Another Bubble Within the Super Bubble: College Tuition

by | Dec 16, 2009 | Forecasting | 10 comments

Do you LOVE America?


    It may seem like a child’s birthday party, with bubbles floating around all over the place. We’ve got the real estate bubble, the oil bubble, the government debt bubble, and a bubble we don’t often mention, but one that affects millions of people, the college bubble. Conservative Daily Blog writes Trend Forecast: The College Bubble Will Burst:

    Those in college at this moment are utterly throwing precious time and taking very serious risks incurring massive debt. Your degree will not be worth the paper it is printed on in the very near future, prepare to accept any job you have the opportunity for. Most will be working the equivalent as a gas station attendant. Forecasts follow:

    A few items must be examined to bring this forecast into view; therefore I simply look no further than current events. Here are just a few.

    * Average tuition at four-year public colleges in the U.S. climbed 6.5 percent, or $429, to $7,020 this fall as schools apologetically passed on much of their own financial problems, according to an annual report from the College Board, released Tuesday. At private colleges, tuition rose 4.4 percent, or $1,096, to $26,273. (Huffington Post Oct 2009)

    *Since 2004 tuition and fees have risen by up to 20% (Time Magazine)

    *Because of a budget in peril, UCLA inflated college costs by 32% in November of 2009 (AP)

    * College tuition has increased by more than three times the rate of inflation for the last 20 years, despite U.S. wages flat-lining since 2000. (Forbes Magazine)

    This begs the question: why did prices increase to these obscene levels in the first place? (Hint: for the same reasons the real estate boom happened):

    Despite the best intentions, Government intervention distorts free market principles and creates zero incentive for businesses to lower costs or modify services.

    The straw man argument typical consists of “Well, if Government didn’t provide loans, no one would be able to afford college”.

    Again, we simply fall back to the free market model to demonstrate the fallacy in that claim. For if the government were to exit the student aid market, enrollment would fall through the floor. Students who were unable to attend college in the first place, without Government aid, would not enroll forcing pressure on the Universities to bring down costs to meet demand.

    Wait, so we should let the free market take over? This is starting to sound more and more like something out of an Austrian economics book.

    It may hurt some of those trying to enter college in the near-term, but in the long-term, prices will equalize. While the government makes that argument that thousands of students would be unable to afford college without these loans, they are in fact one of the sole reasons why the price of tuition has risen to ridiculous levels. Again, we direct readers to real estate and the average cost of a home from 1900 to 2000, which was about $110,000 when adjusted for inflation. At the top of the real estate bubble, the same homes were almost twice as expensive, averaging around $200,000. How did this happen? Simply answer: free money printed and distributed from helicopters by The Fed.

    Some insightful forecasts for those thinking about entering college (or those thinking about sending their kids to college):

    *Many students today must undertake massive debt in order to pay for the cost of their college education. We will continue to see an increase in the amount of debt a student must incur, as colleges continue to inflate their costs and the Government expands its role in the loans market.

    *The average student enrolling in college starting in the year 2012, will accumulate debt so massive that he or she will not be able to afford in a lifetime! Yes, that is correct.

    *Despite the increase in the cost of attending college, enrollment will continue to skyrocket in the short-term and then fall of a cliff by 2015.

    *Every college in the nation will continue to inflate prices at a significant rate in the coming years as personal revenue falls. Because fewer will be able to afford costs, pressure will be put on the Government to step in to fill the void, which they will CERTAINLY do without any hesitation.

    *We are going to see the collapse of private universities nationwide along with commercial real estate. The only private Universities with a bullish future are the Ivy Leagues for the elite only.

    Like mortgages, health care, transportation, and banking, the government will ultimately attempt to take total control of the education market from birth to college graduation. For astute readers, the dangers of this are quite apparent, as every child will receive the same type of government sponsored education from before they even begin to talk. And they will be fully prepared to enter the private, errrr, public sector as soon as they graduate. (If all goes as planned, there will no longer be a private sector in America.)

    Conservative Daily Blog further discusses the social implications of the bubble and its subsequent bursting, and is right on target with their forecast for the establishment of trade schools:

    Instead of a liberal arts curriculum, young people nation wide will learn marketable skills such as farming/agriculture, animal raising, craft (Basket Weaving, Sewing), steelwork, construction. Amongst other things. This will be called the Second Industrial Revolution, as America’s future economy will depend heavily on export with the chief export being agricultural goods.

    We are going to see a new establishment of trade schools nationwide. These “schools” will specialize in the marketable skill areas mentioned above. Those who choose to diversify their skill portfolio will have the greatest employment opportunity as we see a shift from the (PhD, MS, MBA, BA, etc) to (Intensive Pastoral Farming, Shifting Cultivation, Dairy Farming, Plantation or Tree Farming, Woodcraft and interior construction, etc)

    This will not only be an affect of the bursting of the college tuition bubble, but the government debt bubble. The productive capacity of America was replaced over the last five decades. Instead of skilled laborers willing to put in a 40 hour blue collar work week, we have millions of Americans who spend their time shuffling papers and living a life of mediocrity in the corporate world doing whatever they have to just to get their next paycheck. We get paid, for the most part, to provide a service, not a tangible product. This comes to mind:

    One additional trend, first mentioned by Trend Forecaster Gerald Celente, is the rise of online education. As parents and students are further pressured on all fronts, they will opt for online education courses instead of traditional colleges. Taking courses online will be cheaper, more convenient, and will likely allow for more flexibility in class choices.

    For a more detailed look at the college tuition bubble, especially if you are considering whether or not to send your kids to school, or they are preparing to take on a loan that will take a lifetime to repay, we direct readers to the full analysis and trend forecast at Conservative Daily Blog: Trend Forecast: The College Bubble Will Burst.


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      1. Thanks for posting this Mac. When I wrote this I completely neglected to mention online education.  That is already seeing mass acceleration as an alternative to the traditional Brick and mortar Universities.

      2. While I agree with you that college is not a right, is returning to a 19th century economy and social structure the answer?  We do need to find a way of reviving the trades as well as agriculture. This means that we’ll have to revive our manufacturing sector.  How?  Tariffs.  Tariffs are the only way that you protect and grow industries so that they can compete on a global scale ( Only Gov’t can do this).  Other countries (Japan, Korea, China) do this now and we did this back in the 19 th century in order to become a world power.  Our business leaders should be able to find a way to compete without paying people $2/day and destroying the environment around them.  This is what is happening in China.  Sorry, but Lassiez-Faire economics is what got us into our current mess and gov’t intervention that allows for business to grow while protecting people (Did you know that Pres. Bush gutted all of the workman’s comp. laws?) is the only way out in my opinion. 
        One other thing, it would be interesting to find out what effect  the GI bill after WWII( Paid for in blood mind you) had on the US economy.  I bet it was quite positive.  Amazing what access to education can do for a nation, eh?

      3. In my opinion, the college bubble is another symptom of what I call the ‘Middle-Class Bubble’. I goggled Middle-Class Bubble and only found articles that talked around the issue such as the effects of the ______ bubble on the middle class. From what I read, the middle class has been growing in a unsustained way and is collapsing fast. But like the population bubble it’s impolite to talk about it.

      4. Thank you for taking this info from Brian’s web site and expounding upon a subject that rarely sees the light of day. I do have one question:

        Where did the stats come from about a college freshman entering in 2012 incurring more debt he/she can repay in a lifetime? That seems like a pretty big thing to me. It must depend on ultimate job and salary later on in life too, right?

        I have a thought that perhaps college tuition (and maybe some other things) have risen at a rate above and beyond official inflation because, well… we’re comparing it to official inflation. Which we all know is a joke. The real rate of inflation could be 2-3x that, which explains a lot. Business (college administrators) must raise prices above official inflation rates just to stay on top of their real operating costs. I do not disagree with the government interventionist theory (I actually highly agree with it) but thought perhaps the old inflation issue was partly to blame.

        I agree with the assessment too that Government will do the wrong thing by trying to subsidize college education even more, causing even worse tuition rises in the immediate term. I am not sure how long till the big crash (1 maybe 2 years?), but it has to happen, much like the housing bust. The real problem is that 95% of this country is still sold on the idea of the American dream, that it is essential to get a college degree to be successful in life. Well, we have recently learned that the biggest component of the American dream – owning a home, turned out be just that, a dream.

        BTW, Office Space is a classic.

      5. Chris, I will have to leave the statistics for 2012 college pricing to Brian, as I did not do the research for these specific numbers.

      6. @Chris C.

        There were no stats on the “college freshman entering in 2012 incurring more debt he/she can repay in a lifetime”.. That was my prediction. It is a little easier to understand in the context of the article I wrote on my site.

        This is almost the exact same situation as Housing. All with Housing, Unemployment, College, the rise of Food Stamps… This is truly the collapse of the Middle-Class as Brian F pointed out.

        Once this final bubble burst which is our Federal Government, quoting Ron Paul “everyone will know what poverty is”.

      7. Here is a sign what I am saying about Community College is already coming true.

        Some other articles I used in my research

        UCLA recently inflated their tuition by 32%! The students went nuts rioting. Get ready for more of this nationwide. Gerald Celente could not have been more correct. These are the “tax riots”. Get ready to start seeing those mainstream if unemployment benefits stop or something of the sort.

      8. Thanks Brian. I like the last two articles the best, but they’re all good. I find it even more enlightening to read the user comments at the bottom of these articles, for I see the comments on the last one about tuition getting ready to collapse still reflect an enormous disconnect between reality today and desires for tomorrow. Most people still think it can’t happen. We just lived through phase 1 of the housing collapse that was never supposed to happen! When are people going to wake up?

        I think you’re dead on when you say this is so much more than just a college tuition bubble. No matter how you slice it, it really does appear to be a complete and total war on the middle class (which is why I used to watch Lou Dobbs because that was his catch-phrase, but then he got sidetracked which is another story).

        There just doesn’t seem to be anyone talking about this. You have the financial experts gooing over how much the markets have risen, and how inflation is tame or even non-existent (officially), and that tuition/healthcare costs are a concern, but hey, we’ve still got the best system in world because people are still buying into it! All these separate mouthpieces saying everything is fine for the average “consumer” when in reality all you need to do is assess all of these things together, and you can see how we are dying of a thousand cuts. And thanks to MSM compliance and good old fashioned sheeple ignorance, the boiling frog analogy continues to play out.

        Where are our leaders on this? Elizabeth Warren has spoken out on this (an article just posted here yesterday on that), but to my knowledge she is the only one who publicly brings up the phrase.

        We need to fire them all, in my opinion.

      9. Well, here are some prelim numbers on college costs and loan payoff time sourced from the CSG Network (scroll down for tables)

        Public Universities average estimated cost for direct and indirect expenses:

        2012     $15,211
        2013     $15,971
        2014     $16,770
        2015     $17,609

        Let’s say one took loans for the total amount here. This would total roughly $65,000.

        Calculating your indentured servitude:

        My wife’s college loan runs at about a 3% interest rate per year, so i went with this, but really it is irrelevant if paying minimum payments.

        Say we paid minimum payments (1% of balance), which is probably what most people do.

        • $65,000 at 3% interest per year.
        • Minimum payment 1% of balance = $810.00 per month
        • Total payoff time in months: 487
        • Total payoff time in years: 40 years

        Brian, I’d say your statement “average student enrolling in college starting in the year 2012, will accumulate debt so massive that he or she will not be able to afford in a lifetime” is pretty accurate based on these numbers.

        Not only is it a lifetime of debt, but $810 in real dollar terms is a helluva loan to have to pay each month and students would be a skip and a heartbeat away from a rapid delinquency/default in the event they lost their job for any extended period of time at any point during their lifetime.

        I kashkari’d these numbers here: Minimum Payment calculator)

        *Note: No college students were hurt or injured during the calculation of these loan payments.

      10. @Mac
        Thanks for doing that calculation. I didn’t do any math when I wrote up the forecast. I just assumed since most college grads, currently, don’t pay off their debt until their late 30s/ early 40s it was a general trend that would be unsustainable.

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