Education Replaces Housing as the Bubble Machine
A modern knowledge economy thrives on highly trained workers. The way to get them, obviously, is through education — from basic reading skills for some, to mastery of algorithms for others. It thus would seem a basic public good to provide that learning at little or no cost to students, which most advanced countries do. But America has turned post-high-school education into a taxpayer-subsidized business — a business not unlike real estate at the height of the housing bubble.
Think Americans owe a bundle on their credit card balances? They have $693 billion on their plastic, while they owe over $1 trillion on student loans, according to the Consumer Financial Protection Bureau.
Think health costs are out of control? They rose only 150 percent from 1990 through 2011. During that period, the cost of attending a four-year college (not including room and board) soared 300 percent.
There is clearly a disconnect between Americans' stagnating incomes and the rising costs of educating their children. The education bubble will have to burst. Online courses may supply the hatpin.
For example, venture capitalists are putting millions into Coursera, a company that provides online college courses for free. Founded by two Stanford University professors, Coursera offers classes taught by professors from Stanford, University of California, University of Michigan, University of Pennsylvania and Princeton. Other startups, such as Minerva and Udemy, are offering similar high-quality education experiences, though generally not for college credit.
Where is the payoff for investors? Through extras that the students may want to buy.
As in the music business, we see an unbundling of product. Rather than buy an entire CD, fans can download this song from artist A and that song from artist B. Likewise, students wanting a solid college education could take this course given at MIT and that course at UMich.
Best of all, they wouldn't have to cough up the average $119,400 for tuition and fees (many are way higher) needed to spend four years at a private university that sinks millions into presidents' salaries, profs who don't teach and charming retreats abroad.
Could this model of learning work for high-school grads wanting a trade? Many for-profit technical schools aggressively advertise to suck high-school grads into questionable courses for which the students take on unconscionable debt. Up to half of all student loans that go under are held by their dropouts and graduates. (The big players include ITT Educational Services and the University of Phoenix.)
But from the Ivy League on down, postsecondary education feeds off government grants and taxpayer-backed loans. Economists point to these subsidies as an excuse to raise prices. Meanwhile, the lenders, whether government or private student-loan companies, employ famously brutal techniques to collect.
And what's this doing to our economy? It's creating a mass of young people sagging under monstrous debt burdens. They are unable to buy a house, much less start a business. If failure to pay back student loans ruins their credit rating, they can't borrow for anything.
As Mark Zandi of Moody's Analytics put, "We are creating a zombie generation of young people larded with debt, and, in many cases, dropouts without any diploma."
This should sound familiar: Like risky mortgages, risky private student loans have been packaged into securities that are sold to the public. Concerns are growing that a pileup of student-loan defaults could imperil these investments.
Yes, it's like the housing bubble all over again. And in its quest to help students obtain education from private sellers, the government has helped spike their price. Either the federal government will change the game or online educators will. Both should be giving it a try.