HEDGE FUND UNIVERSITY
An eye-opening financial report recently released concerning private colleges stated that 25% of all private colleges spent more than they earned in 2017 despite the overall increase in tuition revenue. (They must be taking a cue from Uncle Sam.)
Where in the name of beer bongs, tapestries and safe spaces is all that money going?
According to the College Board, the average cost of tuition and fees for the 2016-2017 school year looked something like this: $9,650 for in-state public colleges, $24,930 for out-of-state public colleges, and $33,480 for private colleges.
Of course, that’s just one piece of the puzzle. Room and board averages $10,440 at public colleges and $11,890 at private ones. Take that and add on books, Raman noodles and beer, it’s easy to see why people struggle to afford these ever-rising prices. (I took a look at the tuition for my alma matter Syracuse University and I almost threw-up in my mouth.)
How is it possible that schools are spending more than they are taking in with these pricey tuitions? What could possibly warrant these prices?
Forbes Magazine broke down the finances and played follow the money with Colgate University. After paying for professors, support staff, building maintenance, and student services, Colgate still had over 50% of the headline tuition left! (That was not even including all donations and grants the University received.)
Since 1980, the number of administrators per student at colleges has about doubled; on most campuses their numbers now match the number of faculty. I guess it takes a village to monitor the safe-spaces and make sure the Halloween costumes don’t offend anyone.
The ridiculous cost of higher education and the crippling effects of student loans is starting to have a noticeable negative impact on our nation. Student loans are currently the second largest category of household debt in America at over $1.4 trillion. Bloom Economic Research breaks down some of the demographic challenges that have resulted from the 176 percent increase in student loan debt in the decade through 2017. From 2007 through 2017, the Consumer price Index (CPI) rose by 21 percent. During that same period, college tuition costs jumped 63 percent, school housing costs jumped 51 percent and the price of textbooks jumped by 88 percent. (Book companies need to make up for all those losses on Hillary Clinton’s books.)
Demographic Breakdown with Data Available Starting in 2017.
22.4 percent of all U.S. households carried student debt.
44.8 percent had student debt with ages from 18-34 up from 18.6 percent in 2001.
Macroeconomic Ramifications.
According to a recent study by the real estate company Zillow, it takes the average household six and a half years to cover a 20 percent down payment on a home at current prices. That figure is based upon the assumption that workers can save 20 percent of their monthly take-home pay. The baby-boomers are still housing a record level of their kids who cannot afford to leave home which is also contributing to terrible birth rates that have fallen to a 30-year low as marriage is put off. A recent study by Student Loan Hero, an educational debt managing service; pointed out that more than one-third of borrowers stated that college loans and other money woes contributed to their divorce. 13 percent of divorcees blame student loan specifically for ending their relationship.
None of this is positive for dynamic economic growth. This scenario is eerily reminiscent of the conditions that have plagued much of Europe, yet for different reasons. Europeans are held back with excessive taxation and regulations. (Socialism)
Federal Reserve Chairman Jerome Powell commented on the trend. “You do stand to see longer-term negative effects on people who can’t pay off their student loans. It hurts their credit rating, it impacts the entire half of their economic life. As this goes on and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth.”
The Good News.
We have described colleges and universities as non-profit hedge funds. They have many different avenues of business such as sports teams, apparel, real estate, hospitality, investments, research and development and education. All of these institutions want to fill all those desks with buttocks. With the tightening labor market several major corporations have dropped their college degree requirements. With a tightening labor market, employers cannot be so picky and are offering other options. Believe it or not, enrollment is down around the country to the point where certain schools are actually offering price-match deals that you would see at retail stores. Parents need to take a strong stand when negotiating with schools over financial packages and not be afraid to walk away a school.
A college education is an investment and needs to be treated as such. You do not want to overpay. Think about what career field your child wants to go into and decide whether or not the investment makes sense. Is there another school that is more reasonable choice? Do not allow your kids to go deep in to debt and enter the real world deep in a hole. They might not be thrilled with the choice at 18 years old, but will be thanking you at 21 when they can start their lives and move out of the house.
You can thank me later.
DiMartino Danielle Student Loans Are Starting to Bite the Economy Zero Hedge 8/20/18
Editors 1 in 8 Divorcees Caused by Student Loan Debt USA Today 9/10/18
