Wednesday, April 6, 2016

The cost of rocket science

Tuition costs have not followed the economic norms.  They have skyrocketed.  Curious?

Regular folks are distressed by stagnant wages and rising costs.  At the top of their recent list of concerns ... healthcare -- it is huge and rising. Today, it still costs more than most can manage easily.  That's a deadly problem that affects the bottom 80% or so of Americans by income, but it's perhaps not the largest problem for many.

The rise in tuition costs is about twice what we've seen for healthcare.  In today's economy, higher education is considered an essential for success, an essential for a way forward, and as such, it is a great venue for predatory lending practices.  As an unintended result of easy money made available by student loan programs, educational institutions are free to raise fees to whatever they like since the government has arranged to finance it for them.  That's the way it has worked for years.

The explosion of education debt has gone virtually unremarked, primarily because it's deferred rather than a cost like healthcare which one must pay today.  That's our banking industry for you.

Many of today's graduates begin their life after school with a debt that will encumber them for a decade or more. Most will have difficulty making payments.  Delinquencies and defaults will be higher than for other debt instruments.

The damage?  A large portion of indebted students will be narrowly constrained for part or all of their career years.  Life will be focused on obligation rather than opportunity, on income instead of life goals and vision.  As seems common with such initiatives, profit is extracted from consumers without equal benefit or value being provided in return.

Indebted former students down the income scale are of course affected more.  The burden may adversely affect the entire life of the borrower.

The student loan program appears to be unimpressive when evaluated for ROI.  Not one benefit has been identified that could not otherwise have been achieved with less downside.

The alternatives are myriad.  If all else fails, employing post-HS students for a couple of years in AmeriCorps doing service projects is a great foundation for education.  Americorp, like the military, has education assistance benefits that could offset the need for a loan.

Fortunately, higher education is now being forced to evolve.  Technology and demand are rendering the traditional campus and curriculum as less valuable with each passing year, innovation, alternative method, and measurement.

No comments: