Skip to comments.Penn State Pricks the Student Loan Bubble
Posted on 11/14/2011 4:14:34 PM PST by dennisw
Pittsburgh, Pennsylvania A month ago, at an investment conference in Baltimore, my colleague Eric Fry asked if I think theres another bubble out there thats going to pop. My reply was that I believe the education bubble is destined for doom. Itll be just one more thing to smack down the US economy, and makes for another reason as if we need more to hold precious metals as portfolio protection.
In the US, theres over $1 trillion of student loan debt on the books. This is money that people borrowed from banks and government agencies (Sallie Mae comes to mind). The funds flowed through the education landscape and cash flow mills, paying for faculty, administrators, buildings, overhead and much else.
This gusher of student loan money over the past two generations (!) has been a key factor THE key factor in the super-inflation of the cost of education. That is, the more money that goes for loans and grants, the more leeway and incentive the schools have to raise tuition and let internal costs soar.
At the student level, some people borrowed to pay the tuition at impressive universities, where they received things like medical degrees and Ph.D.s in physics. Good for them.
But at other times and places, students borrowed funds to attend school and major in things for which theres not much of a demand in the true, competitive economic marketplace. You know what I mean, right? Courses with the word studies appended to the end come to mind.
How bad is the student loan situation? Currently, around 9% of student loans are slow pay, if not in technical default. Thats after two years of alleged economic recovery from the crash of 2008-09. To make matters worse, its next to impossible to discharge student debt, even in bankruptcy.
So I dont have a warm feeling about this student debt bottomless pit.
Lets think it through. We have a generation of young people, many of whom with sizeable student debts, along with their underwater basket weaving degrees and such. They are unable to obtain the jobs they believed their degrees would accord them.
So theres a lot of resentment and bitterness, which I witnessed firsthand during a recent walk through the Occupy Pittsburgh crowd downtown. I saw a lot of protest signs concerning student debt. Its a very raw nerve.
The bottom line is that a lot of US young people will never find suitable employment that aligns with their education. Consequently, theyll never earn enough to repay their student loans. Yet due to the banking lobby, and how that particular cabal has gamed the legal system, the indebted young basket weavers of the nation cant get a classic fresh start in bankruptcy.
Something has got to give, and I believe well see some sort of crash in the student loan markets. The student debt sector has failure built into it, down to the debt-DNA.
Also along the lines of the education bubble popping, Ive been pondering where and when the first pin would penetrate the latex. Just this week, I believe we may have seen it: The Penn State scandal.
Ive always had a high regard for Penn State, which is one of Americas great public universities. But if youre following the news, youve likely seen where Penn State President Graham Spanier and iconic football coach Joe Paterno were just fired.
Neither Messrs. Spanier nor Paterno personally committed any indecent act. But they, apparently, knew that a subordinate within the university hierarchy within the nationally ranked football program was totally out of line (and Ill spare you the disgusting details on that).
In a manner reminiscent of how certain churches cover up bad acts for the greater benefit of the institution, goes the excuse Penn State never properly handled its issues. After a period of time, however, the pot boiled over. A grand jury convened, and people testified.
This week, several Penn State officials and a former high-level Penn State coach were arrested. The Pennsylvania attorney general announced a major prosecution. All around, its a bad time for the Nittany Lions.
Yes, this may just be an isolated incident of one bad guy doing something bad, and several other people sweeping the issues under the proverbial rug. But the larger story here tells another tale of how some things in the university sector have gotten just too darn big as in too big to fail until they fail.
With Penn State, were seeing Big Football fail, and take down Big Coaching as in Joe Paterno. This failure is taking down Big University Management too as in, the president of the institution.
University managements and, I hope, their boards of trustees across the country had better be watching the Penn State scandal and looking hard in the mirror. They had better be asking themselves the hardest questions and looking under those lumpy rugs.
This Penn State scandal is not just some issue of having an academically ineligible kid playing linebacker for a few minutes in the fourth quarter. Or even that the star quarterback borrowed a Corvette automobile from some car dealer whos a major football booster.
No, when people start to dissect this Penn State thing, theyll have to follow the money. At Penn State, Big Football meant Big Money, and it spawned an entire culture that affected everything permeating the overall university culture.
And while people are dissecting the Big Football money, they had better check out the Big Student Loan money, too courtesy of government grants and loan guarantees. What ELSE is going on in the dim shadows of the locker rooms and shower stalls, what with all that money at stake? Whats going on with the fundamental mission of the education institutions of this nation?
The Big Money, provided so liberally by the student lending institutions, created lots of excesses and corruptions great and small that are just beginning to unwind.
Big Money means that people wind up doing whatever it takes to keep the cash flowing. It means that people will find some way to justify cutting corners, even ethical, moral and criminal corners. Until it all blows up.
Dont sell your gold.
Here comes the bailout.
Worst headline they could use, considering the circumstances surrounding Penn St.
Bad headline writing for sure!
I think I would avoid using the words “Penn State” and “pricks” in the same sentence for a while.
Headline humor, perhaps misplaced.
still can't top the BBC
The headline is probably intentional
no intended, I’m sure.
You know, I tend to be somewhat of a gold bug. And the student loan debt is a bad deal for a lot of people.
But tying all that to the Penn State scandal smacks of headline whoring.
Or the Penn St Creamery and their ice cream dish in Sandusky's honor.
So in the author's worldview the "banking cabal," whatever the hell that is, lead the students to go to Penn State and major in Dead Languages of Bora Bora Studies while borrowing from Sallie Mae, and now that all the tenured Professorship positions in that area of study are filled the students should get a "fresh start" at taxpayer expense to go back and try again or maybe just sit on their azzes and wait for a position in their area of study to become available. Perhaps they should be put on a taxpayer funder retainer or stipend until such a time as they are needed, that way they won't dilute their precious education by having to learn a trade or some other skill that would make them employable to somebody.
I have an idea, you want your student loans forgiven, a fresh start, want to learn a trade, see the world? Take the oath and put on the uniform of your country...otherwise sit down, honor your committments and shut the f up!
I agree. The University bubble will burst, but I am not so sure this is what will finally do it.
How many students are still going to college because mom and dad think that college is an guaranteed future on easy street?
When that drops off, that is when the bubble bursts.
” Take the oath and put on the uniform of your country...otherwise sit down, honor your commitments and shut the f up!”
Oh, they will. They will become Ozero’s Brown Shirts.
Be careful what you wish for.
He also receives a monthly pension payment of $27,558 nearly the cost of tuition for two in-state freshmen at State College. That comes to nearly $331,000 a year. .?????????? Is this a bribe or payoff?????
The leftists should demand Social Justice whence professors are paid minimum wage and have to work 40 hr/wk.
It is bizarre that the students have not turned on the very people who “sold them down the river” for their own benefit: the universities, and the government loans that shackle them.
The Obama Wealth Spreaders are ignorant, unskilled in analysis and stupid to boot.