Trouble Right Here in River City

The Music Man sang about trouble in middle America. But there is now big trouble all across America in its higher educational institutions. Here is a bit from a post by Frederick Sheehan in Barry Ritholtz's The Big Picture blog:

The Atlantic magazine has illustrated the unsustainable growth of student debt in the chart below. In David Indiviglio’s August, 18, 2011, article, “Student Loans Have Grown 511% Since 1999,” the author notes: “Obviously the number of students didn’t grow by 511%. So why are education loans growing so rapidly? One reason could be availability. The government’s backing lets credit to students flow very freely…. [U]niversities are raising tuition aggressively since students are willing to pay more through those loans.”

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The number of colleges will plummet. This is due to the loss of nerve, confidence, substance, direction, integrity – will that do? – of teaching in America. Just look at that chart: what a picture of insatiable greediness and self-indulgence among the colleges. No thought to the unbearable debt deposited on their students.

... In another Atlantic article, “The Debt Crisis at American Colleges,” authors Andrew Hacker and Claudia Dreifus write: “[C]olleges have embraced a host of extraneous activities – from obscure sports to overseas centers – and tacked most or all of their tabs onto students’ bills. Unlike businesses, which cut losing operations, colleges simply hike their tuitions.” Will former Harvard Professor Elizabeth Warren’s ill-defined federal agency, watchdog over slatternly marketing hoaxes by financial institutions, apply the same standards to deceptive, college sales practices?

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Gloom, Boom & Doom Report, Marc Faber quoted a study from the Goldwater Institute that found between “1993 and 2007, the number of full-time administrators per 100 students at America’s leading universities grew by 39 percent, while the number of employees engaged in teaching, research, or service only grew by 18 percent.”

With unemployment sky high entry into the job market for new graduates is especially hard. So the diploma that was bought with all those big bucks is actually worth less today than it was 5 years ago. Prices up, but value down. That is a recipe for a product that is going to implode.