim Jong Ill’s mansion and ruin the plumbing by adding a new pipe– I’m sorry– carve a wormhole in the piping space. The crowd of plumbing theorist PhDs back at Plumbing ARPA will cheer and the 4 star general in charge (SINK HYDRO), will go up to the Joint chiefs and say that the $750m spent on Hydro Command was well worth it.

Boy, I can’t wait for the valorization to begin.

There’s so much bad news these days that I thought it was worth highlighting this story from Iza Wojciechowska over at InsideHigherEd. While tuition is skyrocketing at many state colleges, some states are keeping the thumbscrews tight on the schools. Let’s praise these politicians because they’ve got to resist tothe blather from the entitled blowhards at the state college who keep prattling on about how the schools will suffer a terrible loss if they can’t keep boosting tuition to the sky.

Let’s face reality. Most of the adjuncts are going to be gone in a year or two because they eventually figure out that the university will never give them a real job. The tenured faculty, on the other hand, won’t be going anywhere unless they’ve got a ton of grants and even then only a few Deans wants to take a gamble on someone who’s so eager to leave their old school. Bidding wars rarely work out in the long run.

In fact, forcing the state college profs to suck down a 20% pay cut will probably have little real effect on quality at all. Oh sure, a few success big names might bolt but they were probably primadonnas who never taught courses to begin with.

I’ve watched Mark Yudof blather on about how Berkeley’s English department is number one in the country and then point a gun at it. If the taxpayers don’t cough up more cash, the English department dies. Hah. I say call his bluff. Most of them probably don’t go anywhere near the undergraduates if they can help it and really who cares if the poor Berkeley kids are forced to live with, say, an English department that’s ranked 40th or 50th? There will be very little noticeable difference in their life after college. It’s not like Starbucks pays more to barristas from top ranked English departments.

(After briefly re-reading this, I’m forced to include some CYA language about excellence. I do enjoy the contributions of the people who are at the top of their fields. They are nice to have around. But I think it’s a mistake for the schools to get in bidding wars over these guys. The 10th ranked prof is usually just as useful to the students as the first. And the Univ. of Cali has been terribly addicted to overspending on big talent. As Bob Samuels discovered, 3843 people in the Cali state system make more than $200k/year. I’m sorry. That’s $200k per 30 week so-called year.)

Ah, Wall Street. They say that hope springs eternal and it seems that there are still some on Wall Street who are hopeful that for-profit schools will pull out of the nose dive and generate great returns. Steve Eisman scared everyone with talk of the collapse, but then we found out that he was just betting against the stocks.

This story from Greg Zuckerman and Jenny Strassman at the WSJ shows just how Wall Street speaks about the for-profit education center. They want to know whether the abuses can be curtailed and if so, will the money will keep rolling in. It sounds like some hedge fund weenies went down to Washington and got some assurances that the cash will keep flowing. Money works in miraculous ways down there.

I’m guessing that the for-profit sector should be able to jam up the process in Washington because at the end of the day, the for-profit and the so-called not-for-profit have the same problem: they’ve got an overpriced product and people are balking at mortgaging their future to pay for it. We can talk for hours about repayment rates but the differences aren’t significant. One gets 50% of the kids to repay their loans and the other gets 35%. Big deal.

The not-for-profit idealists probably thought that they could toss the for-profits under the bus and preserve the funding lines for themselves but I’m guessing that they make the same fundamental mistake as the other dreamy believers in education: they see themselves as wonderful and all others as bad. And so they’re blind to the fact that most of the so-called not-for-profits are actually more expensive than the for-profits and many offer returns that are dramatically worse. The kids getting degrees from Harvard in Comp Lit may have wonderful repayment rates, but that’s just because the parents are paying for it all. The degree still condemns them to downward mobility unless they find a real career.

The Wall Street folks are probably smart to focus on Washington and the decision over funding because the education sector is effectively semi-nationalized now, but they’re foolish if they don’t concentrate on the larger tectonic shifts in people’s core beliefs. When people start abandoning the belief in the power of the college degree, the stocks will really collapse.

This article from Kathleen Pender at the SFGate.com almost sent my heart reeling. For some time I’ve been trying to be relatively optimistic about the depth and breadth of the student loan problem. I’ve always assumed that this is a problem for the bottom part of society, the kids who would be better off in trade school but were conned into going for a sheepskin by this relentless belief that a college degree is the only path to wholeness.

As Pender is from the Bay Area, she tunes right into the rates for Cal Berkeley. This school educates the very best, right? People are constantly suing claiming that the Berkeley admissions department is discriminating against their kid with 2400 on the SAT. Ah, but how many of these perfect roses are paying their student loans? Only 73%! This is said to be good because the average public university has a rate of– get this– about 50%.

This statistic isn’t perfect because it lumps together the non-paying kids with the kids who’ve got a legit deferment like the one granted to those who go on to grad school. Some have a semi-legit excuse because they’ve decided to double down and go for a PhD in Advanced BioTheater Theory. So while it doesn’t measure pure deadbeatedness, it does calculate the load on the taxpayer who covers the interest and eventually the principal for those who aren’t paying.

I’m hoping someone will generate some numbers that explains how the semi-legit deferments change these values. While I realize that many of the Bezerkeley kids are so love struck with the college industrial complex that they’re off getting PhDs, these values should average out over time. The graduates from 2010 may not be paying yet, but the graduates from 1995 should have a PhD by now and ready to start paying off some bill. Right?

73% is a staggering number because it means 27% aren’t able to pay off their debt. Berkeley is relatively cheap and so its loans are relatively small. It’s a great school so people should be employed and making enough to repay things. If 27% can’t sustain the debt, it makes me wonder even more about the foundations of this enterprise.

While I think that rankings like the ones from US News are silly and don’t help the student very much, I think that most kids understand many of the limitations. The Deans and administrators, though, hate them except when they give their school a high rating.

Christopher Matgouranis over at the College Affordability Club wrote a nice defense of the need for more quantitative rankings and won me over. He pointed out that schools insist that kids take SAT tests and submit grade averages. Why shouldn’t the kids ask for good, reliable numbers from the schools? Default rates and average debt are useful and I’m glad the numbers are being added to the Forbes/CCAP rankings. I just hope they take into account the shadow debt that isn’t counted by these stats.

The BBC reports on just how well the degrees in England prepare the women to make a living wage. The clip shows lap-dance club owner Peter Stringfellow and university researcher Dr Belinda Brooks-Gordon of the University of Leeds. What’s the difference between the dancers with degrees and the dancers without? One group is filled with sex-positive feminists subverting the typical male gaze to invert the traditional gender-based power-dynamic, a wry and ironic application of Hegelian master/slave theory. The others are just skanks.

 For grins I decided to chain together some stats after hearing that 22% of Fidelity’s 401k customers have taken out loans to pay for medical bills and college. The size of these loans are surprisingly big:

Here’s my math:

• The size of the 401k retirement stash is $2.7 trillion.
• Fidelity holds 401k plans for 11 million people.
• 22% of Fidelity 401k customers have taken out loans averaging $8600 and the average size of their account is $61,800. That’s about 14%.
• Paying tuition is one of the common reasons for taking out a loan against your 401k.
• For comparison, student loan debt is $829 billion.

Assuming Fidelity customers are representative and all customers are equal, that’s $3700 times 22% times 14%=$114 billion in loans against 401k plans. If we conservatively guess that only 50% are using the money for college tuition, that suggests that $62 billion was borrowed from retirement funds to pay for Johnny’s tuition.

The 401k market, though, is just part of the entire retirement system because many people don’t have 401k plans. The Calpers pension plan covers state workers in California and has about $250 billion alone in assets. These are just the government workers because there’s a separate pension fund for the teachers  and that’s about half the size.

If we assume that the 401k stash is about 10% of the total pension funds and everyone has borrowed cash at more or less the same rate as Fidelity customers, we can guess that parents have borrowed $620 billion to fund college tuition– something that’s pretty close to the official total of student debt. This suggests that the shadow debt is a real factor.

This is a house of cards built on easy assumptions. I don’t expect that it’s accurate but I do believe it’s in the ballpark.  Many so-called financial aid plans routinely suggest that the parent contribution should be about double or triple the size of the loans taken out by the kid. The University of Pennsylvania, that super-generous place offering “NO LOANS”, the kids borrow nothing but the parents take out huge PLUS loans.

This makes the problem even larger for society. Once the kids manage to pay off their huge debts, their parents will start to think about retiring. Let’s hope the parents are able to repay their debt to their retirement plan because if they don’t, they’ll be borrowing more from Junior.

Sheesh. These numbers are scary.