As the nation amasses more than $1 trillion in student loans, education experts say a vexing new problem has emerged: A growing number of young people have a mountain of debt but no degree to show for it.
Nearly 30 percent of college students who took out loans dropped out of school, up from fewer than a quarter of students a decade ago, according to a recent analysis of government data by think tank Education Sector. College dropouts are also among the most likely to default on their loans, falling behind at a rate four times that of graduates.
"They have the economic burden of the debt but they do not get the benefit of higher income and higher levels of employment that one gets with a college degree," said Jack Remondi, chief operating officer at Sallie Mae, the nation's largest private student lender. "Access and success are not linking up."
The plightoofo"non-completers" has grown in magnitude as student debt tops $1 trillion, according to the Consumer Financial Protection Bureau. In addition, the sputtering economy has forced a growing number of students to make difficult choices between the benefits of a degree and the burden of paying for it. More students are balancing their studies with full- or part-time jobs or signing up for a reduced course load to save money, increasing the likelihood that they will not graduate.
Colleague, Justice Litle is on the case too:
We have all heard it said: "You can't put a price on a good education." But this is silly - of course you can.
It was the thoughtless peddling of such a mantra that allowed institutions of higher learning to raise prices with impunity... year after year, at a faster rate than inflation, as costs spiraled out of control... with government-sponsored loan programs fueling the whole thing.
Echoing subprime, the college bubble even has its own version of the "principal-agent problem," in which the financial interests of the college (which profits from the loan money) have no alignment with the students (who voluntarily drown themselves in debt).
Soon these (literally) poor, debt-burdened waiters and waitresses of the future may realize they were snookered, and wake up angry... not unlike the legions of starry-eyed home buyers who, caught up in the rush of the American dream, chained themselves to a grossly inflated asset at a price impossible to pay.
Geez. It looks like college students have been the chumps in this story...flimflammed by the feds and the universities.
But, remember, we are grateful to the patsies. They're the ones who keep the whole scammy economy going.
Imagine what would happen if young people decided to learn something instead of going to college? They could get a job learning from a plumber or a machinist...or apprenticing to a furniture maker...or just sitting in the library with a big stack of books and a notepad. No tuition payments...no beer parties...no orientation programs (No means no!)...no graduation programs (You can make a change!) ...no research labs...no football stadiums...
...imagine if a group of them got together, hired a teacher...and learned the classics...or theoretical physics...or quantum mechanics...or linguistics...the old fashioned way? Let's see, pay the teacher $80,000...split it among 7 students... Good teacher/student ratio...much better than sitting in a lecture hall with 150 other students. And $8,000 each.
A lot better than the $40,000 we spent to send our five children to college. Yes...we spent about $40,000 for each of them, per year. You can do the math. It adds up to $800,000. And we've got one more to go!
That's why we're still writing these Daily Reckonings..we can't afford to stop.
And it's kinda fun, frankly...as long as you don't take it seriously.
But let's not talk about us. Let's talk about them. Those poor young people...leaving school with $25,000 in debt (approximate average)...and a punky job market.
If they got a degree in math or science, they can probably get a job. But what if they got a degree in the social sciences? Or the arts? Or no degree at all? How many baristas can Starbucks hire?
What can they do?
Go to work for the government! Or at least go to work in ZombieTown. You don't need to know anything to work for the feds. No kidding.
There's a "Bubble on the Potomac," writes Andrew Ferguson:
Every week brings fresh evidence of continuing prosperity: a new restaurant, a new nightclub, another restored 19th century townhouse in a previously dodgy neighborhood selling for $1 million or more. Start-ups are hiring through Craigs-list, and just opened lobbying firms have no trouble collaring clients. Storefronts that stood abandoned five years ago fill with pricey gourmet-food shops like Cowgirl Creamery, a cheese-monger that has opened its only store outside Northern California on F Street downtown. Its Mt. Tam cheese goes for more than $25 per pound. It's organic.
Another Northern California import, a limousine service called Uber, launched in December after great success in San Francisco and New York City. "The growth here has been unique in our experience," says Rachel Holt, who oversees Uber's burgeoning D.C. operation. Uber is Web-based and cashless: customers call for limos with a smart-phone app and pay with a credit card on file. It's also deluxe. Riders expect nothing lower on the limo food chain than a Town Car, with offerings going up to Mercedes and beyond. Holt says with some -surprise that locals are using Uber as everyday conveyance for commuting and shopping. Uber exploits Washington's unique combination of heavy use of social media, a young and often carless population and customers with fistfuls of disposable income. When the D.C. taxi commission made a move to shut down Uber earlier this year, Twitter erupted in indignation under the hashtag #Never-goingback. Welcome to uber-Washington.
Other big cities, of course, have made it through the recession in one piece. But few eased through the crash as lightly as D.C., much less prospered so widely on the rebound. The local unemployment rate, at 5.5%, stands well below the national figure of 8.2%. The region's foreclosure rates have always been significantly lower than those elsewhere, and now housing prices in D.C. and across the river in the Virginia suburbs of Arlington and -Alexandria are close to their pre-crash peaks. The -Association of Foreign Investors in Real Estate-in Washington, everyone has an association-ranks the region as one of the best investments in the world, right after London and New York City. The cost of office space in Washington rivals New York prices, averaging $50 a square foot.
How's a country to make sense of a national capital whose day-to-day life is so much more upholstered than its own? Increasingly, it cannot. Recently Washington passed San Jose in Silicon Valley to become the richest metropolitan area in the U.S. Since the 1990s, says economist Stephen Fuller of George Mason University, the region has led the nation's metropolitan areas in overall employment rate. The median household income in the metro area in 2010 was $84,523, according to calculations by Bloomberg News, nearly 70% over the national median household income of $50,046. Nine of the 15 richest counties in the country surround Washington, including Nos. 1, 3, 4 and 5. Per capita income in D.C. is more than twice that in Maine. All this explains why Gallup's Well-Being Index rates D.C. as the most satisfied large metropolitan -area in the U.S. The pollsters were especially -impressed with the region's low smoking rate (15%) and the 72% who visit the dentist annually for a checkup. Washingtonians are skinnier, exercise more, eat more vegetables and are more likely to have health insurance than the average American. They're also more optimistic-about the economy and about the future in general.
According to a 2007 report by the Tax Foundation, for every dollar in taxes Washington sends to the federal government, it receives five in return. Fuller says that over the past 30 years, the federal government has spent $860 billion in the D.C. region, two-thirds of that since 9/11.
Why the boom? The size of the nonmilitary, nonpostal federal workforce has stayed relatively stable since the 1960s. What has changed is not the government payroll but the number of government contractors. It's estimated that, thanks to massive outsourcing over the past 20 years by the Clinton and Bush administrations, there are two government contractors for every worker directly employed by the government. Federal contracting is the region's great growth industry. A government contractor can even hire contractors for help in getting more government contracts. You could call those guys -government-contract contractors.
Which means government hasn't shrunk; it's just changed clothes (and pretty nice clothes they are). The contractors are famous for secrecy; many have job titles that are designed to bewilder. What is it, after all, that an analyst, a facilitator, a consultant, an adviser, a strategist actually does to earn his or her paycheck? Champions of the capital's Shangri-la economy like to brag of -Washington's knowledge workers.
Peter Corbett isn't so sure about the wisdom of D.C.'s version of the knowledge economy. Corbett heads a social-media marketing company, with corporate clients that have famous names. Most of his work involves nonprofit foundations that have flocked to Washington to be close to the fount of grants and tax breaks. He did a single project for the federal government and then swore it off for good. He describes his first meeting at the Pentagon. "There are 12 people sitting around the table," he says. "I didn't know eight of them. I said, 'Who are you?' They say, 'I'm with Booz Allen.' 'I'm with Lockheed.' 'I'm with CACI.' 'But why are you here?' 'We're consultants on your project.' I said, 'You are?' They were charging the government $300 an hour, and I had no idea what they were doing, and neither did they. They were just there. So I just ignored them and did my project with my own people."
Aside from its wealth, the single defining feature of uber-Washington is its youth. Most of the people who have moved to Washington since 2006 have been under 35; the region has the highest -percentage of 25-to-34-year-olds in the U.S. "We're a mecca for young people," Fuller says. One recent arrival says word has gotten out to new graduates that Washington is where the work is. "It's a place where a -liberal-arts major can still get a job," she says, "because you don't need a particular skill."
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.