Posted On: Thursday - February 23rd 2017 10:23AM MST
In Topics:   University  Global Financial Stupidity
Part 3 of this series described the university student loan business as a real growing problem and described the root causes, the tap root of this being summed up by the phrase "moral hazard". To summarize again, with the government almost completely involved, the banks have nothing to lose, so the universities can quit worrying about keeping costs low. Students (or their parents) still under the impression that this will all pay off borrow heavily, but the good jobs of the past that would allow that have greatly decreased in number and many of these graduates will not end up paying any or most of the money back, putting it on the back of future taxpayers (if there are enough left).
Let me first state: This is NOT a perfect storm!
It looks like it's bearing down hard on Columbia University and not a moment too soon.
OK, the "perfect storm" meme, if I may, is extremely overused, which is why, though a serious problem that will end very badly, this university version of financial stupidity does not fit the definition. The Perfect Storm" was a movie that I quit watching fairly quickly (on an airplane flight, no money lost) when I could immediately tell it was going to have left-wing politics embedded, a woman as the hero and the usual crap. However, the term was most likely used by meteorologists before the movie. It means a bunch of conditions that are can cause bad weather conditions by themselves happen to converge in a place at one time, basically the worst possible combination. I'm no expert, but it would sound like: "extremely low pressure here, but a pressure ridge here funneling upper-level winds this way, and the same time a large amount of moisture in the air mass over here, yet cold air aloft flowing over it ... blah blah".*
No, the university loan bubble is not the perfect storm; it's just a bunch of things that are bound to happen whenever government stupidity (oxymoron alert) is involved and disturbs the free market. Let me put this series of run-on sentences again down here,
To summarize again, with the government almost completely involved, the banks have nothing to lose, so the universities can quit worrying about keeping costs low. Students (or their parents) still under the impression that this will all pay off borrow heavily, but the good jobs of the past that would allow that have greatly decreased in number and many of these graduates will not end up paying any or most of the money back, putting it on the back of future taxpayers (if there are enough left).
It's one thing causing the next in a slow sequence that is eventually all going on together. Going backwards, the taxpayers will not be able to pay the bill due, which is increasing rapidly as more graduates will default, because the job market is getting worse and the tuition/fees** are going higher as who will put the brakes on? The amount of money involved as of date, almost 1 1/2 Trillion dollars, is a serious number and it's increases are continuing - see the 1st graph of this post. Who will put the brakes on? I'm here to tell you (that IS what I'm here for) - it will be the prospective students and parents that realize college won't pay off. How will the universities wind down their spending spree? If you live in a college town watch out when this thing blows. Being a taxpayer will be even worse.
* BTW, with all of the series of posts on Global Climate DisruptionTM under the topic key Global Climate Stupidity, I really don't mean to bad mouth meteorologists that do a pretty good job for near-term forecast - people want to know what's coming. A post will be coming on this.
** I just realized I have not even mentioned the textbook scam. It is a real scam now - this isn't just a complaint about high prices. The best conmen of 1950's Chicago are rolling in their graves, just so cheesed-off that they hadn't thought of this scam first.