"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Thursday, August 18, 2011

The Student Loan Bubble and the Way Out

Ominous article in the Atlantic:
If you want to get a name as an economic seer, try this one. The next subprime crisis will come from defaults on student debts, starting with for-profit colleges and rising to the Ivy League. The parallels with housing are striking. In both, the written warnings aren't understood, especially on penalties and interest rates. And in both, it's assumed that what's being bought will rise in value, in one case the real estate, in the other the salaries which will accrue with a degree. One bubble has burst; the second is already losing air.

Still, there's a difference. With mortgage defaults, banks seize and resell the home. But if a degree can't be sold, that doesn't deter the banks. They essentially wrote the student loan law, in which the fine-print says they aren't "dischargable." So even if you file for bankruptcy, the payments continue due. Hence these stern word from Barmak Nassirian of the American Association of College Registrars and Admissions Officers. "You will be hounded for life," he warns. "They will garnish your wages. They will intercept your tax refunds. You become ineligible for federal employment." He adds that any professional license can be revoked and Social Security checks docked when you retire. We can't think of any other statute with such sadistic provisions.

I've been harping on this for years.   There is no reason why college tuition has to cost as much as it does.   It's not worth it, and no one would pay it, except for the explicit shakedown aspect of it.   Colleges and universities are like the mob:  they say, "pay us the money, because I wouldn't want anything bad to happen to your family."    You either pay them the extortionate tuition they charge, or else your kid can't get a good job.

This is particularly true nowadays, when a decent college curriculum is only a mouse-click away... for free!   For instance,
here is a link to an online video freshman physics class at MIT.   And here is a link to what looks like an interesting  class at Yale called the "moral foundations of politics."    The link includes:  reading assignment, videos of lectures, audio of lectures (if you want to listen while exercising or driving), and .pdf's of handouts.   And here's a calculus class at UC-Berkeley, which you can download for free from iTunes.   So I've now in about five minutes found what looks to be an almost complete, rigorous year of college at elite universities online for free.   I repeat:  for free!   

Now, maybe taking these online for free won't give you quite as good instruction as you might get live from these teachers.   Not quite as good.   But is it really $50,000 worse?   Really?   I don't think so.  

The emperor has no clothes in higher education, and soon people will realize that fact.

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