Free Markets, Free People

Higher Education–privatizing profits, socializing loss

Glenn Reynolds has an article in the Washington Examiner about how he believes the higher education bubble is about to burst.  Perhaps not imminently, but fairly soon.  Why?  Because the value of the product doesn’t match its rising cost.

Reynolds talks about the dilution of the worth of a bachelor’s degree even while the price has risen exponentially.  Something’s got to give.

But there’s no real incentive for institutions of higher learning to back off the price.  Why?  Because government has chosen to subsidize those prices by taking over the student loan business. 

Sound at all familiar? 

With no penalty for raising the price, colleges and universities continue to do so knowing full well that whatever they stick the student with that requires a loan they will get upfront.  And if the the student defaults, we, the taxpayers, get stuck with the bill.

One of the big complaints about the Wall Street bailout from both sides of the political isle had to so with “privatizing profits and socializing debt”.  That’s precisely what the current government loan program does as well.

Reynolds makes the argument that colleges and universities should be on the hook for the debt.  After all they’re the institutions providing the product.  Tying the price of the product to the worth of the product is such an old fashioned concept isn’t it?  Instead this new-fangled way of doing business has led to bubble after bubble which the uninformed then try to pin on “market failure”.

In fact it is a government takeover of a market.  There is no competition, no incentive to revisit pricing, no reason to worry about default.  Charge whatever you like, make an outrageous profit and if the loan fails, stick the taxpayers with the cost.

Nice crony capitalist system if you can arrange it, huh?

We all know exactly how it will end up … with a big “pop” and a bunch of surprised politicians asking “how could this have happened?’

And the first words out of most of their mouths?

“Market failure”.

And what does that usually mean?

More government intrusion and control.

Then the cycle repeats.


Twitter: @McQandO

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23 Responses to Higher Education–privatizing profits, socializing loss

  • “Reynolds makes the argument that colleges and universities should be on the hook for the debt.”

    Yeah, that is EXACTLY, 100% WRONG.

    It would be…again…having government DISPLACE contract according to somebody’s “bright” idea.

    The people who incur the debt…like any unwise consumer…need to EAT the lesson, and learn from it. It MAY be the only stinking thing they get out of the whole higher educational experience worth a damn.

    When enough people are aware of the giant rip-off that IS the inflated garbage of university (and moose-college) offerings today, that market will be full of new information. Betcha even Erp-level players can read an empty rice bowl…


    • @Ragspierre Ar-Men. It’s students (their parents) who approve of accruing $50,000 in debt to get a Gender Studies degree without wondering if there’s any market for it. You go to a bank and suggest you want to set up a company that studies dog-crap, and you have no practical application for anything you might discover, and you want a $100,000 loan, unless your a P(al) O(f) O(bama) you aren’t gonna get that loan, and with good reason.

      And that also funnels back to High Schools that bother to give kids aptitude tests (not called that any more of course, because we don’t want to hurt Johnny’s wittle feeling when we find out he doesn’t have an aptitude for orbital mechanics, but would make a damn fine mechanic of the hands on sort) and then don’t bother to steer them towards what they are reasonably suited for instead of allowing them to head off to the unwanted puppy mill that American Colleges have become.

      • @looker @Ragspierre These women’s or gender studies programs remind me of a math major I knew in college. He was busy studying mathematical “topology” (not map making), so
        I asked “what is topology good for ?”

        His answer: ” Well, nothing right now. Remember that Blaise Pascal invented differentiate equations because he wanted to invent a completely useless form of mathematics. Today, differentiate equations are the basis of virtually all engineering. So, when they figure out what to do with topology, we will be ready.”

        • @Neo_ @looker @Ragspierre To be fair the mathematician is being a bit of a nong. Study of any physical science or mathematics builds the toolbox of true knowledge about what the world is and isn’t. The point would be that you don’t need a million people studying topology at the same time. Also, if he had half a clue he’d have realized that his mathematics education could be leveraged into many careers other than churning out essentially worthless publications. Gender studies on the other hand, not so much leverage. Getting rid of the absurd tenure system would also help, so the “educators” who perpetrate this crap on students feel a little more fire under their nether regions from time to time.

        • @DocD @looker @Ragspierre He was also a “computer jock” who last I knew (some years ago now) was the chief architect of SCO-UNIX or something.

        • @DocD @looker @Ragspierre He was also a “computer jock” who last I knew (some years ago now) was the chief architect of SCO-UNIX or something.
          But the point was sometimes they are lead astray.

        • @Neo_ @DocD @Ragspierre Ah! You should have put him out of my misery when you had the chance!

    • @Ragspierre Flip side though, the Universities can be resonably held responsible for offering courses that provide no value. To that extent it’s no different than bait and switch if they offer Klingon 101 there is some poor benighted soul who might think that has value just because it’s being offered by a college, especially if they have the Klingon language curriculum spanning the freshmen, sophomore and junior semester periods, implying a serious course of study.

      • @looker @Ragspierre CBS’s 60 Minutes did a story years ago now about how colleges performed a “bait and switch” on prospective students in regard to their Nobel Prize winning staffs, which any undergrad would never see. They predicted a major lawsuit would eventually reform this practice. Well, it hasn’t.

      • @looker Under civil law, they ARE responsible for various forms of fraud…IFFFFFF they do not enjoy some form of sovereign immunity.

        LOTS of them should be sued, IMNHO. See, I consider civil lawsuits to be a free market response such issues. (You can see the collateral development of tort law and market economics in history.)

  • The real problem has two ugly heads.
    First, many of these students have no familiarity with loans. They just look at as “I sign, they give me money.” Since all federally guaranteed loans are now originated with the Dept of Education (making it one of the biggest banks in the country), it will be difficult to blame anybody except the federal government itself, so I expect them to blame the students.
    Second, the colleges are offering an equivalent of a “sub-prime loan” when the lead these potential students to believe that a college degree, any college degree, is the pathway to a higher income and the “American Dream.”

    We’ve all read about the #OWS-er who borrowed to get a degree in puppetry. How can any college admission department look anybody square in the eye and tell them that this is the pathway to a higher income and the “American Dream” ? This applies to a whole host of degrees (like women’s studies, etc.) where the only people hiring for these degrees are to teach more students to have the same nearly worthless degree.

    Clearly, there is culpability on the part of the colleges in this area. Perhaps, a FTC lawsuit or Congressional action in this area, at least as far as disclosure, would be warrantied.

    • @Neo_ “We’ve all read about the #OWS-er who borrowed to get a degree in puppetry”
      That would be peon number 27 in Adam Carolla’s excellent rant?

      “where the only people hiring for these degrees are to teach more students to have the same nearly worthless degree”

      Like I said, get rid of the tenure system.

      • @DocD @Neo_ A voluntary end to tenure would be GREAT. Let the market forces assert themselves fully…in every possible way.

        Another thing I’d end tomorrow were I running a university is “core curriculum” mandates. They are the essence of elitist BS, and often are larded with REQUIRED courses that force students into a 5 year program, in such subjects as we are discussing here (i.e., victim-class studies).

        I predict that colleges and universities are going to become MUCH more market-oriented as this gets more critical, and more press. Well…and Federal money starts to dry up.

        Historically, well-off investors would underwrite the training of professionals. That has been essentially outlawed, and for no good reason that really exists. So, as with so many things, government has granted itself a monopoly…with the too predictable results.

        • @Ragspierre @Neo_ There really is no excuse for the concept of a “core curriculum” and it is as in my experience limited to US universities. It should just be “you must do X many points from the major of your choice and anything else is up to you”. At this point of an education you should be trusted to select the courses you want/need (outside the major requirement). You had years and years of high school to learn all the foundational stuff, didn’t you? Anything else is just a make-work scheme for faculty with no good reason for being employed.

        • @DocD @Neo_ True to the elitism behind them, they are justified by the canard that the academe is charged with producing “well-rounded” individuals.

          Academics HATE practicum (often being people who cannot deal with the practical). They look with open disdain on training people in a “trade”, without the “proper” indoctrination.

        • @DocD @Ragspierre @Neo_ But then I might not take sociology! I might do something like take all the comp-sci coursed or major related courses I could pack in towards the job I’m planning on trying to get! The horror of NOT taking sociology and psychology, I just can’t imagine!

        • @looker @DocD @Neo_ Oh, and you MIGHT…with application…have waltzed out after THREE years with a meal ticket.

          And THEN set about getting all “rounded” according to your own lights.

          Imagine the gall…!!!

        • @Ragspierre @looker @DocD @Neo_ In most other countries a normal undergrad degree takes three years. Add another two for a masters. Five years for an undergrad degree???

        • @looker @Ragspierre @Neo_ Of course the dirty little secret is that you can read books in your free time. Go to the library or second hand shop or interwebs and you can get all that good book lurning for very little outlay.

        • @DocD @looker @Neo_ Well…and without being exposed to the tutelage of an Erp. You can learn all you need to learn from him as a peer, for free, AND get to freely ridicule him…”right here, on our shew…” (As Ed Sullivan used to say…)

  • Speaking of gender studies, why don’t you do what “enlightened” Norway did this year and get the national research council to cut funding and grants to all gender studies programs?

  • Speaking of gender studies, why don’t you do what “enlightened” Norway did this year and get the national research council to eliminate funding and grants to all gender studies programs?