Is the next bubble after the real estate bubble about to burst in the U.S.? Experts fear that exorbitant tuition fees in the U.S. could be at fault this time, as more and more college graduates cannot find a job.
A new report of a volatile crisis comes across the ocean. A new private debt bubble threatens to burst: that of the students. American students are already deeper in the red now than all credit card holders of their country put together. Still, this year, according to the New York Times, debt from student loans will reach the threatening threshold of $1 trillion (€1,150 billion). Recently, the Chronicle asked, “When will the education bubble burst?”
The Poorer are Forced Into Loans
Education debt is growing because the government itself is heavily in debt and cutting in all social sectors. Expenditures for education since 2008 sank around eight percent across the U.S., at the collegiate level even up to 14 percent. At the same time, college costs rose rapidly. The University of California alone raised its fees around 32 percent in the past two years. Because more and more graduates can’t find a job, every third one can no longer service their credit on time or at all.
The analogy to the real estate bubble immediately suggests itself: for-profit education providers push students and families into education that they cannot afford. Since 2005, the four largest for-profit education companies have quintupled their profits in the U.S. These come almost 100 percent from tax money — that is, grants and subsidized student loans. One-fourth of national support for education ends up with these corporations, though only ten percent of students study with them. The Apollo Group, the largest of these corporations, raised its revenues to roughly $833 million in 2009 — but only nine percent of that went into actual educational services. It is primarily poorer people who are pushed into expensive student loans because they have the highest use of government assistance.
Like in the mortgage market, there is no invisible market mechanism at work here, because the over-extension of debt is hand-crafted. Before bankers and managers get a chance, lobbyists and experts prepare the terrain. They see to it that government oversight becomes weaker and weaker so that social sectors yield profits. Money manager Steve Eisman says that the for-profit education industry has “hired every lobbyist in Washington, DC. ... One example is Sally Stroup. In 2001-2002, she was the head lobbyist for the Apollo Group — the company behind the University of Phoenix and the largest for-profit educator. But from 2002-2006, she became assistant secretary of post-secondary education for the Department of Education under President Bush.”
Students in Europe are also increasingly getting into debt. For example, Great Britain: The conservative-liberal government there just approved an instrument in July that would open the doors for privatization of higher education. Among other things, private and public education providers would be put on equal footing in many regards. One thing above all pleases the private schools: For the first time, their students would be permitted to use government subsidized loans.
It is exactly that — public means that flow into private profits — which has led to the education bubble in the U.S. Malcom McVicar, vice chancellor of the University of Central Lancashire commented in the Financial Times: “These are proposals to create a rigged market that will do nothing to increase access, raise standards or correct the shortcomings of the policy of slashing teaching grants while introducing higher tuition fees.” Is it a coincidence that the private college BBP University College in London, which recently gained university status, belongs to the Apollo Group?