From the Weblog of Mark Cuban

Yeah... that 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?

It's 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? That's right. The 37 million holders of student loans shoulder more debt than the 175 million or so credit card owners in this country and their debts equal more than the all of the debt on cars in this country. While median student loan debt is "only" approximately $12,500, average student loan debt is around $23,000 - and growing! We're talking more than one trillion in student loan debt!

We freak out about the trillions of dollars in debt our country faces. What about the TRILLION DOLLAR 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 it's not.

The President has introduced programs that try to reward schools that don’t raise tuition and costs. That won’t work.  Right now there is a never ending supply of buyers. Students who can’t get jobs or who think that by going to college they enhance their chances to get a job will keep borrowing and will keep spending. It's the collegiate equivalent of flipping houses. You borrow as much money as you can for the best school you can get into and afford and then you “flip” that education for the great job you are going to get when you graduate.

Except those great jobs aren’t always there.

I don’t think any college kid took on tens of thousands of dollars in debt with the expectation they would get a job working for minimum wage against tips.

At some point potential students will realize that they can’t flip their student loans for a job in 4 years. In fact they will realize that college may be the option for fun and entertainment, but not for education.

Prices for traditional higher education will skyrocket so high over the next several years that potential students will start to make their way to non-accredited institutions.

While traditional colleges and universities are building new buildings for Liberal Arts and Business schools, new high-end, non-accredited, BRANDED schools are popping up that will offer better educations for far, far less and create better job opportunities.

As an employer I want the best prepared and qualified employees. I could care less if the source of their education was accredited by a bunch of old men and women who think they know what is best for the world. I want people who can do the job. I want the best and brightest, not a piece of paper.

Competition in the form of new  providers of education is starting to appear, particularly in the tech world.

Online and physical classrooms are popping up everywhere.

This is in respond to needs in the market.

New schools and training institutes work with local businesses to tailor the education they provide students to corporate needs, in essence assuring those who excel in these programs they will get a job. And all of this for far, far less money than traditional schooling demands.

The number of people being prepared for the work world in these new educational environments is exploding.

You would think traditional university educators would take notice, but beyond allowing some of their classes to be offered online they haven’t. And they won’t.

It's the ultimate "Innovators Dilemma." They don’t believe they should change and they won’t - until it's too late. Just as CEOs push for that one more penny per share in EPS, University Presidents care about nothing but getting their endowments and revenues up. If that means saddling an entire generation with obscene amounts of school debt so be it. This is how they get their long term contracts and raises.

It’s just a matter o time until we see the same meltdown in traditional college education. Like the real estate industry, prices will rise until the market revolts. Then it will be too late. Students will stop taking out the loans traditional universities expect them to and when they do tuition will come down. When prices come down universities will have to cut costs beyond what they are able to.

Traditional colleges and universities shoulder many legacy costs. From forced retention of tenured professors to construction projects started and committed to  - not to mention their R&D commitments - they will be saddled with legacy costs and debt in much the same way the newspaper industry was. This will lead to a deleveraging and destabilization of the university system as we know it. And in my opinion... it can’t happen fast enough!

The biggest problem the economy has is the enormous student debt new college grads and those leaving college find themselves burdened with.

In the past leaving college meant getting a job and getting a used car and/or an apartment with some friends.

Yes there was student debt, but it wasn’t anywhere near your car payment!

You could still afford the car and the apartment!

Now it's the exact opposite.

Today, the minute you graduate from college you face the challenge of paying down debt - with interest - against a college education whose value is immediately “underwater.”

Now when you leave school you move back home. You take public transportation or borrow your parents car. The only thing new you buy is the cheap work outfit you need. Savings? Fagetaboutit! It’s not happening! Your entire focus is on hitting your monthly nut for school loans, credit card payments, and maybe a car and/or apartment!

The crush of college debt has taken an entire generation of graduates - current and future - out of the economy! (Which is exactly why the economy hasn’t grown and won’t grow beyond microscopic growth rates we have seen over the past several years.)

So... until we get the meltdown in college education... don’t expect much improvement in the economy. Who gets elected won’t make a dang bit of difference.

***Note***

Mark apparently writes this stuff all by his lonesome... no professional touch-up... no spell-check either!

I took it upon myself to "tidy up" the piece a bit. The link to the unedited posting is up top so feel free to compare and contrast just to assure yourselves I haven't monkeyed with Cuban's intent.