Wednesday, July 13, 2011


I've often complained over the last two years that American kids are being sold into slavery when they buy into the notion that they MUST obtain a college education without regard to the cost or the amount of debt they must incur to earn a degree.  Recently I ranted about this in WHEN EVERYONE IS SPECIAL, NO ONE WILL BE.  The common idea that all American kids should be forced on to a track to take the college route is tone deaf to the notion that many kids just aren't "college material" and is also clearly oblivious to the fact that we actually have a big need for technical trades and skilled craftsmen. 

For the last twenty or thirty years our wonderful government has made it too easy for inexperienced adults to sign their lives away to take on massive student loan debt.  The easy money (debt) that has been made available to all applicants has also driven up demand for higher education resources, thus resulting in a never ending surge in college tuition and fees.  Basic economic fundamentals suggest that if there is more demand for a product or service, prices will move up in response.  As expected we've seen college inflation rates average around 7% per year! 
The dynamics of this situation have created several key results that have been detrimental to the quality of life for all US citizens.  These include;

  • Dumbing down the education - when more than half of college entrants aren't "college material" the universities are faced with a tough choice.  The schools can enforce their rigorous standards or they can loosen up expectations and ensure they can milk their students for a few more semesters. 

  • A by-product of a poor public primary education system is that there is more of an emphasis on careers that lean toward liberal arts and soft sciences rather than technical math and engineering.  We produce so many attorneys, social workers, and restaurant managers that we have rapidly lost our capacity to manufacture or create anything. 

  • Rising costs end up saddling everyone in the system (qualified or not) with more expense and for most, more debt.  This amounts to setting up graduates and failures alike with a lifetime of interest payments and lost opportunity cost.
The fiscal mismanagement of the US government and state governments have finally hit critical mass.  States can no longer grow their expense budgets and provide services to every special interest group they choose.  Governors are in a position where every expense item is subject to cutting and that includes state funded universities.  Things are about to change as we see the CNN Money article below. 

EXTREME TUITION HIKES AHEAD (right click your mouse and open in a new window!)
The link above gives us an idea of the changes that are coming to many of your favorite universities.  On average, many schools are planning to raise tuition costs by 22%.
Here are a few of the expected bumps in tuition in 2011.
Arizona State - +19.5%
Washington - Universities are consider a rise of 20%
Nevada schools will see an increase of 13% in tuition costs.
University of Florida plans to add more increases this year bringing the total tuition hike to 50% since 2008.

We see that tuition costs have risen and will go even farther into the stratosphere, but we've got to ask ourselves is the college experience really worth it?  I've blasted students that go to private universities that end up with teaching degrees, social working credentials, or psychology degrees because they are often the kids that have racked up $80,000 or more in debt and earn $20,000 a year in compensation.  The universities should prohibit students from these degree tracks if they don't have cash to pay up front.  The ROI just isn't there to justify the cost.  Think I'm over the top?  Read the following stories from  6 "winners" that state they wish things were different. (right click and open a new window!)

I was just going to let the link go without making comments but I made the mistake of re-opening the story and I simply was disgusted by the absolute stupidity of three or four of them.  I want to feel sorry for them, but this is freaking ridiculous!  (Yes, I know, I'm sure they are really nice people.)

Here is the money quote from dummy #5 who owes $80,000 and has a journalism degree

"Because of my debt, I can't afford to marry my girlfriend of five years (she's still in school herself, on loans). I don't want to buy a cheap engagement ring -- I want to be able to do it right.  I take full responsibility for my decisions, and believe me, I'd like nothing more than to "grow up" and pay my debts, but the truth is -- I feel like I spent my loans on a future that I simply did not receive."

This guy is absolutely correct in everything he says, but he still has this attitude of "doing it right" that he probably had when he was racking up all of this debt.  He probably thought about taking a job and paying for school over time, but no, "he wanted to do it right" and live on campus and just take loans out.  Where were his parents and counselors saying, "You won't make $20,000 a year as a journalist"?  If his girl friend has any sense she'll run away from this guy like he has the plague.  $80,000 in debt, why would you ever marry into this mess?

Finally candidate #4 makes me want to go nuts.  She went to Tulane and owes $140,000 in debt and has a political science degree.  Wow!  She works for a non-profit now and is living off her credit cards.  Ummmm she hasn't learned a thing, perhaps she can work in Congress.  She is a disaster.

The couple has $240,000 in student loan debt and they are both social workers? REALLY? Where are these people's parents? Who lets kids do this to themselves? Where is the financial aid counselor? These people don't have any future, none, zippo, they are condemned forever as a result of this burden. And yes, it is their fault and there is NO WAY out of it other than death. You cannot escape student loan debt through bankruptcy or anything, these guys are stuck.

So, when you think you are having a rough day or your life is pretty crappy, just bookmark this page so you can come back and read a reminder of what our best and brightest have to look forward to and you'll quickly realize that whatever mess you are in is simply better than the life of slavery they have signed up for; for their entire lives.

Right now, the average tuition cost across America is $6,500 a year (excluding living expenses and books) at a public university.  We are getting to the point where that is going to be unaffordable to many.  Something has got to give, and we are going to see some changes as a result of these out of control costs.

Community colleges will become cool again -
Students that can't cut a 4 year degree and aren't really "college material" are going to increasingly opt for training and jobs that require an Associates degree only.  These students may be a radiology tech, dental hygienist, or something else that will help them find a decent job.  In some cases, this will be a shame because some of these kids really are college material, but the cost of a 4 year degree will simply be prohibitive to attend a regular university.

Second, we'll see more parents demand that kids go to community colleges to knock out all of their pre-requisite classes and essentially finish their first two years on the cheap.  Personally, I am a huge advocate of this approach and hope my kids listen to my wise counsel to try this.  The kid can stay free at home, earn money to save for their last two years, and finish maturing so they can make the most of their final two years at "the big school". 

Online - Here we come!
Major universities will begin conferring degrees that are 100% online.  Currently many schools still retain the "snob appeal" of requiring that a minimum number of hours are done in classroom.  A governor will require these "snobby" universities to deliver an affordable education to their state citizens soon.  Texas Governor Rick Perry had made requests to state universities in Texas to create a 4 year program that would cost $10,000 or less and it was met with stiff resistance from a number of factions.  My only question is why would you resist this, are there special interests involved?  Of course.  An online version of college for these students also would help them reduce the cost of living expenses.
The notion that everyone is entitled to a college education will finally die.  You are not entitled to a college education simply because you finished high school or because you can sign a loan document to receive funding and federal education assistance.  These criteria have resulted in massive fraud by for-profit colleges, but also have created billions of dollars of wasted resources, huge amounts of student loan debt, and ultimately a greater price paid by all kids that go to a university.  No one should be denied access, but we must recognize the damage that the easy access to these student loans is causing in the lives our poor and middle class youth.

Last, I know this will be unpopular, but the financing method of my university experience will finally come back in style.  When I went to school I worked and saved and then signed up for classes when I had enough money to pay the cost.  Yes, it took me a while longer to get through, but I was able to pay for 4 years of undergrad and 2 years of graduate school with no debt on my personal balance sheet.  It did take 8 years to complete that process.  Did finishing school this way seem tough?  Not really, I didn't know any better.  Did paying for the school with cash make me more serious?  Not at first, but once I failed a class and I realized it was costing me time and money, I was absolutely serious.  Any regrets?  I should have gone to a top 20 business school for graduate school, otherwise, no.

Please note, I am not calling for all sorts of government subsidies and interference to save our college system, in fact I'd like to see federal loans abolished.  I believe that colleges simply added infrastructure and headcount because they knew they had a greater and greater pool of students.  They never needed to constrain themselves or tuition expense because there was always demand there.  Of course the demand was driven by debt and that always leads to a bubble.  It seems we are at a crossroads where prices have increased so much it may finally reduce demand.  It can't come quick enough because we are witnessing an entire generation being enslaved by their stupidity, sense of entitlement, and their decisions to major in liberal arts.


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at