The Albatross Around the Economy’s Neck

I finished high school in a small town back in the swamp in southern Louisiana. We had 89 people in our graduating class, and the entire school had less than 400 students.

While we missed a lot of things because of the size of the school, there were some positives.

For one, athletes got to play several sports. In fact, my best friend was a four-sport letterman. He was fast, strong, and smart, so he was a free safety in football, point guard in basketball, 2nd baseman in baseball, and a sprinter on the track team.

Now, he is simply a relic…

The government has made his achievements almost obsolete. It’s nearly impossible for kids to pursue more than one sport today and still make a high-school team… because it’s all about the money.

Scholarship money, that is… and Division 1 in particular.

My friend’s achievements come back to me as I sit in the stands and watch my daughter play volleyball. She’s not playing on a school team this time of year, because volleyball season is over. Instead, we’re at a private facility where we pay too much for her to pursue this sport outside of her school. This is the world of “travel ball.”

Like most players, our daughter tried out for more than one organization, which then ranks the players. Then some of the players are offered a spot on a team at different levels (open, regional, state, local), representing where the team will compete.

Once on a team, players practice three times a week and play in six to 10 tournaments over the course of four months. There are also optional mini-camps… but keep in mind, in sports, practice is never optional, no matter what the coach says.

When the travel season ends, it will be summer, when the girls are expected to attend at least one three-day and one week-long ball camp, and there are other “optional” opportunities to play and practice as well.

Once school starts, the girls will try out for their respective school teams during the regular fall season. In October and November, travel-ball tryouts occur and the cycle starts all over again.

This process exists for baseball, volleyball, lacrosse, and probably every other sport.

Families spend thousands of dollars every year to pay for their spot on a team, for travel to tournaments (which can be across the country), for gear, and for camps. The costs easily can reach $6,000 per year.

While some players truly do it for the love of the game, there’s a different motivation for most. It’s all about Division 1.

Parents and players have a laser-like focus on making it to the big-time: scoring a Division-1 college scholarship to top level schools, like Duke University and University of Southern Carolina.

Everything about their pursuit of a single sport centers on the possibility of being selected to play at a great college, thereby obtaining a “free” degree.

With the cost of college outrageously high, sports scholarships are one way for kids to be able to attend pricey schools. So families do what they can to bolster their kids’ chances. The kids play all year (school and travel ball)… they go to camps… they go to all of the practices. And they focus on only one sport in order to master the skills necessary to get selected.

The years of multiple-sport lettermen are over… thanks to a larger force that’s driving everything.

It’s the force that has driven college costs outrageously high, bringing us to the point where it’s impossible for a median-income family of four to afford it.

It’s the scourge of recent graduates and potentially the albatross around the neck of the economy for years to come.

I’m talking about student loans.

Developed in the 1960s by the U.S. government, federally-backed student loans were meant to give low-income students the means to attend college. Now the majority of students are expected to borrow in order to fund their education.

Once the money tap was fully open, universities could raise their tuition and fees as much as they wanted, which is what they’ve been doing ever since. The cost of college almost didn’t matter, since there was no limit on borrowing and no credit check.

Universities had a perverse incentive to spend all they could, updating student facilities with climbing walls and Olympic pools and adding Gutenberg Bibles to their libraries, because revenue was limited only by the number of students coming in the door. If you could attract more students, you could get more cash.

The financial crisis of 2008 served as a wake-up call. The current system of borrowing heavily to finance college is being hotly debated, yet more loans are still being made.

Total student loans in the U.S. at the end of 2013 were more than $1 trillion, compared to only $680 billion for credit cards. This is up from $250 billion in 2003.

Meanwhile, recent college graduates are struggling to find jobs in their field, much less high-paying jobs with a promising future. This makes borrowing to pay for education much less attractive.

Unfortunately, most of the current conversation focuses on the symptom — high student-loan balances for graduates — instead of the cause, the high cost of a college education.

If the federal money tap was turned off, families would make much more judicious decisions about schools, which would then be more sensitive to what they charge, and hopefully bring down the costs.

The problem is that universities would not quickly adjust to the new reality. They would try to find a way to offer private loans and other means of keeping up their revenue before finally changing the way they do business.

This would leave a group of students, those now in college and those about to attend, in a quandary: how to afford to pay the old prices without access to the old money tree.

In turn, this would make Division-1 scholarships even more valuable, at least in the short term.

I hope we’ll find a way to reduce substantially the price of college, and thereby relieve some of the pressure on high-school athletes who are trying so hard to get scholarships at the expense of pursuing, or even trying, other interests.


Rodney

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Categories: Education

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.