A Degree in Massive Debt (MD) – For-profit and private schools using the budget problems in state schools to lure in more students into debt. The extraordinary cost of going to college in the United States.

In the last few weeks, there has been a surge of articles in mainstream media channels discussing the massive cost of education.  Whenever I read books with a biographical baby boomer edge, you will likely get a line of, “I didn’t need a college loan because I worked a part-time job and went to school.”  Of course, this was at a time when overcrowding in state universities wasn’t a problem and it also didn’t cost $20,000 or more a year to attend.  If you go to a private school, I doubt you’ll be able to earn $50,000 (the median household U.S. income) to pay for one year of tuition.  The rising cost of college has also created a for-profit college system that is now being questioned since it is pulling in billions of dollars and in many cases, turning out students with degrees that don’t carry much weight.  The weight that is left is usually in the shape of giant student loan debt.

The cost of college has shown a hyperinflationary trend:

Source:  Wikipedia

Since 1978 the general cost of living has gone up threefold while the cost of tuition and fees at a private 4-year college has gone up by a factor of 10.  Many of the current generation have no idea that taking on massive amounts of debt to attend school is something foreign.  The assumption for many students of the last decade or so is that taking on debt is normal even if it means going into incredible debt for a college education.  The for-profit education system certainly won’t educate these students since this is their bread and butter.  The biggest for-profit education system in the U.S. is the University of Phoenix.  You can find their stock traded under the Apollo Group symbol that also includes other institutions:

“(FMM) since 1995 when APOL was trading for $1, the stock has risen to $64 or an 8,462 percent increase.  The current market cap of Apollo Group is $9.96 billion.  Revenue for the company has steadily grown and actually saw a nice jump in 2009 thanks to the recession and massive amounts of marketing.”

The for-profit system sits in a corner all by itself.  The public education system is still seeing massive demand at a time when many states are cutting back.  Take for example the California State University system.  Spanning over 23 campuses these schools serve over 450,000 students.  This year as the campus cuts enrollments because the state is in fiscal crisis, it experienced the largest number of applicants on record:

“(Sign on SD) A record number of applications — 609,000 — were submitted to Cal State universities for the fall 2010 semester, according to figures released this week. That’s a 28 percent increase from the same time last year.

…Cal State San Marcos, which has 9,700 students, is looking to trim its enrollment by about 6 percent for next year. Because it’s guaranteeing admission to all qualified service-area students, that means fewer spots will be available to those applying from elsewhere.”

The price-tag at the CSU system is still a bargain and in an economic market like the one we have today where families are struggling, the demand for quality education at a good price is more important than it ever was.

Private schools that carry an average price-tag of $50,000 or more are capitalizing on this and spinning it to their advantage.  Take for example USC in California:

“(DailyTrojan) Students in Southern California dream about joining the UC system, but wait lists just degrade them and their self-esteem, making them aim for other schools outside of it,” said Andrew Daneshgar, a junior at The Buckley School in Los Angeles who is currently looking into colleges for the fall 2011 semester.

Instead of wait lists, USC has always opted to admit a small group of students for the spring semester to balance out the number of incoming students for the new freshman class.

“We don’t like the idea of saying, ‘It’s maybe, but maybe not,’” said Katharine Harrington, USC’s dean of admission and financial aid, in a press release. “We much prefer to say, ‘We want you to come, but in the spring.”

Private schools have a bigger luxury since instead of charging say $10,000 a year to attend, they charge upwards of $50,000 a year so of course they are more than happy to take your money and welcome you with open arms (wallets).  Now for quality private schools, this makes sense.  But in other cases, it absolutely does not.  We have over 3,000+ universities in the U.S. and we have a lot of bad apples in the bunch.  The for-profit system is now being heavily scrutinized and this upcoming Tuesday, Frontline is doing a show that looks to expose the industry:

This should be a fascinating show.  Even today, with such a horrible economy college graduates are doing better in the market.  And this sends out mixed messages to the public.  Which college graduates are doing better?  You might have a state university student with an engineering degree doing well with little debt and a good job and on the other hand, you might have someone from a small liberal arts college who is in debt to $150,000 unable to find a job at any pay:

“Graduates of another for-profit school—a college nursing program in California—tell FRONTLINE that they received their diplomas without ever setting foot in a hospital. Graduates at other for-profit schools report being unable to find a job, or make their student loan payments, because their degree was perceived to be of little worth by prospective employers. One woman who enrolled in a for-profit doctorate program in Dallas later learned that the school never acquired the proper accreditation she would need to get the job she trained for. She is now sinking in over $200,000 in student debt.”

Without a doubt having a [quality] college education overall produces large benefits:

For-profit schools use this to lure in students into whatever program as long as they are willing to sign on the dotted line for massive amounts of debt.  For most schools, students are only required to put in 10% of their own money while financing the other 90% through government backed loans.  And that 10% can come from a credit card advance or a gift from a family member.

Even those with good degrees including lawyers are starting to question the massive amounts of debt necessary to get a degree in this market:

“(Chicago Tribune) The rising cost of law school is becoming a sore subject as the number of high-paying jobs shrink.

With large numbers of unemployed or underemployed lawyers who borrowed heavily to pay for their educations, legal educators face growing skepticism about the value of a law degree. Anonymous critics have started blogs with harsh names such as “Big Debt, Small Law” or “The Jobless Juris Doctor.”

With three-year programs at top schools costing nearly $150,000, not including room, board or even books, some of the criticism is coming from inside the legal profession. Christine Hurt, a law professor at the University of Illinois, suggests that the market for legal education is strikingly similar to the subprime mortgage market. Her theory, which she posted on “The Conglomerate Blog” last week, goes like this:

Double-digit tuition increases in the last 25 years have priced law schools out of reach for many. Yet the promise of a career at a big law firm with its six-figure paychecks kept boosting enrollment. Easy credit allowed more students to finance their law degrees. All of a sudden law firms lay off droves of attorneys and limit the number of new hires, leaving graduates out of work with more than $100,000 in loans to repay.”

For the most part, the same psychology that occurred in housing is occurring with education.  After all, who doesn’t want to own a home and call it their own?  The banks argued this and people were all the willing to take on absurd amounts of debt to push the housing bubble that has caused so much global pain.  The same applies to education.  Who is going to argue with you about getting an education?  It is hard to argue against going after your passion.  But at what cost?  Apparently this marketing angle has been good enough to lure people into schools and degrees that really aren’t worth the paper they are printed on.  State schools don’t have the massive marketing budget of private schools or for-profit institutions.  And with limited space, it is Darwinian at state schools where competition is absolutely fierce because the price is right.  The higher priced private and for-profit schools are using this to sell the education dream and bring in students without going into detail of the insane cost upfront (forget about doing a cost analysis with students).

It looks like after a few decades, this debt bubble implosion is now putting the cost of education in the limelight.

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