Friday, October 17, 2008

Deleveraging Academia

The WSJ has an article about the impact of the credit crunch on colleges. It appears that the effects are being felt all through the academic complex.


Higher education has been one of the most mis-priced and overvalued products
in this country. The rate of increase in college costs has been flatly absurd. Why? Too much money.

For the longest time, colleges and universities have been overpriced. The price inflation we've seen for college education was completely ridiculous, fueled by easy government grants, loans and other spending. Isn't that the kind of government spending that leads to inflation - spending that creates no marginal increase in value? Sure seems like it. We're not talking Weimar Germany yet, but still, the entire college financing market has been able to increase in cost at insane rates of growth on the back of cheap money, mostly in the form of debt.

It had to come to an end. Good riddance.

I think there is a lot more to come - a lot more layoffs, more construction to be postponed, and other crazy spending by universities to reign in costs. No longer will they be able to finance this madness with 6% annual tuition increases, because shortly there will be few (if any) with the capacity to pay. Definitely not from the "middle class".

And socioeconomic stratification will get worse.

I feel sorry for anyone who was counting on getting loans to pay for any kind of higher education. Its going to be ugly, but it is long overdue.

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