The Education Bubble: A Different Perspective

I think this article actually appeared in print in the New York Post (from what I was told).  For those who are unfamiliar with New York Newspaper Culture, the Post is the working man's paper.  It's filled with pictures. It's opens like a book.  The articles are short and sweet and refreshingly popular in nature.  So, when this op-ed was published in the Post, I was ecstatic.  In my humble opinion, the story of the education bubble is reaching the masses.  Of course, since the Post is geared towards the masses, the story speaks to them--not us.  Us meaning those with a higher education--which is only a small percentage of the population as a whole.

Anyway, it's worth looking at:

Government-subsidized loans have injected money into higher education, as they did into housing, causing prices to balloon. But at some point people figure out they're not getting their money's worth, and the bubble bursts.

Any day now.  I'm waiting and hoping for this day to come.  And he's not even talking about law school. He's talking about college.

My American Enterprise Institute colleague Charles Murray has called for the abolition of college for almost all students. Save it for genuine scholars, he says, and let others qualify for jobs by standardized national tests, as accountants already do.

"Is our students learning?" George W. Bush once asked, and the evidence for colleges points to no. The National Center for Education Statistics found that most college graduates are below proficiency in verbal and quantitative literacy. University of California scholars Philip Babcock and Mindy Marks report that students these days study an average of 14 hours a week, down from 24 hours in 1961.

Wow.  So all the things that we say about law school are doubly true of college. I went to a great undergrad and I had a 4.0 and pumped it for it was worth.  It never occurred to me that college failed in in goals of educating students in the most basic ways.  Literacy?

I live in the hood, as many of you know.  How does one know she lives in the hood?  Well, if there are more people sitting on stoops then there are stepping off the bus in the evening, you probably live in the hood.  But my neighbors are not completely nonproductive.  Many are enrolled in a local college or community college.  They are continuously taking classes--aimlessly.  I have written many stories about my run-ins with local "students."  There's the retarded guy who works at the local Duane Reade.  You can tell that he doesn't have the intellectual capacity to be in college, but he's been going and will continue to attend college until he can get a Ph.D. in History so he can be a Middle School teacher (his goal, no joke).  Or the guy who I overheard on the train that said that he's been going to school for Criminal Justice for 7 years and he was too good to take a job in Customs through connections, where he will top out at $80K--even though he couldn't form a full sentence.  I don't mean to look down my nose at people, but I'm not sure either of these guys can even read.  So, I guess I shouldn't be surprised.  I guess the problem is more widespread than I thought:

The American Council of Alumni and Trustees concluded, after a survey of 714 colleges and universities, "by and large, higher education has abandoned a coherent content-rich general education curriculum."

They aren't taught the basics of literature, history or science. ACTA reports that most schools don't require a foreign language, hardly any require economics, American history and government "are badly neglected" and schools "have much to do" on math and science.

So, the failure of college should be measured by the content of the curriculum and not the probability of scoring a job upon graduation.  That's the same analysis we've been applying to Law School, which fails on both counts.  Then these poor souls go from being an undereducated undergrad to an ill prepared lawyer.  Why are we paying so much more for so much less?  Well, isn't it clear?

Universities have seen their endowments plunge as the stock market fell and they got stuck with illiquid investments. State governments have raised tuition at public schools but budgets have declined. Competition from for-profit universities, with curricula oriented to job opportunities, has been increasing.

People are beginning to note that administrative bloat, so common in government, seems especially egregious in colleges and universities. Somehow previous generations got by and even prospered without these legions of counselors, liaison officers and facilitators. Perhaps we can do so again.

Yes, of course.  The parasitic administration that feeds off of other's misfortunes, i.e. your mortgaged future.  Yet the politicians of this country have sold education as the panacea to poverty and stagnancy.  Is it really?  Weren't we doing better just 50 years ago with so much less of an education?

A century ago only about 2 percent of American adults graduated from college; in 1910 the number of college graduates nationally was 39,755 -- smaller than the student bodies at many campuses today.

Wow. That is putting it into perspective.  I guess too much of a good thing is no longer a good thing.

As often happens, success leads to excess. America leads the world in higher education, yet there is much in our colleges and universities that is amiss and, more to the point, suddenly not sustainable. The people running America's colleges and universities have long thought they were exempt from the laws of supply and demand and unaffected by the business cycle. Turns out that's wrong.

That's a little premature, Mr. Barone.  When schools stop opening up and start closing down, I will believe that they are no longer exempt.  But I think we're a few years from that, especially with federally backed student loans and the protections that affords them.  But I hope you're right.  They need to start worrying about customer satisfaction or suffer the consequences.

Education and Four Other Expenses that will Consume 50% of Your Lifetime Earnings.

So, yah... Four huge expenses and then Education--the one that interests me most.  Here they are as cited in this article:
1. Home
2. Car
3. Kids
4. Education
5. Retirement

Which one of these things doesn't belong here? Well, if you're human you'll want children (or not, but most do).  If you're living in an area without public transportation, you will need a car.  If you are old, you will have to retire.  And all humans need shelter, i.e. a home.  An education sticks out on this list as the one thing that may be unnecessary to living a viable middle class life.  In our cases, it has actually served as a barrier to living a middle class life.  I know I piss people off when I say that education is unnecessary, but I look around me (mostly to my family) and see a shitload of blue collar people that are financially stable, and my educated self makes strategic decisions between cup o'noodle and peanut butter and jelly.  Well, I'm wondering if I'm doing the right things with my financial decisions and how this article relates to my life.  I can't imagine feeling more poor than I do now.  Maybe, I can get back my 50%?  Not sure... let's see.

So, here are the hints on how to make these 5 items more affordable, but I will focus on education last (my comments in italics):

1.  Don't bite off more HOME than you can chew. How much house can you comfortably afford? For most people the answer is a house with a purchase price of no more than 3x their annual household income. Rationale: the cost of a home includes much more than the monthly mortgage payment. It's also property tax, insurance, upkeep, etc. Typically these costs run 2%-3% of the price of your home each year. Assuming a 20% down payment, a 30-year fixed rate mortgage, and interests rates in the 5%-6% rate, the 3x your income rule of thumb will translate into total housing costs of roughly 30% of your gross income.
Hmm.When bought my last home, it was 1X my salary at the time.  The problem is that the job didn't last.  Now it's about 4 to 5, or maybe even 6, times my salary.  So, it's hard to plan for this.  These days, in these volatile times, who can count on their income.  But considering what I could afford at the time, I certainly did the right thing.  I live in the ghetto and have had one attempted break-in. Thank God for ADT!
2. Don't let your CAR drive you to the poor house. The same logic applies to your car. Most people can comfortably afford a car that is 1/3rd of their annual income. If you make $60,000 you can comfortably afford a car that costs $20,000. If that seems low — now you know why so many Americans are in financial trouble. They are driving it. A car has many other costs than simply the monthly payment. There's insurance, gas, parking, maintenance, etc. If you follow this rule of thumb, your total transportation costs should be 10% or less of your gross income.  This is why I live in NYC.  I realized early on that a car is expensive and when it's cheap, there are unforeseen costs that make huge dents in your savings.  HUGE.
3. Don't let your KIDS kick you in the wallet. Kids are expensive. From a purely clinical standpoint the Dept. of Agriculture estimates it will cost $220,000 to raise a child born in 2008 from diapers to age 18. And that figure is before you add in the cost of college! Deciding to be a parent is a major financial obligation. Don't make it worse by over-indulging your love bundles.  As much as I love babies, I know I can't afford one now... and maybe ever.  So, this point doesn't apply to me either.
4.  Don't underestimate the need to feed your RETIREMENT nest egg. How much will you need to retire? A simple rule of thumb is to multiply your current income by 25. So if you make $50,000 a year and want to maintain that standard of living in retirement, you'll need a nest egg of at least $1,250,000. Understanding early on in your working life what "your number" is… will help you see just how important it is to plan for this major savings goal. Ha.  I had a savings, but the job was lost and that's down to nearly nothing.  So, I have no plan for retirement as of yet.  I have a couple of 401Ks that have nothing near $50K in them, let alone $1,250,000.00.  So, in regards to this, I am an idiot and will be a homeless old lady one day.

And Finally..........

5.  Don't forget to ask "How high is too high for higher EDUCATION?" It used to be good debt was defined as mortgage and student loan debt… and bad debt was everything else. Not any more. We've now learned that too much of a good thing can indeed be bad. Rough rule of thumb, don't take on more in total education debt than you think you are going to earn on average annually during your first 10 years after graduating (from college or grad school). In plain English, if you think you'll make $50,000 a year, don't take out more than $50,000 in loans. The logic behind this is that if it takes you more than 10 years of paying 10% of your income a year in student loan repayments, it's going to be tough to meet your other financial obligations.  So, at the time that I went to law school, the median/average salary (I don't know which one, but it was a lie in any scenario) was $74,000. That number sticks out in my mind.  I remember being satisfied with that number.  Consequently, and completely accidentally, I only had $70K in loans.  So, according to this guideline, I was one of the smart ones.  HOWEVER, the problem herein lies that the law school misguide you and misinform you as to what you should expect to earn.  So, the wildcard here is what you "think you are going to earn on average annually during your first 10 years."   I'm sure there are some careers where starting salaries are standard... but that is not the case with our careers.  You salary can range from $0 to $30K to $160K.  There is no way to know.  So the only way to get an education on the cheap and smartly is to make sure it's free.
But like I said, an education isn't necessary for so many different careers...unless sitting behind a desk is your end all be all.

When an education takes away from your esteem and security, is it really a need?

A Loan Company Worse Than Sallie Mae

Unless you have good health insurance, a huge life insurance policy, and live like Bubble Boy, do not allow your parents to co-sign your NJ Class loans because they will be left with your debt if you meet an untimely death. This is what happened to a New Jersey couple after losing their only child in a tragic car accident.

Grande graduated in 2007, briefly took jobs coaching baseball at Southern Regional and substituting as a teacher for special needs students, and then moved to Florida for an internship at a brokerage, paying off some of his college debt as he went along.

Two weeks before he was scheduled to take his Series 7 exam to become a stockbroker, he hit the back of a truck.

His parents said police haven't figured out what happened that night; they said toxicology reports came back negative. But they were left to pick up the pieces. Among them: What to do about the thousands of dollars in college loans that their son now can't repay.

Their son owed more than $81,000 in student loans from NJ Class, the state's college loan program. Like the snakes that they are, NJ Class sent the devastated parents a notice less than a year after their sons death stating, "We sympathize with you, but you co-signed for it. Our bondholders want their money." Even the devils at Sallie Mae waived Grande's federal loan debt after being sent a copy of his death certificate. But the monthly $685 bill from the New Jersey Higher Education Student Assistance Authority kept coming.

"Although we are sympathetic to the difficult circumstances involved, under the terms of the bond indentures that finance the NJ Class loan program, HESAA is not permitted to forgive student loans as a result of the death of a borrower since the repayment of the NJ Class loans financed through the bond issues is how the debt service on these bonds is paid," said AnnMarie Bouse, a spokeswoman for the authority.

Yes, student loans will haunt many of you for your entire life and your loved ones after you die. If you don't want to take this huge burden with you to your grave and risk passing this financial nightmare to your parents or spouse, do not take out these huge loans to get a worthless degree. I don't care what the mainstream media, Yahoo HotJobs, President Obama, or anyone else tells you about higher education. Nothing is worth gambling your life and family on a degree that doesn't guarantee a job and a wage big enough to pay off loans, some of which aren't even dischargeable in death.

Over the weekend in France, young people protested against raising the retirement age. Why can't young people in the U.S. get as angry about their generation owing hundreds of thousands in student debt or these state college loan programs making parents of deceased borrowers pay off these loans or not honoring contract promises to students? Have we become so demoralized, apathetic, and complacent that we can't demand more protection from the corporations who run our country and even our higher education system? When will more Americans say enough is enough?

Even the Europeans Think Our Education System is on the Brink of Disaster!

Angel,

I was perusing the BBC and saw this article.  It doesn't discuss law school but does a good job of identifying the huge surge in university attendance while presenting the staggering cost.  I think it would have been better if it then touched on the need for advanced degrees, adding yet another staggering cost in the baseline expenditure for a (maybe) useful degree. The best part about this is that it is international in scope and will reach a much larger European audience, where university education is much more subsidized!

It is just shocking.  I have never commented here but follow all the law school scamblogs almost religiously.  I have good grades and am prepping for the LSAT now.  I haven't made a decision but if I score below 175, I won't go.  It means that my chance at getting in a top 5 is a stretch and precludes me from any opportunity at getting any subsidy.

Thank you for your work, I hope to contribute more in the future.  Just today I was talking to a customer in the bar I work at who was waiting to hear back from the UVA waitlist for the law program.  I told him all about scambloggers and wrote the names on a card for him to look up.  He had not a thought in his head that the schools might be misrepresenting the figures.  I told him everything I could and told him to seriously research the job prospects and to contact UVA and ask them to break down all of the statistics for him.  He thanked me and gave me a huge tip (which was nice), plus he was super cute...ha!

Anyways, check out the article and keep fighting the good fight!

Sincerely,
BIDER READER

I did check out the article and it seems the Europeans are onto the education scam. It is ridiculous that we send our kids to school for $200K, and even more so when the kids go on borrowed money.  Thanks for bringing this to my attention. I have always loved the BBC as a source for news.  They aren't owned by Turner.  I hate Turner.  That's another story for another day though.  Thanks again.  Also, I second your idea about 175 or bust.  Sounds like a plan.  Good luck!