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I promised a thread on higher education a week ago. I wanted to include hard data, so sorry for the delay.
Spoiler alert: Higher education has for the last decade been another example of Fed policy driving incineration of capital.
Spoiler alert: Higher education has for the last decade been another example of Fed policy driving incineration of capital.
First, why am I qualified to discuss this subject?
I've served on various boards at three universities and a large community college. I've also taught as an adjunct Business professor at three universities and served on various fundraising committees.
I've served on various boards at three universities and a large community college. I've also taught as an adjunct Business professor at three universities and served on various fundraising committees.
So, starting with the 2008 financial crisis, state funding for higher education dropped significantly in most states. 44 of 50 were below the 2007 peak as late as 2017.
Additionally, enrollment dropped significantly in reaction to the GFC. https://www.cbpp.org/research/state-budget-and-tax/a-lost-decade-in-higher-education-funding
Additionally, enrollment dropped significantly in reaction to the GFC. https://www.cbpp.org/research/state-budget-and-tax/a-lost-decade-in-higher-education-funding
At the same time, yield become non-existent due to artificially suppressed interest rates, and investors hungry for yield were searching for new vehicles to invest in.
So to fill the gap from state funding, university boards began to tap the debt markets. Unfortunately, in bids to attract students (revenue), they went crazy with vanity projects.
Here's a fun read from the Atlantic. https://www.theatlantic.com/education/archive/2017/10/why-colleges-are-borrowing-billions/542352/
Here's a fun read from the Atlantic. https://www.theatlantic.com/education/archive/2017/10/why-colleges-are-borrowing-billions/542352/
Much of this money was spent building university-owned residence halls. It's a school by school thing, but nationally up to 20% of all residence halls are likely to be vacant this fall. Some schools like Harvard have gone fully online.
Much of the borrowed money was spent on athletics. There's a huge misconception about college athletics. Only 23 programs are self-funding. The rest lose money. https://www.sportsbusinessdaily.com/Daily/Issues/2017/07/07/Colleges/College-Spending.aspx
So yeah, all those public employee football and basketball coaches making millions a year? Most are running businesses losing money as fast as $NKLA.
The NFL like stadiums? May as well be $CHK headquarters buildings. Cincinnati built their football team an $80M stadium as part of $1.1B in new debt. It loses money. https://www.wlwt.com/article/ohio-s-public-universities-owe-6-5b-in-debt/3552112
So what was the plan to pay for all this debt? Convince every high school kid possible to go to college.
And what has that resulted in? Passing on unforgiveable debt to students, most of whom won't end up with degrees.
And what has that resulted in? Passing on unforgiveable debt to students, most of whom won't end up with degrees.
Too many kids go to college. So many in fact, that we now measure graduation rates for 4 year degrees in terms of 6 year graduation rate. In Ohio, the median 6 year graduation rate at our public universities is 45%. Less than half.
And our average student leaving college has over $30k in debt (much higher at private schools), despite less than half leaving with a degree. https://www.daytondailynews.com/business/student-debt-still-higher-ohio-than-many-other-states/TWc0IQGdfzBJEhNGrkw75K/
So in essence, we've created two debt crises:
Student debt sits at $1.6 Trillion and growing.
Universities also owe roughly $300B, and face solvency issues with state funding and enrollment drying up due to COVID.
Student debt sits at $1.6 Trillion and growing.
Universities also owe roughly $300B, and face solvency issues with state funding and enrollment drying up due to COVID.
Urbana University in Ohio, for example, closed its doors for good this year. https://www.cincinnati.com/story/news/2020/04/22/urbana-university-ohio-closing-permanently-coronavirus/3002171001/
I won't complain about problems without offering solutions.
First, far less kids should go to college. We should expand much-needed trade education opportunities and encourage many more students to follow these paths. Trade professionals are in high demand.
First, far less kids should go to college. We should expand much-needed trade education opportunities and encourage many more students to follow these paths. Trade professionals are in high demand.
Second, university board and Presidents have to reign in spending. Overcapacity in this space is second only to shopping malls.
Third, states need to look at combining universities. We have 4 public universities within a 60 mile circle in NE Ohio. All with duplicate administrative staffs, educational programs, and athletic programs. Combining down to 2 or 3 would save tens of millions of dollars annually
Fourth and finally, if the Fed can loan to JP Morgan and Citadel at 0% interest, every single student loan in the country can be refinanced at the same rate.
Thanks for taking the time to read and I welcome any insights you'd like to share.
And @JoeBiden and @realDonaldTrump I'll happily serve as Secretary of Education for free.
And @JoeBiden and @realDonaldTrump I'll happily serve as Secretary of Education for free.
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