Friday, July 02, 2010

The Next Major Financial Concern Could be College Tuition

For decades the cost of college has roughly been double or even triple the pace of inflation. The increases in recent years have been so fast and high, many are concerned that we are about to witness another bubble in America similar to the housing one that we have yet to fully recover. Recently, I saw from theNational Center for Policy Analysis (NCPA and they quote extensively, Naked Law) that there are many indicators that this bubble is about to burst.

  • The cost of going to college is now doubling every nine years, on average, because there are typically eight percent increases each year.
  • Because the government has made it extremely easy for students to get money (and even "more money" in increases) thanks to the government, supportive parents and immediate gratification, colleges have made frequent tuition hikes their primary vehicle for solving their money problems. While fund raising has flatlined and investments have plummeted, students have quietly turned over more and more money to Uncle Sam.

Students are accomplishing this expensive right of passage called college by borrowing more now than ever in the history of higher learning. In fact, according to NCPA, the number of students who graduate with over $25,000 in debt has tripled in the last decade alone. Furthermore, 2/3rds of today's college students borrow money to pay for college and they take on a debt of $23,165 on average.

Some of the behaviors being deployed by for-profit colleges in their quest for dollars are disturbing. Some have gone so far as to paying homeless people to take out federal loans to enroll with no intention of attending. These loans are very easy to acquire because of the government's backing, clever schools are getting these people to enroll and giving them 10 percent of the action. In the end, what you have, is a $20,000 loan paid to the school and a $2,000 "stipend" for the homeless person -- thanks to the generosity of the federal government in the form of tuition payments.

Colleges and universities are continuously arguing that they "need more dollars." Yet it appears that these institutions have spending problems that are similar to the government's. This is seen in the fact that university presidents have a salary that is sky high, while we have a historically weak economy. USA Today has reported that 23 presidents of private colleges made more than $1 million in 2008, while 110 more made over $500,000. This is a new phenomenon, linked to the "trough" mentality pervasive in these schools in the way they look at the federal government. As of 2002, there were no "million dollar" university presidents.

Higher education is a perfect example of government out of control and how public dollars artificially increase demand and leads to enormous waste without accountability. Market sensibilities need to be brought to colleges and universities today.


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