The Higher Education Bubble

Mish (and some of his readers) make some fantastic observations, especially timely as we are enjoying a moment to catch our breath in the bursting housing bubble, about an analogous bubble that he convincingly describes as having similar precedents.  Is it safe to say there will be similar antecedents?

“The cost of education has spiraled out of control with the cost of higher education far exceeding the payback unless one gets lucky in the jobs lotto process.

Many college graduates will be paying back student loans for 20 years or more. This is what happens when government tries to make things affordable. The same thing happened with affordable housing.”

When I applied to (and was declined by) some of the premier US universities  about ten years ago, the greatest shock during the process was the section where they expected me to list famous/powerful people that I knew and would presumably make me more eligible to attend the best schools in America.  The second most shocking part was the price.  As an international student, in the late-90s/early-aughts, I would have been paying somewhere between $40,000 USD and $60,000 USD for my schooling PER YEAR of my undergraduate program.  And my mildly-jacked tuition quotes as an international student are comparable to current tuition prices at Harvard, which was brought up to an average of $43,655 per student or the 2006-2007 years according to The Crimson.  And The Boston Globe reported that tuition, room and board, and student fees  rose to $47,215 in the (I believe) 2008-2009 year.  (Of course Harvard is just an example and I am in no way saying they were among the schools whose closed door I was able to observe in near-proximity.  But it was.)

That may not sound like much to any Canadian readers out there (our ‘elite’ institutions could easily be compared to the best state schools in the US and even could compete in many regards to many of the large US Ivy League institutions) and my undergraduate degree over the same period (as a domestic student, of course) was costing me between $4,500 CDN and $5,500 CDN per year.  Even including residence and the entirely sufficient albeit high in cardboard content meal plan it would be around $13,000 a year.  After the exchange rate conversion at the time, that would have been about $10,000 USD if memory serves.

As much as I’d feel like a BSD with an impressive degree from one of those institutions where mere mention of gets respectful silence.  And you have to mention in most polite company in hushed tones lest you be considered a braggart.  But for fuck’s sakes, a 4-yr degree in my case in Canada saved me about $120,000 USD.

Regardless of your level of talent, unless you pursue the career that will immediately net you the highest potential payout (any collapsing industries you can think of that meet that description?), is it realistic to be able to pay off that debt before age 25?  Or age 30?

Is it at all realistic to be able to save up and independently finance your education with summer and part-time work through a student’s entire high school life, even without considering the support many students are now providing to their families?

When heavy financing becomes a requirement for all but the superstars (full-ride athletes and scholars) and the ultra-well-heeled (those who fill up the “who I know and why I matter” section a bit better than I), Americans (and to a lesser extent, Canadians) are indoctrinated to a lifestyle of living on borrowed cash.  Of putting off financial planning for after the expense.  And for deferring difficult decisions into the uncertain future (that’s now, btw).

Not only does this add to the epidemic-level infection of debt-ignorance in American culture (go ask your Asian friend, if you have one, what they think of borrowing money to buy cars, stocks, or anything other than a primary residence, and then ask them the follow-up of how stupid and crazy and probably fat they honestly think Americans running up five-figure credit card debts during the good times, on top of no down payment — multiple — home and  — multiple — car purchases)… This arrangement eliminates the possibility for those talented students who wanted to go to personally fulfilling but perhaps lower-compensating professions to at least keep pace with previous generations’ concepts of success and failure.  For a real life example, see this USA Today article:

“”The first person who helped me was my pharmacist,” he says. Dillon, who no longer has epilepsy, would like to go into pharmaceutical research. But he knows he’d earn more money as a pharmacist for one of the big drugstore chains.

“When I get out, I’m going to have that $150,000 weighing over me,” he says. “What I decide is going to be dependent on that debt.”"

I try to think about it with a loose example (I apologize if my numbers and assumptions are a fair deal off:  I am a Canadian, as I’ve suggested above, and am not as familiar with what would be typical incomes and expenditures for a recent US university graduate.  Blame Harvard for denying me that personal experience.  Stupid Harvard):

Specifically, how does a graduate from (let’s say) Harvard, completing her studies in the 70th percentile of her graduating class (which probably puts her at or near the 99th percentile of her age cohort in academic achievement as is typically measured), pay off a $120,000 USD education debt by the time she’s 28 assuming no interest, no marriage, no babies, no sugar-daddies, etc.?  Besides, if she is lucky enough to be so talented, going to work for Goldman Sachs?

She would have to apply roughly $20,000 a year post-graduation towards the principal.  That’s after rent, after maybe her first not-too-fancy car, after taxes, other living expenses, likely some periods off work especially immediately after graduation.  Can it be done on an average $60,000 income per year for those six years post-graduation?  $80,000?  Would it be a stretch at anything under $100,000?

And even if this achievement is attained (and I think it’s fair to describe this hypothetical young woman’s wiping out of $120,000 of debt in six years as an achievement), as a 28 year-old woman with a low-six-figures annual income, a very impressive piece of paper signed by someone important at an Ivy League school, is she keeping up with expectations?  Can she afford to marry, start a family, and own her own home with white picket fences (my understanding of the prevailing middle-class expectation) by the time she’s 30?  Well, unless she and her husband pay for the wedding on their credit cards and buy a home with no money down…  The same USA Today article linked to above refers to this very real dilemma of cascading college debt effecting the issues that would have once been thought of problems for a different life stage:

“Those higher payments carry huge implications for this generation of college graduates. The weight of debt is forcing many to put off saving for retirement, getting married, buying homes and putting aside money for their own children’s educations.”"

Have we managed, aided by the the big, fat, clumsy hand of government assistance Mish describes, to price out the ideal of middle-class success to even middle-class kids in the 99th percentile of achievement?  And what will happen to the 98th percentile?  And those middling intellects in the 97th?  (And can you guess where I placed myself?)

[I know my math is rough (please see my many excuses above) but I'd love to hear what those who went through something analogous to the US student debt cycle experience, and correct where my math or assumptions stray too far from reason.  I just wanted to imagine and illustrate a very sympathetic and fairly realistic case where even doing everything right in America, absent an NBA-ready body and buttery j, can lead to something short of middling success by the end of young adulthood.]

[... And for those really interested in the idea of finding ways of maintaining a high level of learning and reducing student expenses, check out this old post of mine about what I was hoping to be a cheap online textbook revolution.  Also has my bitchy personal anecdotes that I'm ashamed to admit I actually enjoyed reading just now.  Can anything be more self-centered than typing up an opinionated post on a blog no one reads that links to another post in that very same blog that mostly consists of various personal anecdotes?  Look on my works, ye Mighty, and despair!]

… and the cow goes moo

Pa Pa Poker Face Muh Muh Muh Muh

Quick link up because I’m bursting with the need to share one of my favorite singers – Eric Cartman’s – new masterpiece:  A cover of Lady Gaga’s Poker Face.

I didn’t even think it was a real song at first (I am not familiar with Ms. Gaga’s body of work) so I had to hit up youtube for the original video.  And if you’re familiar with the original song and video, Cartman’s version is a killer.

(That cover is from last night’s South Park episode.  So if you’re one who likes to watch TV like a virgin, you might want to forestall any clicking here and just come back after you watch the episode to enjoy watching and re-watching Cartman’s cover)

… and the cow goes moo

Louisiana Judge Who Denies Interracial Marriages So Totally Not Racist

(The story was found linked by Exiled Online, and can be found directly by the Associated Press, hosted by Google.)

The story can be summed up in one line from the article:

“Bardwell said he asks everyone who calls about marriage if they are a mixed race couple. If they are, he does not marry them, he said.”

Money, money, money quote from the not-racist Louisiana judge, Keith Bardwell:

“I have piles and piles of black friends. They come to my home, I marry them, they use my bathroom. I treat them just like everyone else.”

Anyone used to hearing people say that they aren’t racist recognize the tells in this defensive statement pretty quickly… The “I’m not a racist! Look, I even treat them like human beings!” argument.

… and the cow goes moo

An Inside Look into Wall Street Culture – In the Midst of Morgan Stanley’s Near-Collapse

So I’m enjoying the heck out of this Vanity Fair article from the November issue.  It really manages to highlight the chaos of the time, the impotence of the leading government authorities (able to only make uncompelling and rather simplistic recommendations… Think of a basketball fan e-mailing Bryan Colangelo ESPN Trade Machine links to get Andrew Bogut on the Raptors…  Not that I’ve been trying to or anything), some of the rather obvious personal concerns of the parties concerned (think Paulson’s relationship with Goldman Sachs), and the degree that the big investment banks were at the whim of momentum.  And the investment bank’s exposure to an unconventional bank run of hedge fund withdrawals.

Fascinating stuff with the usual classy photos that make Tim Geithner look like an angry loaner with a blog, and Henry Paulson look like the goddamn devil himself.

All the names and characters are presented in a manner (whether accurately or not, I have no idea) that leaves them practically interchangeable… save one: Citi’s CEO Vikram Pandit.  Please read the whole article if you have an interest, but here is one caption that captures Pandit’s oddly logical thinking, lacking in some of the bravado and personality-infusion that characterizes much of the utterances of the other major players [all emphasis mine]:

““I haven’t been able to reach you for four hours,” Geithner barked into the phone. “That’s unacceptable on a day like today!”

Apologizing, Pandit explained that he had been talking to his team about the Goldman proposal, which they had ultimately rejected. “We’re concerned about taking on Goldman,” Pandit said, trying to explain his rationale for turning them down. “I don’t need another trillion dollars on my balance sheet.”

Geithner could only laugh to himself—Pandit should have been so lucky as to own Goldman. “This is a bank,” Pandit said. “And a bank takes deposits and a bank has a prudency culture. I cannot envision a bank taking its deposits and investing them all in hedge funds. I know that’s not what Goldman is, but the perception is that they’d be taking deposits and putting them to work against a proprietary trade. That can’t be right philosophically!””

I think his bank is a monumental failure, but this Pandit guy I feel I can understand.  Lord knows how he managed to get where he is with that kind of thinking though.

[I should add the article is actually an excerpt from Andrew Ross Sorkin's book, Too Big to Fail.  Interesting stuff in a diary-of-a-mad-man sorta way.]

… and the cow goes moo