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The sheepskin bubble: ready to burst?

By Michael J. Smith on Wednesday July 28, 2010 09:31 PM

From the professional journal On The Inside -- or no, whoops, the Chronicle of Higher Education:

Government Vastly Undercounts Defaults
Many More Students Are Defaulting Than Official Tallies Show

The share of borrowers who default on their student loans is bigger than the federal government's short-term data suggest, with thousands more facing damaged credit histories and millions more tax dollars being lost in the long run.... one in every five government loans that entered repayment in 1995 has gone into default....

For loans made to community-college students, the 15-year default rate is 31 percent. David S. Baime, senior vice president for government relations at the American Association of Community Colleges, called that number "shockingly high... It's really just a tragedy given the consequences of student loan default."

Borrowers who default on their student loans face significant personal and financial burdens. They become ineligible for additional federal aid and may have their wages and tax refunds seized by the government. Their negative credit records make it harder for them to obtain car loans, mortgages, and credit cards, and even apartments or jobs. When they can get loans, they pay higher interest rates.

But it's the high rates of default at for-profit institutions that are likely to get the most attention.... Fifteen years into repayment, two out of every five loans made to students who attended two-year for-profit colleges are in default.

The parallel to the housing bubble is hard to resist: people sucked en masse into a speculative investment which just hasn't panned out. Because of course, such investments by nature can't possibly pan out for everybody.

This has provoked some interesting and insightful commentary on my lefty mailing lists. Sample:

This blip in the default rate is another byproduct of the one single achievement to which fans of the eight-years of Clinton can point: a reformed system of grants and loans to get people to go to college. After all, in the capitalist world view, unemployment simply comes from a lack of job training.... the Democrats opted for this education-route... As some of us argued at the time, the entire Clinton package on education was about running money through the fingers of those students into the coffers of the universities and colleges (who were all then participating in that building boom).
The "building boom" refers to a Village Voice article -- yes, the Village Voice, reporting some real news for the first time in thirty years or more:
Will NYC's College Building Boom Bubble Pop?
New York's universities have grand expansion plans, but could the economy--and online courses--doom them to failure before they've even begun?

Real estate development was the first casualty of the Great Recession, but a half-dozen New York City colleges are in the midst of an unprecedented building boom.

St. John’s University in Queens has already spent almost $160 million on a new student center and classroom upgrades during the past two years alone. Fordham, the New School, and John Jay College of Criminal Justice are all betting on big campus expansions. And over the next three decades, NYU and Columbia are preparing to shell out nearly $10 billion for academic and administrative buildings, dormitories, research labs, and even unrelated commercial ventures like a hotel and a jazz club.

It's certainly true in my nabe, and my experience. Columbia University, the armpit of the Ivy League, is expanding like a metastatic carcinoma, obliterating whole neighborhoods in a way that hasn't happened in this town since Robert Moses repaired to his eternal brimstone berth in Hades. NYU is visibly doing the same, and even proletarian CCNY is popping up new erections all over the place.

I see the same thing everywhere I go in this broad land. A campus that was quiet and bucolic a few years ago now boasts the gleaming new Harry And Mildred Furrier Fitness Center, or the Artabazian School Of Identity Politics.

The incarceration sector and the credentialling sector -- both huge success stories over the last few decades. One can't help wondering if there's some link between the two -- some deeper law that accounts for both these vast gigantisms.

A few months ago I did a little bit of digging in the stats, and with some help from better-informed comrades on one of my mailing lists, I was able to derive the following graph, showing college and university expenditures per student in constant dollars:

Now what's this money being spend on? It's not faculty salaries, that's for sure, since classes have gotten bigger and the reserve army of casual adjuncts -- shockingly ill-paid, as I can attest from personal experience -- has taken over much of the dreary burden of classroom patrol.

Has anybody looked into this? Does the building boom account for it? If not, what else is involved?

Comments (8)


these numbers look dangerously conservative
only a 50% rise in pub sec per capitas
since the great society days ???

must look into this .....
time passes the sun colls considerably:

ahh some confirming numbers

merely tuition and related fees
as of the 2008-2009 academic year

"Public four-year colleges charge, on average, $7,020 per year in tuition and fees for students who live in their state. The average surcharge for full-time out-of-state students at these institutions is $11,528. "

"Private four-year colleges charge, on average, $26,273 per year in tuition and fees. "

"Public two-year colleges charge, on average, $2,544 per year in tuition and fees. "

one hasn't really begun here
till one looks at student housing costs
and feed lot-ing

but really father
how does this compare to surgery costs
over the same period ???

of course there's been considerable
hi tech input change in surgery

lets notice this :

pumping in 130 billion in funds thru grants and loans each year helps
drive this boom along
but face it
like much else that is pure merit class
enterprise this is all quite meager

"mr higher Ed bubble "
is of exceedingly minor scale
compared to the tech bubble
or the house lot bubble

cost controls on community colleges
those exemplars of true dewey free americana
seem un necessary

where as for profit ed
-- beauty school massage institutes
jet engine repair etc etc --
fares even worse then the ivy league
when it comes to defaults

try 40%% on for size

the social return on that particular
aggregate investment
is probably down there with uncle Walt's
Epcot Center or last friday nights
slaoon keg to urinal runs

but then again bar tending school
sounds like fun
compared to say ....pharmacy college

Spending per student is cheating on the denominator. Certainly, much of it is real-estate purchase and construction by the schools in question. But it would be a mistake to underestimate spending-per-tenured-faculty-person. These people have seen their pay more than keep pace with inflation, even as their workloads plummet, on the theory that they're "producing" more grants.

And they are. Which also explains why the real estate aspect of the thing is so off the hook. The private and medical-criminal-state forces that are funding all this demand edifices to immortalize their largesses.

Also, the private schools are more and more going Japanese. Death struggles to get in, then louche parties thereafter. These Obama factories are spending wildly on lifestyle marketing to their attendees.


Took an entry level accounting class at a CC this last spring. Man, I hate to say it, but it was full of kids who really had no business being in college. But taking on $20K or so in debt to get a job paying $25K probably sounds a lot better to them than working in retail or fast food.


Part of the money (a large part) goes towards things that universities have only started doing relatively recently...

-athletics, particularly non-revenue sports, demand facilities, transportation to competitions, etc.

-student services like counseling, activities, "sustainability fees," sushi in the dining hall, etc.

-research parks which might be the biggest boondoggle of them all. The university (or state for a public school) builds a research park in the corn fields surrounding the campus and then gives more or less free rent to which ever "high-tech" company they can convince to open an office and employ 10-20 PhDs or MSs. Somehow this is supposed to result in....something, besides empty buildings which is what we have.


"full of kids who really had no business being in college"

meaning what ???


research parks sound grand to me
no matter who sponsors them
or who "exploits" the tax/rent/wage arbitrage

so long as its here and not in singapore

if they aren't filling up with labs
that's for lack of sufficient funding
by uncle
there can never be enough research

what could be more fun then juggling tubes
and print outs on a bench
that is
besides maybe
group sex and heavy drinking

and they all can be easily combined

"lab party !!!"


"death struggles to get in, then louche parties thereafter."

merit class student princing ???

a poor echo of a nobler era

one has to be born to privilege
not earn it by hustle
if you are to understand it well enough
to really relax and enjoy it

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