The Problem Isn't Student Loans - It's Higher Education

Everyone understands soaring student debt is a problem: burdened with $1.3 trillion in student loans, young people are unable to start businesses, buy homes and start families. The high cost of housing and meeting regulations to launch businesses add additional burdens, but the weight of $1.3 trillion in debt right out of the starting gate is crushing.

The “solution” being pursued by the federal government is obvious: take over most of the student debt and then eventually bury it in the zombie-loan graveyard (i.e. defaults are ignored but the debt isn’t officially written off), write it down via forgiveness programs, or some other mechanism to reduce the burden.

If this wasn’t the plan, then why has federal ownership of student loan debt skyrocketed from zero to $900 million in a few short years?

student-loans-fed10-15

This is a decades-old problem that’s finally reaching critical mass: student debt has leaped from less than $500 billion in 2006 to $1.3 trillion today, a mere 9 years later:

student-loans10-15

The problem isn’t student loans–it’s the explosive rise in the costs of higher education. This chart depicts the exponential rise of higher education costs:

higher-education8-15

Apologists claim the student-loan crisis is the result of underfunding of colleges by states. While it’s true that some of the cost burden has been shifted from taxpayers to students, the real problem is soaring costs of the higher education cartel, which fixes prices via the artifical scarcity of accreditation.

The extraordinary rise in administrative staffing and costs and the boom in building costly temples of higher education are well-known. This chart depicts the rise of the educrat class, at the expense of teachers/professors:

faculty-mgt2

I cover the rise in costs and the the equally extraordinary failure of the higher education cartel to prepare students for work in the emerging economy in my book The Nearly Free University and the Emerging Economy: The Revolution in Higher Education.

So the problem is two-fold: it isn’t just the insane cost of higher education that’s the issue; the cartel is failing to prepare students for an economy that requires the 8 essential skills in addition to whatever technical skills are needed in a particular field.

Consider the study Academically Adrift: Limited Learning on College Campuses which concluded that “American higher education is characterized by limited or no learning for a large proportion of students.”

New Analysis Shows Problematic Boom In Higher Ed Administrators:

In all, from 1987 until 2011-12–the most recent academic year for which comparable figures are available—universities and colleges collectively added 517,636 administrators and professional employees, according to the analysis by the New England Center for Investigative Reporting.

“There’s just a mind-boggling amount of money per student that’s being spent on administration,” said Andrew Gillen, a senior researcher at the institutes. “It raises a question of priorities.”

The ratio of nonacademic employees to faculty has also doubled. There are now two nonacademic employees at public and two and a half at private universities and colleges for every one full-time, tenure-track member of the faculty.

The number of employees in central system offices has increased six-fold since 1987, and the number of administrators in them by a factor of more than 34.

Paying a bloated institution for the privilege of sitting through four years of lectures, online courses and a few labs no longer makes sense for the vast majority of students. What makes sense is dispensing with the entire bureaucracy of the cartel and costly campuses altogether, and designing directed apprenticeships which combine the best of online coursework with on-the-job training in workplaces.

The top research universities (numbering around 125 out of thousands of colleges and universities) can continue to train the relatively small cadre of academics and researchers the economy can support. (Just issuing STEM (science, technology, engineering, math) degrees doesn’t magically create jobs for the graduates.)

The vast majority of student are better served by mastering the 8 essential skills required in the emerging economy–skills that students can acquire on their own, a process of accrediting yourself that I address in detail in Get a Job, Build a Real Career and Defy a Bewildering Economy.

Forgiving skyrocketing student debt won’t solve the real problem which is the soaring costs imposed by a cartel that is failing to prepare students for the economy of tomorrow.

Regards,

Charles Hugh Smith
for The Daily Reckoning

P.S. Ever since my first summer job decades ago, I’ve been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.

And like most of you, the way I’ve moved toward my goal has always hinged not just on having a job but a career.

You don’t have to be a financial blogger to know that “having a job” and “having a career” do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept “getting a job” has changed so radically that jobs–getting and keeping them, and the perceived lack of them–is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I’ve verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.