Wednesday, September 08, 2010

The Higher Education Bubble May Be Next To Burst

Rising default rates should be sending worrisome messages to those at colleges and universities around the country that they are about to enter the realm of real estate and the end of easy money.

Defaults for New York's Higher Education Service Corporation (HESC) have risen to about $2 billion from just $230 million a decade ago. Some of the problem is the result from the trying economic climate, but it also is a function of rising tuition costs that far exceed the cost of living/inflation rates seen across the country.

New Jersey has seen tuition hikes well exceed inflation for years on end. In the most recent year, tuition hikes ranged between 3.5% and 7%, with the state schools logging in with a 4% increase.
New Jersey’s colleges and universities continue to be among the costliest in the nation. Last year, the average American student paid $7,020 in tuition and fees at public four-year colleges and $26,273 at private colleges, according to a national study by the College Board. All of New Jersey’s public colleges and half of the state’s private colleges were above the national average in the 2009-10 school year.

Outpacing Inflation

The sputtering economy has not slowed tuition increases. According to the Star-Ledger survey, all 24 of New Jersey’s traditional four-year colleges and universities raised tuition and fees this year faster than the inflation rate, which is less than 2 percent.

The survey did not include the University of Medicine and Dentistry of New Jersey or Thomas Edison State College in Trenton, which have multiple tuition rates depending on the degree program. The survey also did not include the growing number of for-profit colleges offering bachelor’s degrees in New Jersey.

The for-profit schools, which include the University of Phoenix and Berkeley College, do not operate on traditional semester schedules, making it difficult for students to compare costs to traditional colleges. Some of the for-profit schools also offer varying tuition rates based on a student’s program and education level.

Berkeley College, which has four campuses in the state, estimates students will pay about $20,700 in tuition this year, a 3.8 percent increase, a college spokeswoman said. At the University of Phoenix’s Jersey City campus, students pursuing a four-year degree will pay between $12,000 and $15,000 in tuition this year, campus officials said.
All those costs get passed on to students, who cannot possibly pay tuition without financial aid packages that are largely based on student loans to cover the education expenses.

The free flow of loan monies has meant that colleges and universities have felt little pressure to maintain their costs at reasonable levels, because the costs get subsumed into the loans. In fact, those federally subsidized loans are in effect a subsidy for the colleges and universities because the money is all to easily obtained and supports bloated bureaucracies at colleges and universities.

Then, there's the toll on students who graduate with bleak job prospects and massive debt.

NPR focuses on the for-profit higher education segment
, but their concerns are present in the nonprofit segment as well. Repayment for student loans is a problem not only for the student, but for the government that may be forced to bail out yet another segment of the economy for bad business decisions and thus far it appears that colleges and universities are incapable of addressing the situation in any substantive manner.

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