How your iPad will conquer student debt

Aristotle teaching Alexander.

College costs are out of control. Students and families are reeling under burgeoning debt. Politicians, state and federal, are rushing to feed the beast they have created. That might work.

The statistics are appalling when taken in whole. Here are a few…

• Since 1990, the cost of attending college has risen at over four time the rate of inflation
• In the last 25 years, full-time university administrators have increased 75% while student enrollment has grown only a bit over 25%
• Median pay for public-college presidents is now over $400,000 with several being paid over $1,000,000
• Since 2001, the cost to attend public college will have doubled by 2016
• In 1991, one in ten families carried tuition debt while today it is one in five, with many owing over $100,000

It’s undeniable that attending college has become as much a financial burden to the typical American family as home ownership. But, the recent housing bust included, home ownership on whole is still a long term investment that pays off. The same cannot always be said of the “investment” in a college education. Nearly half of all college grads now work in jobs that don’t require a college degree. Was that a double latte macchiato?
  

There appears to be a confluence of several trends at work here.

1. Public funding of tuition support has enabled colleges to exorbitantly increase fees and tuition
2. Colleges have greatly increased the number of dean or director-level positions dealing with equality, diversity, and related non-academic functions
3. We have encouraged all students to attend college, some who might be better served by excellent vocational schools

While we might continue down the path of publicly funding these fiefdoms, there is little hope that strategy will yield affordable results. Fortunately, there is a light on the horizon.
   

Teaching is the act of imparting knowledge. But over 2,000 years, we are using techniques that are fundamentally unchanged since Aristotle’s students sat at his feet. The internet has blown up that model by allowing a skilled professor to now instruct thousands of students at one time. Computerized courseware administers quizzes and recommends supplemental studies individually tailored to each student. Academic courses can be undertaken in the solitary environs of a student’s home, or in small study groups, or remote classrooms. The only requirement is an internet connection.
  

Simply use your favorite search engine to look for “university courses online.” You will find that many leading universities are offering internet courses, a good number for credit. Private, donation-based organizations such as the Khan Academy provide in-depth training in a wide range of topics from mathematics to history to physics to finance. For-profit companies are beginning to see the opportunity. Coursera, Inc., has partnered with 33 top universities to offer academically rigorous courses to students all over the world. 
  

Bloated colleges feeding at the public trough will soon take note. Some of them will see the opportunity and will embrace this new paradigm. The rest will see their enrollments dwindle. That’s life.

Economic principles are older than history

Economics is incredibly complicated, we are told.  Economists would have us believe so because, otherwise, why would we need them?  Politicians likewise prefer befuddled voters as they are easy to manipulate.  Our economic system is indeed complex because of its enormous scale.  But it is based on some very simple principles, and we can use them to understand fundamental relationships.
 

In case you hadn’t noticed, the global economy is in a funk.  Investors aren’t investing, bankers aren’t lending, consumers aren’t consuming, manufacturers aren’t hiring... what to do?

There is a debate raging on the choice between growth or austerity (reducing debt) to improve things.  By “growth”, its proponents mean public sector spending (hiring more cops, clerks, and teachers), funded by higher taxes or increased borrowing. Those on the other side say that austerity works just fine, thank you very much, it just takes a little longer.  And further, they argue, “growth” could and should be nurtured in the private sector – it need not be a codeword for public spending.

Public sector, private sector, spending, growth, debt, taxes… it’s enough to make your head spin.  What should we do?  How do we decide?

Let’s take a look at how economics began. Imagine a prehistoric tribe made up of ten individuals.  We will focus on the adults and ignore the children for now.  The adults  are divvied up as follows:

• 3 hunters
• 4 gatherers
• 1 shaman (active)
• 1 shaman (retired)
• 1 hunter (disabled)

The three hunters, as you might guess, track, pursue, and take game animals, large and small.  The four gatherers cultivate simple grains and vegetables and collect wild fruits and berries. The hunters and gatherers make up the private sector, as they produce the means to keep the tribe alive.  Their output feeds the entire tribe.

The shaman uses magic to forecast the future, cast spells on the tribe’s enemies, and teaches basic skills to the tribe’s children.  He makes up the public sector.

The disabled hunter, unfortunately, is no longer able to contribute because of a badly wrenched back from trying to haul a large elk.  The retired shaman, too old to prognosticate, and the disabled hunter are social beneficiaries.    

All of the grains, berries, rabbits and venison produced by the hunters and gatherers must be shared with the public sector (current shaman) and the social beneficiaries (retired shaman and disabled hunter).  Every rabbit, sheave of grain, and basket of berries must be shared ten ways, even though only seven are responsible for production. For every 10 rabbits a hunter snares, he must give up 3 to support the public and social beneficiary sectors. This is a tax.

Imagine that a prolonged drought results in poor yields for both hunters and gatherers… the economy is a mess.  People are hungry, starving, and something must be done.  So what is the logical conclusion… shall we hire another shaman from the tribe in the next valley?

That’s what some argue… that by expanding our public sector, economic output will be increased.  But we still have only 3 hunters and 4 gatherers, who must now share their output 11 ways instead of 10.  They are rightfully baffled by this decision, because there are now more mouths to feed but no increase in production to do so.

Does this mean that the public sector is bad and that we shouldn’t support those in need?  Absolutely not!  In our real economy, public servants are crucial to our society’s functioning, keeping us safe from crime, putting out fires, and teaching the next generation of productive citizens.  And it is only decent to sustain those who are truly in need.  But remember that we can only do what we can afford to do.  That is the mistake made by the Greeks – chronic overpromising, living beyond their means.

When the government expands the public sector or expands social benefits, these costs must be paid.  There are only two choices… by raising taxes now or raising taxes later.  In the latter case, we can borrow a surplus from the tribe in the next valley, but it must eventually be repaid (plus interest), which requires a future tax.

This is not meant to convince you to think in any given way, only to think.  When presented with economic alternatives, think.  Then choose.  But do so based on an informed consideration.