Did easy credit college loans create an artificial “demand” for college?

Posted: Feb 09, 2014 12:01 AM

I think absolutely.

Many kids have tried to hide from the economy in school in a way similar to the kids in the 60s who sought to hide from Vietnam in college. But a big difference between the two groups of students, besides the length of their hair, is that college for the baby boomer kids was for the most part paid for. College for the “millennials” is mostly bought on credit, very easy credit.

Again we ask, “Who would in their right mind loan an 18 year old, who has likely never had a real job, has likely never paid rent, and has likely never paid for a car, $50,000?” No one of course, except the federal government.

Why would the feds do this? First it’s because they have convinced everyone that they need a 4 year degree to succeed in life. – This is absolutely not true. What one needs is a skill which someone will pay one for. If one has such a skill, sometimes learned in college, but often not, one will find a job.

Secondly, because the university system in the United States is very powerful and the salaries of many professors and many administrators are subsidized directly by student loans. If the student loan tap were turned off many a professor would feel the hurt. Don’t forget, Obama’s biggest contributor in 2008, even more than Goldman Sachs, was the California University system.

Now do you think the people working within the Cal University system want to see more money (which kids are on the hook for) coming to their universities or less?

(From Real Clear Markets)

There is more than a little truth to that assertion, particularly in the college and university example used here. Not only did the population of university students explode in the 2000's, so did the number of employees at these institutions. In 1997, there were 2.8 million staff members, including 1.8 million “professionals” (faculty, administration, grad assistants, etc). For the fall semester in 2011, there were 3.9 million employees (+39.3%). Total faculty employment rose 53% to 1.5 million; the number of employees in administration rose 56%. The only class of employees not to grow so substantially was the “nonprofessional” class of janitors and maintenance workers (+0.7%).

It is the dream “stimulus” package of all-time: an entire system of economic advancement that creates an increase in aggregate demand and jobs, all backed by monetary prowess. But what would happen if the credit or government largesse were turned off tomorrow? It would collapse almost totally because demand is held artificially high by that same monetary “prowess.”

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