Where The College Cost Problem Resides
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2014-04-01 16:53 by Karl Denninger
in Education , 459 references Ignore this thread
Where The College Cost Problem Resides *

There's an interesting article in The Atlantic that contains a graph you should pay attention to:

This is the number of hours you must work at minimum wage to pay for a credit hour at Michigan State University.

In 1979 it was about 10.  Now it's about 60.

Note that a "full load" is generally considered over 12 credit hours per semester; let's take the minimum (you usually need 120 hours to graduate, so this would be a "five year" plan); this means you would need to work 120 hours (or about 10 hours a week) to pay for school while in school.  That can be done along with the academic load.  It also can be done during the summer. Note too that tuition is nowhere near the entire cost; the usual "all in" price is about double tuition expense, so you would need to work 20 hours a week to cover it.  Again, that's doable -- two 8 hour shifts on the weekend and an hour four nights a week, and you're good.

Today, at six times that cost, it cannot.

The conclusion, however, is backward:

Is it any surprise that so many students today are suckered into taking out non-dischargeable loans, in growing chunks, to pay for their bachelor's degrees?

Wrong answer.

The reason the price went up 600% is the availability of those loans.

That is, it was the financialization of education that made this possible, because it is through financialization that entities sit down and figure out exactly how much they can extract from others in a transaction, causing the price to rise right to that limit.  At the same time they lobby vigorously for "ever-easier-appearing" (but more-onerous in fact) terms that increasingly transfer the fruits of the result of whatever has been financialized from the buyer to the seller through that increased price!

The result of this paradigm and the unholy alliance between banks, Wall Street, Washington DC and the colleges themselves is that the marginal utility of college degrees for many, perhaps even the majority of students, is now negative.

Remember that the school, the lender, Wall Street and Washington DC do not care about individual outcomes.  They could give a damn about whether college is a good deal for you.

That is what happens when anything becomes financialized; the only metric that matters is the aggregate outcome for the financial chef; that is, his goal is to strip all but one penny of the benefit on average from the participants and keep it. 

The closer he gets to that goal the more money he makes.  He does not care about your outcome, only that in aggregate the pool of "buyers" keep just enough that the next group will come in the door.

In other words so long as they can point to a few rocket scientists that make $100,000 a year right out of school that you can only make $30,000 and leave school with $150,000 in non-dischargeable debt,  thereby virtually guaranteeing financial hardship if not outright bankruptcy, does not matter to them at all!

The colleges are not only aware of this they are willing participants in that they have their own finance offices that will help you arrange for your own fiscal destruction and, if they (or you) can talk your parents into it, theirs as well.

This must be stopped -- but until the financialization of education is reversed it won't be.  Until that day comes the best you can do is to take a long, hard look at the numbers and figure out how to get the education you want without taking any debt at all.  If that cannot be done given your specific set of circumstances then in most cases what you're proposing to do is objectively a bad deal.

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