This is isn’t good:
Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation. To put that number in perspective, housing prices, the bubble that nearly burst the US economy, then the global one, increased only fifty points above the Consumer Price Index during those years. But while college applicants’ faith in the value of higher education has only increased, employers’ has declined. According to Richard Rothstein at The Economic Policy Institute, wages for college-educated workers outside of the inflated finance industry have stagnated or diminished. Unemployment has hit recent graduates especially hard, nearly doubling in the post-2007 recession. The result is that the most indebted generation in history is without the dependable jobs it needs to escape debt.
What kind of incentives motivate lenders to continue awarding six-figure sums to teenagers facing both the worst youth unemployment rate in decades and an increasingly competitive global workforce?
During the expansion of the housing bubble, lenders felt protected because they could repackage risky loans as mortgage-backed securities, which sold briskly to a pious market that believed housing prices could only increase. By combining slices of regionally diverse loans and theoretically spreading the risk of default, lenders were able to convince independent rating agencies that the resulting financial products were safe bets. They weren’t. But since this wouldn’t be America if you couldn’t monetize your children’s futures, the education sector still has its equivalent: the Student Loan Asset-Backed Security (or, as they’re known in the industry, SLABS).
SLABS were invented by then-semi-public Sallie Mae in the early ’90s, and their trading grew as part of the larger asset-backed security wave that peaked in 2007. In 1990, there were $75.6 million of these securities in circulation; at their apex, the total stood at $2.67 trillion. The number of SLABS traded on the market grew from $200,000 in 1991 to near $250 billion by the fourth quarter of 2010. But while trading in securities backed by credit cards, auto loans, and home equity is down 50 percent or more across the board, SLABS have not suffered the same sort of drop. SLABS are still considered safe investments—the kind financial advisors market to pension funds and the elderly.
(more via link above)
While full, economic fees will have to return in some form – student loans as the mechanism are on this evidence not a good option…
[This is the fourth in a series of posts relevant to the all-consuming topic in Ireland at the moment: the fall of the Fianna Fail/Green Party Coalition Government, and the resulting general election to take place on the 25 February 2011. My title approximates a question/comment posed by a guest (I think it was Jim Glennon, the former FF TD) on George Hook’s programme on Newstalk].
Verificationism (also known as confirmation bias) is a pervasive cognitive error, where evidence favouring a particular point of view is collected and weighted heavily, and contrary evidence is discounted or ignored. House prices have been rising for years; therefore, they will continue to rise, so property is a safe-bet investment. Its opposite, falsificationism, is a difficult habit of mind to acquire. It is a must for any working scientist. Falsificationism requires considering what empirical evidence would invalidate (falsify) the position you are adopting. It seems, for example, that no amount of empirical evidence will convince the Labour Party that free fees do not increase access to third-level education (under-privileged students did not pay fees anyway!). Instead, just about all of the empirical evidence shows that to increase access, among other things, you need to intervene as early as is possible (from the pre-school level, and sustain this intervention through all of the school years). There are other variables too, from mentoring, to third-level institution-under-priviliged school relationships, etc. Cherry-picked anecdotes from a taxi-driver (former Minister Breathnach) are not evidence. One way of avoiding this bias is to state clearly what empirical evidence would falsify your opinion; another is to build an evidence-based brake into policy formation. In science this is done by international, anonymous, expert ‘peer review’. Peer-review and similar systems can be built into the process of Government. The terrible fiscal policy errors of the past ten years would likely have been detected if a properly-appointed and supported independent Fiscal Council had the job of publically peer-reviewing proposed Government policy. The mess which has torn up the corporate memory of Government departments (decentralisation) would not have made it out of Charlie McCreevy’s office had robust evidence-based policy tests been in place. The arguments for decentralisation pivoted on the focusing illusion, a cognitive error which emphasises only upside arguments (local benefits: ‘Welcome to Parlon country’ indeed!), but ignores costs (the wholesale destruction of corporate memory and procedure within departments). The whole country knew it was a boondoggle, but reversing policy mistakes of this scale and magnitude is very difficult indeed. Indeed, the whole debate about public sector efficiencies (the Croke Park Agreement) could usefully focus on the deadweight effects of appalling Government policy decisions, and figuring out how to reverse them.
The third-level access debate continues.
[update: intro comment changed from fees debate to access debate, on foot of comment from Kevin Denny]