Monday, November 7, 2011

The Education Bubble

You heard about the High Tech Bubble, you heard about the Housing Bubble, you even heard about the Double Bubble, but now hear about the Education Bubble, and it could be even uglier, especially for those in higher education.

The higher education business model of the 1940’s, 50’s and 60’s can no longer exist. Every year colleges and universities increase tuition, room and board 3%-6% knowing full well that student loans (exempt from bankruptcy laws, thus the Federal Government bails out the defaulted loans), Pell and other government financed grants will always be there to supplement education costs. Also, the days of knowing a graduate will have a job waiting for him and her are now far from over.

To work around the growing bubble, universities allow poorly prepared students, faculty and administrators into their programs to maintain revenues and lower operating costs. The perfect storm is approaching: (1) students and their families are thinking of non-traditional forms of higher education to reduce the cost and debt, (2). The economic conditions of the United States; recession and/or slow growth for many years, (3) the ability for federal and state governments to fund education is now limited and nonexistent, (4) the Federal Reserve may bail out student lenders, but this sets the stage for an even larger collapse (like we are seeing in housing), and (5) students may be reaching the point that their education is not serving them, so why pay?

All of the above is approaching, already here , or not too far away. The major problem is student debt, many homeowners “strategically defaulted” when they realized their house was wasting their money. Why would not students just drop out of the system if their student loans were high enough? If this happens who pays, the tax payer and as you can see in the current political climate the tax payer has had enough.

The higher education model must change for the 21st century especially at those colleges and universities who do not have the luxury of larger benefactors and endowments. I believe there are administrators and government leaders out there to meet this challenge of changing the higher education model, time is running out, good luck.

STATE AND LOCAL GOVERNMENTS KEEP FIRING - From blog post by Commerce Department chief economic Mark Doms: "So far this year state and local governments have been cutting jobs at the same pace that private sector firms are adding them. Over the first 9 months of the year, private payroll employment has grown 1.2 percent (1.3 million jobs) while employment in state and local governments declined by 1.2 percent (234,000 jobs). With cuts so deep, few services are spared, including for local schools. ... Nationally, employment in local education has shrunk by nearly 270,000 jobs since August 2008 even as enrollment continues to rise.

TOP 1% IN U.S. – (1) Bill Gates (Microsoft) $59.4 billion, (2) Warren Buffett (Berkshire Hathaway) $39.0 billion, (3) Larry Ellison (Oracle) $33.0 billion, (4) Charles/David Koch (Oil & Gas) $25.0 billion, (5) Christy Walton (Walmart) $24.5 billion.

BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to Al Arbour (79), Nadia Comaneci (50), Linda Gordon …famous shopper, Kathleen Jenrich …famous LA Angels fan, David Kung …famous investor, Chris Noth (57), Bonnie Raitt (62), Fuzzy Zoeller (60).

NHL OCTOBER SUMMARY – power rankings for October: (1) Pittsburgh, (2) San Jose, (3) Washington, (4) Chicago, (5) Toronto (yes The Leafs!).

Players of the Month: Phil Kessel, Toronto; Kari Lehtonen (Dallas); Nikolai Khabibulin (Edmonton).

COLLEGE FOOTBALL PICK OF THE WEEK – Saturday 11/12, #7 Oregon Ducks (8-1) visit #4 Stanford Cardinal (9-0), 8:00 PM ET, ABC. A huge game in Palo Alto to determine Pac 12 supremacy, this is the Cardinal’s year RR likes Andrew Luck and crew to win.
Season to date (7-3).

SMALL COLLEGE PICK OF THE WEEK – Saturday 11/12, 4:00 PM ET, HGTV; the Whittier Poets (2-6) visit University of La Verne Leopards (3-5) at Ortmayer Field. Coach Krich has had a decent first year at La Verne, he can set the stage for a better second year and program with a victory over Whittier. La Verne will win big.
Season to date (9-1).

NFL PICK OF THE WEEK – Sunday 11/13, 4:15 PM ET, Fox has the New York Giants (6-2) at San Francisco 49ers (7-1). A great matchup with two of the more surprising NFL teams through the first half of the season. The Giants will have a letdown after their victory of the Pats; RR likes the 49ers to win.
Season to date (5-4).

THE SWAMI’S TOP PICKS – Stanford 38 Oregon 31,La Verne 42 Whittier 20, Detroit 24 Chicago 21. Season to Date (19-8).

DRIVING THE WEEK - European headlines, especially out of Greece and Italy, will continue to drive U.S. markets, which appear headed to a lower open this morning on concern over Italy ... GOP candidates gather for an economic debate in Michigan hosted by CNBC at 8:00 p.m. on Wednesday. Mitt Romney has stayed far away from the Herman Cain sexual harassment scandal and will likely to continue to do so ... Will Rick Perry, who desperately needs to cut down Cain's tea party support, follow suit or go on the attack? ... On Thursday, First Lady Michelle Obama will speak to business leaders, veterans and military spouses at the U.S. Chamber of Commerce's 4th Annual "Hiring Our Heroes" event. ... President Obama heads to Honolulu on Friday for the start of the APEC summit and will spend the weekend in Hawaii before moving on to Australia and Indonesia ... There is always the chance the trip will get cut short if the supercommittee appears to be breaking down as its Nov. 23rd deadline nears.

Next week, friend or foe: snobs.

Until next Monday, Adios.

Claremont, CA
November 7, 2011

#II-28, 81

1 comment:

  1. Any academic administrator in a position capable of addressing the Education Bubble would have no interest in doing so. From what I can see, those in senior positions are keeping their heads down and mouths shut. No one would support their call to change and they would be killing the goose that's laying their golden egg.

    Like all bubbles, expect it to hit hard and with those at the top finding a golden parachute away from the rubble.