Through misguided attempts to make college available to everyone, just like housing, the government has made student lending so readily available and barriers to entry so low, that it is easy for anyone to follow the mantra "go to college, get a better job". Students do not have to think of the debt burden they are taking on because it can be deferred and they can fall back on the old idiom "school debt is good debt". Well, although there is evidence that is the case, there are also plenty of people out there with $50,000 in college debt, working at the local coffee shop, who do not see a light at the end of the tunnel (someone agrees http://online.wsj.com/article/SB123544367541855983.html).
You know me, these people are certainly complicit and I do not feel that bad for them, however, the institutions of higher learning are also complicit, and government needs to act when it and the taxpayers are being taken advantage of. Just like the mortgage lenders, institutions of higher learning will take whatever they can get. If the government is going to provide ample access to student loans, institutions of higher learning are going to take that money and raise prices while they can.
Below is an email note to a gentleman, who took on corruption and ineptitude at the Small Business Administration and tried to illustrate to the public that the government and its easy money was being taken advantage of and outside entities were getting rich in the process. I think my note describes my thoughts on the escalating cost of education and who benefits.
The solution, in my opinion, is that any institution of higher education that receives Title IV funds under the Higher Education Act can not raise tuition at a rate greater than either inflation or the cost of living adjustment in the area of that school. The pool of Title IV funds should also be limited and disbursed on a need basis. The government has the right to limit tuition pricing if it provides the money. Without the government providing loans to students a lot of these institutions would go out of business! It also seems appropriate to tier availability of Title IV funds by economic need. I have not decided whether these policies should be retroactive (i.e. lower tuition levels from their current height), but I would not argue if that's how it was enacted.
Dear Mr.,
Toward the end of last year I had the pleasure and shock of reading your book, 'Fooling Some of the People All of the Time: A Long Short Story'. Although, it pained me to learn that it would take an unwinding of the leverage bubble to expose this fraud, which enriched itself by manipulating an undermanned and dubiously constructed government entity, I was not totally surprised. As such, I wanted to ask your view on another similar such manipulation and how you see it coming to a head - if ever?
A quick internet search on college tuition compared to inflation, or any derivative of this search, finds several papers, charts, graphs, blogs, etc. on the topic. Below is one interesting data set I found regarding the University of Texas at Austin:
(This image stinks, but I believe you can click on it to see it more fully.)
By my calculation and based on this data set, for the 32 years ended 2002, an In State Liberal Arts education at UT increased 10.24% annually, adjusted for inflation. I have read many justifications for this including rising healthcare costs, rising technology costs, rising energy costs, etc. I have no doubt that some of these things may legitimately lead to tuition slightly outpacing inflation. However, by way of an example, the cost of a gallon of gasoline in 1970 versus 2002 in 2002 dollars was $1.66 versus $1.35, respectively. In effect one of the key drivers of energy expense, actually declined over the period of time in question.
So, how has tuition been allowed to rise at such an extortionate rate, relative to the cost of other goods. In my view, it is the same reason that Allied Capitals' crimes against taxpayers persisted and why the "housing bubble" persisted for so long - the government is making the money available to be taken. In the case of higher education, it is politically incorrect to say we need less education, and of course we want an educated society. However, with the proliferation of government backed loans, like the recently increased Stafford loan limits, more people can spend more money on higher education. The easier it is to obtain the money and get it into the hands of the higher education institutions, the more likely these institutions are to hike tuition bills. I believe this is exactly what has been going on for the last 40 years. Given the marginal benefit of some higher education, I believe it is unjust, and a crime against the individuals burdening themselves with this debt as well as the taxpayers who face higher default payments, to continuously raise tuition costs just because politicians constantly make it easier to obtain funding.
We can argue where all of this tuition growth goes at America's "traditional universities", like UT, and whether it is an efficient use of resources. I am sure UT can produce annual reports showing new construction and resources for its students as well as increased salaries, etc. In fact, a quick review looks as though for a budgeted $223 million of net inflows for 2008-09, UT has apportioned all of that out to various entities within the university (http://utdirect.utexas.edu/budget/pdf/UTAustin_Budget_VolI_08-09.pdf). However, at the for-profit-institutions, or publicly listed intuitions as they prefer to be known, it is quite clear where all that money is going - the bottom line.
Therein lies my question, what do you think of the listed institutions of higher learning, like Apollo Group, Inc. (APOL), the parent of The University of Phoenix (UoP) and ITT Educational Services, Inc. (ESI), the parent of such places as ITT Technical Institute? Do you view the recent share movements as a result of the news that the stimulus package may increase Stafford Loan limits an additional $2,000 on top of the $2,000 from this May, as ludicrously as I do, or is it all justified and fools play to stand in front of the growth [reference to short position in the Edu companies stock]?
My simple view is that in regards to the companies above, that APOL is juicing its growth through increased Associates degrees (now over 50% of revenue) and that "persistence" is declining on a TTM basis at ESI while bad debt expense mounts. All the while this NYT article claims the graduation rate at UoP to be 16% http://www.nytimes.com/2007/02/11/education/11phoenix.html. With this kind of graduation rate and the students most likely to be in default, those who do not graduate and those who are in a lower income bracket to begin with, it seems logical that the wheels would come off this money train, if some sort of lending restrictions were put in place. Like ALD though, the Edu lobby is apparently incredibly strong.
There are stories and blogs and newspaper articles all over the web calling into question the value proposition of a UoP, ITT Tech, Strayer, et al. education and it is common knowledge (applauded by the Street) that these places are pros at processing the financial aid forms - APOL is saving cost by renegotiating its outsourced contract for this key cog of its machine. You worked against this kind of thing with ALD and the ineptitude of the SBA. Do you have any insight into how it unwinds? Or does one just have to be patient? (Maybe XXXX has made money on the [stock's] way up.)
I would love to hear any and all thoughts from you regarding the public education companies. To me it is so clear how they are able to prosper and how unjust it seems. But I am willing to admit my view may be misplaced. Politically, it may be difficult to say we do not need to educate everyone, but surely it is not difficult to construct a strict tiering of loan availability based on family income and asset levels, as well as, cap tuition rates at the rate of inflation? No one seems to want to take that stand though.
Thank you for taking the time to read this and again, I would appreciate the thoughts of a man who has done battle with government funded growth machines in the past.
Sincerely,
2outof4
P.S. Despite a 50bps position in APOL, which I had prior to its last update and the recent $2,000 potential increase in Stafford Loan limits, my primary motivation here is social. I cannot stand to see tuition continually and undeniably being lifted and students ladened with increased crushing debt levels for educations of questionable value, all on the tailwinds of a politically safe argument.
This certainly appears to be an area where government means well, but common sense implementation and oversight is extremely poor. I understand that it is driven by the political message that education is good for everyone, just like a home was good for everyone, but at some point it will benefit all of us to look past some of these "tried and true" idioms and ask "why the hell does college cost so much?"
Posts
No comments:
Post a Comment