Monday, May 21, 2012

The Traditional College Education System is About to Collapse

By Mark Cuban

This is what I see when I think about higher education in this country today:

Remember the housing meltdown ? Tough to forget isn’t it. The formula for the housing boom and bust was simple. A lot of easy money being lent to buyers who couldn’t afford the money they were borrowing. That money was then spent on homes with the expectation that the price of the home would go up and it could easily be flipped or refinanced at a profit. Who cares if you couldn’t afford the loan. As long as prices kept on going up, everyone was happy. And prices kept on going up. And as long as pricing kept on going up real estate agents kept on selling homes and finding money for buyers.

Until the easy money stopped. When easy money stopped, buyers couldn’t sell. They couldn’t refinance. First sales slowed, then prices started falling and then the housing bubble burst. Housing prices crashed. We know the rest of the story. We are still mired in the consequences.

Can someone please explain to me how what is happening in higher education is any different ?

Its far too easy to borrow money for college. Did you know that there is more outstanding debt for student loans than there is for Auto Loans or Credit Card loans ? Thats right. The 37mm holders of student loans have more debt than the 175mm or so credit card owners in this country and more than the all of the debt on cars in this country. While the average student loan debt is about 23k. The median is close to $12,500. And growing. Past 1 TRILLION DOLLARS.

We freak out about the Trillions of dollars in debt our country faces. What about the TRILLION DOLLARs plus in debt college kids are facing ?

The point of the numbers is that getting a student loan is easy. Too easy.

You know who knows that the money is easy better than anyone ? The schools that are taking that student loan money in tuition. Which is exactly why they have no problems raising costs for tuition each and every year.

Why wouldn’t they act in the same manner as real estate agents acted during the housing bubble? Raise prices and easy money will be there to pay your price. Good business, right ? Until its not.

Read the rest here.

(htNick Badalamenti)


  1. So Bob, how do you "short" the university/college system and profit?

    1. Short a publisher that gets plenty of revenue from textbook sales.

    2. Haha! Brilliant call Wenzel.

      My brother works for a division of Experian that sells "leads" for student loans. Any such company with public stock would be a good short too!

    3. Are there any investments to be "long" in this scenario

    4. Any private educators that have public stock. Perhaps University of Phoenix Online

  2. Please correct me if I'm mistaken, but I believe as well, that student debt is the ONLY form of debt that is not dischargable in bankruptcy proceedings.
    So students (that perfect polygamy of zero experience, zero earning power and no assets to speak of), are really & truly "screwed".

    We're going to have a large population of young, angry, impovrished & diasaffected youth looking for an opportunity to overthrow the existing order.



    1. Student loan debt does fall in the not dischargable category. I expect a brain drain to happen in the US; that is, graduates emmigratin. I imagine the US would then pass more draconian measures to prevent this. I think this because of the following axiom:

      "Captial, whether fiscal or intellectual will always go where it is best treated".

    2. I know plenty of people still in their 30s and 40s who still have loans auto deducted from their paychecks. Student loan debt is even more hardcore than child support, and about the only rival to the IRS as far as tracking people down and having it deducted automatically. There is no escape from it, and that was exactly how the industry had their allies in the government write the laws.

      Cuban is right, and the college system is about to collapse. The reason a college degree used to be a big deal in the old days was because there was not this industry forcing the prices up and creating a mass inflation of college students and making degrees worthless.

  3. Chinese and Indian students helping prop up colleges.