It’s not often you get to say you have something in common with a billionaire, let alone with Mark Cuban (owner of the Dallas Mavericks and one of the stars on Shark Tank, my favorite TV show).
He says that American colleges are in serious trouble and that over a trillion dollars in student loans will put many of them out of business.
I not only 100% agree… I’ve been saying that for years!
It’s not just the loans. It’s that the bubble in rising education costs will end when students can no longer get loans to pay increasingly outrageous tuitions… never mind pay off those ridiculous amounts.
As Rodney said the other day, you could buy a small house for the same amount of money that universities are asking just so you can walk away with a piece of paper.
And our government has been encouraging this madness! Still is, in fact. It’s subsidizing these loans just like it did with mortgages, and that led right to the 2008 subprime crisis. Now its interference in higher education has allowed costs to continue to increase at the highest rate of any major sector in our economy.
Yet another massive bubble that will burst ahead, leaving behind a swath of financially-ruined students… the very people we’re relying on to move our economy forward.
How stupid and shortsighted!
What we need is not more subsidies or more government intervention. Instead, we need the government to step out of the way so that the natural reset and deflationary cycle can take its course. That’s the only way the education and health care system can rebalance and once again be a boon to the young and old, instead of a burden. Tomorrow, Rodney plans to tell you a story that shows how messed up the health care system is, so be sure to check it out.
Something is Very Wrong in Neverland
The education bubble is the most extreme we’ve seen in recent decades (the student loan bubble is another problem entirely). There is simply no justification for the extent to which the cost of education has increased. High bureaucracy, tenure and the high real-estate costs of glorious campuses is completely unnecessary when you can interact with the best experts in the world via a virtual classroom.
Yet colleges and universities still have households over a barrel. Most families want nothing more than to give their kids a good college education so they can look forward to a bright future and enjoy a good life.
So college costs keep rising, faster than anything else in the CPI basket, and we just grin and bear it.
Only, it can’t and won’t go on like this for much longer.
Look at this chart.
It shows the steep rise in baby boom spending on education. That peaks at age 51, and as you can see in the chart above, this unprecedented demand resulted in a sharp price increase from 1984 to 2012. Then the spending will first drop steeply into 2019 and again from 2022 to 2024.
The actual attendees, the millennial generation, saw their first wave peak in graduations on a 22-year lag also in 2012 and now that trend drops down sharply into 2019.
That means, the spending trends are now heading down, especially into 2019. So if there’s going to be a crisis — and I believe there MUST be — that’s when it will come.
My apologies to any professors reading this, as I considered you to be one of the top risk-adjusted professions until now, like union auto workers in the past. Don’t get me wrong, I love your high education and longer-term views of life. But it’s time for your industry to reset.
With a declining spending curve and the inevitable student loan catastrophe, colleges are about to see applications fall off a cliff. Private colleges, more than public, will face major headwinds over the next decade.
Many will fail or have to retrench their tenured professors and reduce their high real estate costs.
The ones that will survive will have embraced the online world and be less capital-intensive. Many will still have campuses, but they’ll sell off or lease more of their real estate and research facilities. That will be good for the emerging millennial generation and the young people that follow them.
So if you have kids or grandkids that will move through the higher education system, think smart. Help them find better alternatives to the traditional campus experience. That will save your pocket, their credit, and their future.
If you’re a professor, embrace technology. Warn any friends you have who work at colleges. Don’t be lulled into a false sense of security by the brick and mortar that currently holds students prisoner.
And whatever you do, look to education in the technological realm as profitable investments to make after the next big crash.
Follow me on Twitter @harrydentjr
Ahead of the Curve with Adam O’Dell