Friday, December 5, 2008

New York Times: College May Become Unaffordable for Most in US

Wow, a lot of theories I've been espousing the past year and a half on the website are suddenly popping up all over media. I should be trademarking "Pooring of America" before they steal that too. The way things are going all 13 of my Outlier Predictions for 2009 are going to be blown up before I can reveal them; this was another one but I'll expand on the thesis and keep it as part of my 13. This story is just a part of where I'm going to go.

Back in early September [Sep 1: Laboring Longer is Growing Trend for Americans] I wrote

I read an amazing article in Money magazine this weekend about the massive costs of college - Is College Still Worth the Price? The numbers there startled me, I did not realize just how pricey college has become. You can see from the graph to the right as terrible as healthcare inflation has been, college tuition inflation has gone up by twice the rate. It is a worthwhile read and the amazing thing is American parents and their kids gravitate to colleges with higher prices because "price = quality" so even (ho hum) colleges in some cases increase prices just to attract students. Some examples of colleges increasing price by >20% in 1 year and seeing a flurry of new applications. Backwards isn't it? But that's our mindset.

Since this lifestyle erosion is happening over a very long period of time it won't get the headlines but this is the reality - a generation who will work until they drop - I call it the Walmart greeter generation (but you can throw Lowe's, Home Depot, Kmart, Target and a few others in there) People not in the upper 5-10% are simply being squeezed from every which angle and the long term trends are ominous. People will survive but it will be a drop in lifestyle or as I call it "The Pooring of America"

Then in late October [Oct 31: Wall Street Journal - Universities Begin to Feel the Crunch]

All these stories we post continue a mosaic of higher costs of living for Americans in the long run as median wages falter. In the "richest country on Earth" many kids have been forced to borrow $20,$30,$40K to get higher education - creating a ball and chain around their lives for the first decade post graduation. Or robbing their parents the ability to save for retirement. The house ATM hid this situation for half a decade but now we're seeing reality. Looks like costs are set to even go higher... remember our thesis that state budgets are going to be a complete disaster in 2009 - which means sharp reductions in what states can give to their state universities.

At some point the discounted cash flow model is going to show that it is better to begin work at 18 - at a lower wage - and skip the 4 years of wasted earnings potential plus the massive debt many are now being forced to pay off from their higher education. In fact, I would not be surprised if we've already passed that point for many careers outside law, medicine, and the like.

I don't want to speak further on this subject because this is part of my 13 2009 Outlier Predictions but let's just say this story in the New York Times begins to dovetail with a lot of my theories. [Dec 8 2007: Do the Bottom 80% of Americans Stand a Chance?] More important for readers to understand is there is a "new normal" we have to come to grips with, one not pumped by layers of debt (although the government is trying everything in it's power to push us back into that unhealthy age) And no, not all debt is bad - but it is all about degree. We went very overboard; it has been hiding a lot of under the surface issues such as a stagnating median wage the past decade, loss of social safety nets, lack of health insurance and many structural problems in the U.S. system. Unless we address those every other "solution" is just superficial and just a continuation of the great American "kick the can down the road" game. Only addressing things after they become full blown emergencies cannot be our standard as it has been for a few decades now. We are in a global competition and we don't yet realize it. [Aug 19: Coming Soon - A Post American World] If this is yet another thing we don't address until it's a full blown emergency well, those competitors will be sprinting ahead while we take a decade or two to "work on getting it right". And that's going to cause a few generations of pain.
  • The rising cost of college — even before the recession — threatens to put higher education out of reach for most Americans, according to the biennial report from the National Center for Public Policy and Higher Education.
  • Over all, the report found, published college tuition and fees increased 439 percent from 1982 to 2007, adjusted for inflation, while median family income rose 147 percent.
  • Student borrowing has more than doubled in the last decade.
  • “When we come out of the recession,” Mr. Callan added, “we’re really going to be in jeopardy, because the educational gap between our work force and the rest of the world will make it very hard to be competitive. Already, we’re one of the few countries where 25- to 34-year-olds are less educated than older workers.” [On this point, I suggest to readers to review Two Million Minutes - a Global Examination]
  • The middle class has been financing it through debt,” he said. “The scenario has been that families that have a history of sending kids to college will do whatever if takes, even if that means a huge amount of debt.”
  • Last year, the net cost at a four-year public university amounted to 28 percent of the median family income, while a four-year private university cost 76 percent of the median family income.
  • Among the poorest families — those with incomes in the lowest 20 percent — the net cost of a year at a public university was 55 percent of median income, up from 39 percent in 1999-2000.
  • The likelihood of large tuition increases next year is especially worrying... “Most governors’ budgets don’t come out until January, but what we’re seeing so far is Florida talking about a 15 percent increase, Washington State talking about a 20 percent increase, and California with a mixture of budget cuts and enrollment cuts,” he said.
  • Mr. Shulenburger’s report suggested that public universities explore a variety of approaches to lower costs — distance learning, better use of senior year in high school, perhaps even shortening college from four years.

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