FedUpUSA

Archive for the ‘College’ Category

The catastrophe of our economy for the young American worker.  Average college debt higher than typical new automobile cost, annihilation of pensions, and younger Americans moving back home because of financial necessity.

The economy for young Americans might as well be in a parallel universe to the stock market run since early 2009.  Talks of recovery must fall on confused ears as many young college graduates compete for fewer jobs with higher amounts of student debt.  In the last decade college graduates have encountered the highest tuition increases ever while getting a lower return on their investment once they enter into the workforce.  The economy is still a mess if we dig into the data and look outside of the stock market gains.  Many of the S&P 500 companies added jobs globally but outsourced many domestic jobs to foreign markets to save money.  So profits increase but how does this help the domestic job market?  It doesn’t and that is why this recovery is one of low wage capitalism and banking handouts.  For the millions of young Americans that are entering the workforce with tens of thousands of dollars in student debt, what can they expect from the current economic structure?

The old and the new

The cost of living has soared across many sectors with food, healthcare, college tuition, and energy all outpacing the growth in the typical paycheck.  For these reasons including fewer jobs, young Americans are facing harder times when it comes to saving money:

Source:  CNN Money

“Ultimately we are pumping out hundreds of thousands of graduates each year that are starting with a negative net worth.”

Contrary to what is being spouted on the media, the employment market is still very weak:

Source:  Census

You have nearly two million job openings less than we did before the recession gained full steam.  Yet our population is expanding and recent graduates are entering the workforce in higher numbers.  The recent job growth is positive but the underlying data shows that many of the jobs are coming from low wage fields.  Many companies, like those in the S&P 500, are exporting jobs to other countries where they can push for lower labor costs.  The question remains, how does this benefit domestic workers?  To the point, this is more momentum when it comes to squeezing out the middle class.

Read the rest at: My Budget 360

Is college worth the money and debt?  The cost of college has increased by 11x since 1980 while inflation overall has increased by 3x.  Diluting education with for-profits. and saddling millions with debt.

Is a college degree worth it?  Since the debt bubble burst spectacularly in 2007 many more prospective students are questioning the worth of a college degree.  For so many decades it was simply taken at face value that getting a college degree, any college degree would be worth it.  Slowly this perception has morphed when annual tuition is running at $20,000 or more at for-profit institutions and $50,000 for private institutions.  More to the point, most of the recent educational growth has been financed with large wallet crushing student loans.  This financing of the college dream is turning out story after gut-wrenching story of college education nightmares.  When a college education becomes this expensive it is important that potential students become savvy consumers.  The financial sector certainly isn’t going to offer any advice on navigating the minefield of higher education since they largely have their greedy hands on this sector of the economy as well.

The soaring cost of college

In hindsight everyone seems to now agree that the housing bubble was rather obvious to spot since it far outstripped every measure of inflation and even rose while incomes fell.  You would think this lesson would be learned but the cost of a college education is much deeper into bubble territory even beyond the metrics of the housing market at its peak:

Source:  Cluster Stock

While housing at the peak rose by a factor of 4 (400 on the chart) college tuition has soared by a factor of 10 (it hasn’t stopped going up so it is now likely up in the 11x or 12x range).  It is a downright startling figure especially when the incomes of recent college graduates has gone in the complete opposite  direction:

Source:  BusinessWeek

Since 2000 real earnings for college graduates has fallen while tuition costs continue to soar and put students into further student loan debt.  I was hearing a few stories about states with record applicants to public universities yet with state budgets hurting, these schools are unable to meet the demand.  So students are left with the option of $50,000 a year for private institutions or going to for-profits that are a step above paper mills.  For this reason we have seen a giant increase in for-profit enrollments:

Read the rest at My Budget 360

Students stuck with gargantuan loans for life are bound in a bank-dominated “improvement” of indentured servitude.

Yesterday (Risk is Necessary for Adaptation, Innovation and Success)I discussed the inevitable failure of systems in which risk has been transferred from those who reap the gain to others. In the case of student loans, the risk has been transferred to students who enter decades of indentured servitude.

Indentured servitude has a long history in the U.S.; many immigrants accepted servitude of between two and seven years in exchange for passage to the New World.  Orphans were indentured out of orphanages to the age of 21–potentially a much longer servitude. Indeed, the labor of anyone on the public dole could be auctioned off:

From Wilma A. Dunaway’s Online Archive:

By the time of the Revolutionary War, indentured servitude had been a common practice in the United States for 150 years.Following British laws established during the colonial period, post-Revolutionary public  authorities indentured the labor of those who were likely to fall upon the public dole.  Appalachian county governments bound out indigent adults and children whose families could  no longer care for them. The age, gender, and racial trends are clearly documented in early  records of Appalachian poor houses, for women and orphans represented more than two-thirds of the individuals whose labor was auctioned off by county governments.

Isaac Miller of Anderson County, Tennessee, advertised in 1819 for the return of Margaret Hutcheson who had been bound to him by the county poor house. Obviously, the  seventeen-year-old girl had tried the patience of her master, for he offered only  “a reward of 6 1/4 cents to the person who w[ould] deliver her to [him],” caustically adding, “but I will not thank any person for doing so.”

When an orphan was bound out by the county poor house, the child was legally tied to the master until the age of eighteen or twenty-one.

Orphans were often bound to tradesmen or farmers until age 21, and indigent adults were typically bound for three to seven years. However, there is no way to document how many laborers were bound out by their own families. When parents indentured their own children, it was for “a usual term of seven years if a girl, or five if a boy.”

Let us consider the modern form of indentured servitude, student loans, which now exceed a staggering $1 Trillion: “It’s Going To Create A  Generation Of Wage Slavery” (Zero Hedge), or perhaps more accurately, indentured servitude, because the debt cannot be dismissed via bankruptcy.

Student loans outstanding will exceed $1 trillion this year(USA Today):

Lenders have little risk of losing money on the loans, unlike mortgages made during the real estate bubble. Congress has given the lenders, the government included, broad collection  powers, far greater than those of mortgage or credit card lenders. The debt can’t be shed  in bankruptcy.The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future.

“Students who borrow too much end up delaying life-cycle events such as buying a car,  buying a home, getting married (and) having children,” says Mark Kantrowitz, publisher  of FinAid.org.

“It’s going to create a generation of wage slavery,” says Nick Pardini, a Villanova  University graduate student in finance who has warned on a blog for investors that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers.

The University of Phoenix, the nation’s largest, got 88% of its revenue from federal  programs last year, most of it from student loans.

In effect, students getA Mortgage with Every College Graduation (Dr. Housing Bubble,  via Jed H.) with one key difference: there is no way to get out from underneath the student loans.

This is the perfection of indentured servitude. How many students pay off their $100,000 loans in a mere seven years?Modern banks and corporate “higher education” diploma mills have improved the old system of indentured servitude, extending the servitude  from seven years to decades.

The key dynamic here is the transference of risk from the lenders, who stand to reap immense profits from these loans, to the students.This transference is enforced of course not by the banks but by their partner, the Savior State, which obliterated the right to bankruptcy for students while guaranteeing profits to the banks via Sallie Mae, another guarantor of private profits backstopped by taxpayers.

The feedback between risk and return has been severed.Lenders can extend massive loans to marginal students attending for-profit colleges, knowing their losses  will be backstopped while the gains are theirs to keep, and the debt-serf students are indentured for life.

Imagine if risk were connected to gain.Maybe lenders would be a bit more careful about which students they deemed worthy credit risks; perhaps they would begin differentiating between low-market-value liberal arts degrees from hard-science degrees.

Maybe they’d start considering the students’ incomes while in university. Maybe they’d recognize differences in risk between for-profit diploma mills protected by the  rapacious, captured-by-corporations Savior State and state universities.

There can be no “fix” to our decline until risk is bound once again to return and gain. If risk is transferred to others, you’re left with some type of indentured servitude and financial tyranny in service of the banks and their Savior State toadies.

Charles Hugh Smith – Of Two Minds

A College Siren Call – Going to a for-profit college today is like purchasing a home with a subprime loan at the peak of the housing market – The massive student debt bubble expanded from $200 billion to over $960 billion from 2000 to 2011 with a big push from for-profits at a time when incomes contracted.

The college debt problem is boiling over and spilling hot water onto an already weak economy.  This is no longer a petty niche issue when we are quickly reaching $1 trillion in outstanding student loan debt.  What is more problematic is the acceleration in tuition over the last decade.  Most of the combined data is looking back deep into the past when most of the problem has hit in the last decade.  How bad is it?  In 2000 total student debt was roughly $200 billion.  Today it is above $960 billion.  So in a matter of ten years the amount of student debt has gone up over 380% while household income has actually fallen.  The players in the student debt market are largely connected to the big financial institutions and the government is willing to grease these juicy wheels just like it did for the mortgage debt crisis.  The integration between government and the big banks is like a marriage made in graft heaven.

The student debt keeps moving on up

Virtually every sector of household debt has contracted during this crisis aside from one, student debt:

Source:  FinAid.org

When we track this debt growth with other items we can see how quickly student debt is raging out of control:

It is now a memory that student loan debt has far surpassed total credit card debt.  Student debt is also more ominous in the sense that discharging it is nearly impossible.  Even mortgage, auto, and credit card debt is easier to discharge in bankruptcy.  You now have a growing number of people being sucked into usury levels of student debt and many are being pulled in from the for-profit institutions that have placement rates that are abysmal.

Read the rest at My Budget 360

The student loan racket – For-profit enrollment growth surged by 225 percent in last decade.  For-profits live off the 85 percent of revenues they receive from the government and filter out to their Wall Street owners.

The loud commotion you hear rattling the global economy is the massive debt bubble imploding.  A few notable economists have stated that too much debt is reached simply when the public acknowledges that there is too much debt.  To this point the public is now waking up to the reality that too much debt is being taken on for higher education.  Where there is money to be made you now have Wall Street and the government walking hand and hand smiling to fleece the American student without producing any measurable increase in value.  With a web of connections and political pay for play we now have a giant bubble that is causing financially disastrous results for many young Americans walking out with diploma in hand and a massive albatross of debt securely wrapped around their bare wallets.  With youth unemployment rivaling those of third world nations we are starting to see cracks in the current system.  It seems that the $1 trillion mark with student debt might have been a tipping point.

The circle of student debt life

To understand the convoluted scheme of higher education it is useful to see the massive expansion in for-profit institutions:

Source:  Senator Harkin

From 1998 to 2008 the growth of enrollments at for-profits has surged by 225 percent.  Many of these institutions are one step above paper mills and largely provide little value added to students that attend.  Many of the for-profits also market and target heavily lower income Americans.  So who is paying for this?  Step in the federal government:

The life blood running through the veins of the for-profits comes from you guessed it, the Federal Government.  In 2009 for-profits pulled in revenues from one source primarily.  Over 85 percent of revenues to these institutions derived from the government (aka the American taxpayer).  It would be one thing if these schools were producing solid results but they are doing everything but producing results.  Take a look at default rates:

The above chart only goes by generous measures of defaults.  If we look at longer term cohort default models we start seeing default rates soaring into the 40 to 50 percent range.  This student loan bubble is popping because of the lack of quality and infusion of for-profits merely ripping students off.  Yet someone is making money here.  The government is merely a funnel of taxpayer money into select Wall Street institutions……

Read the rest at My Budget 360

The young and the broke – 37 percent of young households held zero or a negative net worth in 2009.  The median net worth of those 35 and younger is $3,600.

It is hard to imagine a future generation of Americans were those moving forward are actually poorer than the current generation.  Yet that is precisely the world we are diving into.  Those that purchased homes in the pre-bubble days and also attended college in less inflated times have a massive head start on the current younger generation that is contending with a bursting housing bubble and a financial system that might as well be a roulette wheel.  One startling figure from a recent Pew Research report shows that 37 percent of young households hold zero or a negative net worth.  This is not a good way to build a healthy financial future.  The wealth gap between previous generations is also becoming increasingly large.  This narrative ties into the overall systemic pilfering of the middle class.

How large is the net worth gap?

The gap between younger and older Americans has never been so large:

Source:  CNN, Pew Research

“(CNN Money) In 1984, households headed by people age 65 and older were worth just 10 times the median net worth of households headed by people 35 and younger.

But now that gap has widened to 47-to-one, marking the largest wealth gap ever recorded between the two age groups.”

A large part of this gap has to do with the timing of the housing bubble.  Many younger Americans bought during inflated times while Wall Street banks were pillaging the entire system.  Older Americans purchased homes during a time when Glass-Steagall was still in place and the bulk of loans made in the housing market came from stale fixed rate mortgages.  Yet I would also argue that the cost of college today is sapping out a large portion of future earnings.  We have seen a diminishing return on investment for college graduates:

Source:  BusinessWeek

A college education is becoming more expensive while the return on investment is falling.  A similar trend hit in the housing market.  Yet the gap in just one generation has catapulted into a tragic scenario.  In 1984 households headed by those 65 and older held a 10 time median net worth advantage on households headed by those 35 and younger.  That figure is now up to a stunning 47 today.  A gap is always expected as those who are older have time to save and accumulate but the size of the gap is troubling.

Read the rest at My Budget 360