Tuesday, February 14, 2017

Has higher education become a criminal enterprise? "It's a cheating situation"

 I am not a doomsayer or a survivalist, and I try to stay away from apocalyptic bloggers. But James Howard Kunstler, whose blog site goes by the name of Clusterfuck Nation, is making persuasive arguments that our postmodern economy, hopped up on cheap energy and enormous debt levels, is unsustainable. In fact, he predicts an economic  meltdown sometime this spring.

Kunstler's focus is on broader economic issues than student loans, but he made a trenchant observation about higher education in his latest blog essay, which struck a nerve with me.  Pervasive accounting fraud in the national economy, Kunstler writes,"bleeds a criminal ethic into formerly legitimate enterprises like medicine and higher education, which become mere rackets, extracting maximum profits while skimping on delivery of the goods."

And of course Kunstler is right. The Department of Education shovels $150 billion a year in federal student aid to prop up the higher education industry, which is becoming nothing more than a racket. Higher education apologists stress the value of a college education, but 45 percent of recent college graduates are in jobs that do not require a college degree. 

No wonder 8 million college borrowers are in default and millions more are not paying down their student loans.  DOE knows the score but it continues to deceptively downplay the student-loan default rate, stuffing debtors into economic hardship deferments and income-driven repayment plans that hide the fact that a large percentage of student borrowers will never be free of their loans. 

Meanwhile, the for-profit college sector, which might fairly be labeled a criminal culture, rips off poor and minority Americans and gives them educational credentials that are damned near worthless. Now they are beginning to shut down and go bankrupt, leaving their former students with mountains of debt. 

The public universities, bloated and lazy, limp along by raising student tuition as state subsidies dry up.  Public university leaders are motivated solely by politics, terrified by the possibility they might inadvertently do or say something politically incorrect.

State higher education leaders refuse to reorganize public colleges to be more efficient. In my own state of Louisiana, we have regional public colleges with declining enrollment in every corner of the state, but no one has the political courage to close any of them. Many Southern states support historic black colleges at public expense, although there is absolutely no need for university systems that cater to only one race. Louisiana even has a black law school, which operates in a substandard way just a few miles away from the state's flagship school of law. 

As for the nonprofit public institutions, they now fall into two camps. The ultra elite institutions--Harvard, Yale, Stanford, etc.--have brand names so strong they can charge what ever tuition rate they want. They also have fat endowments that insulate them from economic forces. 

On the other hand, small, obscure liberal arts colleges are under severe financial stress, and quite a few will close within the next five years. Parents are refusing to pay $50,000 a year for their offspring to attended a nondescript private school.  The little colleges have been forced to offer huge discounts--approaching 50 percent--to lure new students through the door. 

In short, every sector of higher education has been living in a fools paradise, but the data are now coming in, and they are alarming.

Nearly half the people who took out student loans to attend for-profit colleges default within five years. Millions of college borrowers whose loans are in repayment are seeing their student-loan balances grow larger, not smaller, due to negative amortization. Their token monthly payments keep borrowers out of default but are so small they don't cover accruing interest.

Nationwide, more than half of student borrowers owe more than they borrowed just two years into repayment. And, as the Wall Street Journal reported just a few weeks ago, half the students who took out student loans to attend more than 1000 schools and colleges have not paid down even one dollar on their loans seven years after their repayment obligations kicked in.

Kunstler is right. Evasiveness, almost criminal in its proportions, pervades almost every sector of higher education. As a classic country-and western-song might put it, "there's no use in pretending there'll be  a happy ending." Colleges and universities are in a cheating situation, refusing to recognize that the golden age of American higher education is coming to an end.



References

Andrea Fuller. Student Debt Payback Far Worse Than BelievedWall Street Journal, January 18, 2020.

James Howard Kunstler. Made for Each Other. Clusterfuck Nation, February 13, 2017.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default ratesWashington, DC: Brookings Institution (2015).

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