When I got married, I owned two houses. I sold both, using the money to pay off my other debts and pay for my daughters’ college. Even though everyone told us we were crazy not to do it, we didn’t buy another house. As my husband said,
“Every house, every condo within miles of us sells for over a million dollars. There can’t be THAT many drug dealers in L.A. How can all of these people possibly afford these prices?”
There are a few things I see the higher education market has in common with the housing market (and health care, too, for that matter).
- The rising prices are fueled with other people’s money. People moved into houses costing $500,000 with 1% down payments – or less! Similarly, not a lot of families are shelling out the $50,000 a year for tuition, room and board. It is being paid for with subsidized money. There just aren’t that many people who have an extra $50K after taxes laying around.
- They took out loans with the assumption that things would change so that they would be in a better position to pay the money later, because they sure as hell couldn’t afford it now. Homeowners thought they would never really have to repay that loan because they would sell the house for a lot more money within a year or two. Students (and their parents) figured that five or ten years from now the student would be making a lot more money and in a much better position to come up with the money to pay off student loans. In both cases, for many years this was true, and, in some cases it is still true. Just like we saw a growing number of homeowners in trouble once this assumption did not pan out, now we are seeing more and more students who cannot get jobs unable to pay their student loans.
- An entire industry arose that took advantage of this situation, extending loans to homebuyers who didn’t quality and for-profit institutions of higher education who admitted anyone with a pulse.
- Prices spiraled dramatically despite a complete absence of improvement in quality. During the previous housing bubble, I owned a home we bought for approximately $100,000. Looking through the title history, I could see that the people who sold it to us had paid about $54,000 a few years earlier. When I received a job offer in another state, and an offer to buy our house for $130,000 or so, I sold it and ignored everyone’s advice to hold out for more money, hold on for an investment. It didn’t make any sense to me that the same house was worth three times as much within five years. Shortly after we sold the home, housing prices plummeted. Similarly with higher education, people are paying much more money for the same thing. According to the Baltimore Examiner, over the past twenty years, college tuition has increased at three times the rate of inflation. So, while the Consumer Price Index has increased around 100%, median family income about 125%, medical care over 200%, college tuition has increased over 400%.
- At the same time that tuition is skyrocketing, people who are sustaining these stratospheric increases through their teaching of college students – the faculty – are seeing a dramatic DROP in their income and working conditions. When I was in college, the vast majority of faculty members were full-time, tenure track positions where they were on campus, held office hours, did research and were allowed a high degree of academic freedom. Now, the majority of courses are taught by part-time professors who are employed “at will”. Just trot on over to the Chronicle of Higher Education Non-tenure Track forum to see how wonderful life generally is NOT for most of the current crop of professors.
So, here’s the situation … we have people who don’t have a lot of money, taking out government subsidized loans that they may not be able to pay back and giving the money to large institutions whose investors and higher level executives are extremely well-compensated. At the same time, the lower tier of loan officers / adjunct faculty / admissions are strongly pressured to make it easier for almost anyone to qualify. There is a spiraling effect where people are afraid to be left out of the market (“Employers won’t hire anyone with a degree any more”) and people buy homes not because it is where they really want to live (or go to college not because it’s what they really want to do) but “because it’s an investment”.
I’m certainly not the only person who has pointed these facts out. Everyone from the Wall Street Journal to the Naked Law site (which is law for non-lawyers, not law by naked lawyers, sorry to disappoint) to the Washington Independent has made these same connections. Perhaps this proves that you don’t need to be a statistician to find patterns in data and you don’t need to be a mathematician to figure that $160,000 is a poor investment to MAYBE get a $30,000 a year job, or maybe be unemployed.
You learned that much math and statistics in college, didn’t you? You should have, because you certainly paid enough.