Freedom Line Blog

If you or a family member are weighing a decision about whether or how much college loan money to request from the government next fall, consider this nugget from Michael Barone’s column on the coming burst in the higher education bubble:

Peter Thiel, co-founder of PayPal, is adept at spotting bubbles. He cashed out for $500 million in March 2000, at the peak of the tech bubble, when his partners wanted to hold out for more. He refused to buy a house until the housing bubble burst.

“A true bubble is when something is overvalued and intensely believed,” he has said. “Education may still be the only thing people still believe in in the United States.”

Owning a college degree may certify completion of a program, but it does not guarantee that the holder has marketable skills to land a job, as this report on the ongoing talent shortage details.  Higher education – like all levels and kinds of education – is an investment only if the students, faculty and administrators involved focus on learning and teaching things that matter.  And with a 9.2 percent unemployment rate, that increasingly means basic comprehension of grammar, logic and rhetoric, with some grounding in finance thrown in for good measure.

So, if you know someone thinking about going back to school for a master’s in Religious or Women’s Studies – for the good of your fellow citizens and taxpayers, urge them to reconsider.  We can’t afford the experience.

Conventional wisdom says that when the job market dries up, it’s time to head back to school for more education.  With today’s announcement that unemployment is above 9% nationally for the 16^th month in a row, many out-of-work Americans will consider going back to school.

In two to three years, those who pay for more certificates or degrees may find that their employment – and financial – situation hasn’t improved.  The reason is the rising cost of higher education coupled with the loss in value of college degrees.  Per Reason Magazine:

Student borrowing has more than doubled since the end of the 20th century, according to the College Board, with $85 billion in loans in 2008, up from $41 billion in 1998. And as the rising rate of defaults indicates, borrowers in aggregate are not making the kind of money—i.e. twice as much as a decade ago—they would need to pay those loans back.

The government’s response to this bubble has been to get itself more deeply involved in the inflation. The administration has kicked in various types of assistance, such as a $100 million college prep program. And in March, President Barack Obama signed a bill eliminating the 45-year-old Federal Family Education Loan Program (which guaranteed student loans made by private lenders) and replacing it with a system of direct Treasury Department loans to students. The first part of these efforts is a straightforward waste of money. The second has the potential to be a marginal improvement on a system that shouldn’t exist.

So we have too much money going into an asset, not enough value coming out, a massive increase in leverage, and a large taxpayer liability for the difference.

Get ready for another bailout…