Quote IconPhil Sawinski, another Detroiter at the meeting, said he was most interested in the effect the convention might have on Snyder. “If it has the result of informing the governor to oppose Obamacare and sign the anti-gun-free-zone bill when it comes up in the legislature, that will put a smile on my face,” said Sawinski, who was carrying a sign advertising a “Vote Biblically” web site.

Mich. GOP pushes on with electoral vote plan; Schostak re-elected | The Detroit News | detroitnews.com


Quote IconAs a server at Marlow & Sons, the nose-to-tail temple in Williamsburg, Ms. Ghiorse said she loved being surrounded by “that unbelievably saturated population” of creative influencers, like James Murphy from LCD Soundsystem. While she savors the space and mental calm of the suburbs, she finds herself looking hopefully for signs of creative ferment. “We’ve found it in pockets,” Ms. Ghiorse said. “Once in a while, you’ll think, ‘This place gets it,’ because they have a Fernet Branca cocktail on their menu.”

Creating Hipsturbia in the Suburbs of New York - NYTimes.com

(via @garbnzgh)

Released on 2/22/2005. Features laudatory blurbs from a former Fed Governor and Fannie Mae’s Chief Economist.

Quote IconThere were almost 10,000 drunk-driving fatalities in 2011 alone. That’s the equivalent of three 9/11s in people killed, plus many more seriously injured, every year. Is a majority of Americans ready to lower the blood alcohol limit to 0.01 and to mandate breathalyzers on all ignition switches? Nope. That would be an onerous government intrusion on liberty. I’m fine with that. But it vexes me when the same citizenry faces the significantly lower risk that terrorists pose, spends far more on prevention, and still insists that targeted killings in Yemen and Somalia can’t be constrained, because taking more care to save innocents would threaten us.

A Republic Demands Courage From Its Citizens - Conor Friedersdorf - The Atlantic

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The Mess We’ve Made



When framing any debate on the value of college, it is worthwhile to see how the recipients of college degrees are faring. Apparently, not so well. As Clay Shirky states:

The value of that degree remains high in relative terms, but only because people with bachelor’s degrees have seen their incomes shrink less over the last few years than people who don’t have them. “Give us tens of thousands of dollars and years of your life so you can suffer less than your peers” isn’t much of a proposition. More like a ransom note, really.

The debate regarding the future of higher education is becoming more animated, but one thing is clear at this point. We cannot continue to support a system where the costs vastly outweigh the benefits. The system will be disrupted.

Any discussion of rising higher ed tuition prices is incomplete without an examination of the problem’s underlying causes. Working under the assumption that (1) the quantity of Americans seeking higher education hasn’t grown dramatically in the past decade, and (2) the quantity of universities providing higher education hasn’t shrunk dramatically in the past decade, a natural place to look for upside price pressure is an increase in the volume of funds available to each person seeking higher education. Assuming that recent high school graduates and their parents haven’t decided to reallocate a massive chunk of their personal assets to higher ed in the midst of an economic crisis, let’s take a look at the other side of the personal balance sheet.


Ah, right, debt. But now the question becomes: who’s willing to originate so much debt during a credit crisis? I doubt the banks believe that college students are the safest credit bet out there, and as it turns out, they don’t. Here’s a chart of student loans directly owned by the federal government.


Terrifying. And that doesn’t even include the privately held loans they’ve guaranteed.

How did this happen? The answer’s complicated. Student loans have always been a boon to politicians from both sides of the aisle, but prior to the crisis that boosterism was limited to incentivizing private lenders via default and interest rate subsidies. When the crisis hit, those incentives were overrun by larger economic forces, and the student loan market appeared poised to crater just as the mortgage lending market had. In response, Congress stepped in, passing the Ensuring Continued Access to Student Loans Act of 2008.

Under ECASLA, the government quickly purchased some $150B in outstanding loans and capitalized interest from private lenders, which explains for the inflection beginning in January 2009 and continuing through to mid 2010. The discontinuity in October 2009—and October 2010—results from the Purchase Commitment Program in the legislation, by which the government granted lenders a put option on their loans that expired at the end of September each year.

The second major cause is an obscure rider to Obamacare called the Student Aid and Fiscal Responsibility Act. This act ended the concept of federally subsidized loans in favor of direct loans from the federal government. At the same time, the government began promoting a number of novel repayment programs that linked repayment schedules to a borrower’s earnings, thus pushing payment obligations far into the future. In effect, the government had begun granting the educational equivalent of NINJA loans with unpredictably back-loaded payment structures while covering the interest accrual on these loans with taxpayer funds.

So what did all these private incentives, subsidies, transfers, purchases, direct loans, and interest coverage buy us? Exactly what they were designed to buy: a shitload of higher education.


(Note that the change in enrollment rate since 2000 lends support to our original assumption about changes to the quantity of students. 5% growth in participation multiplied by the change in college-aged students isn’t a small change, but it certainly doesn’t explain a nearly 200% change in price, especially if the supply of schools underwent similar growth.)

Of course, there were side effects, such as the aforementioned increases in tuition. Wherever cheap money appears, businesses built to hoover up those funds tend to follow. When the government and private lenders began making it rain, our institutions of higher education/money management companies with a small educational tax shelter knew the time had come to shut up and take the money.


Now, when non-profit or state-funded schools raise tuition just because they can, that’s not exactly good behavior, but it’s also not the heart of the problem. We can debate whether such institutions are properly preparing students for the workforce, but given the macro circumstances, they’re not doing an unusually awful job. 90% of them are repaying their loans on time and their unemployment rate closely tracks the national average. That’s not cause for celebration, but it also doesn’t scream ‘national crisis.’

For-profit universities, however, are an entirely different story. So different that it seriously damages the all-too-prominent “startups are the best way to disrupt higher ed” narrative. 96% of students enrolled at for-profit colleges take out loans (compared with 57% at private non-profit schools, 48% at public schools, and 13% at community colleges). Unsurprisingly, 30% of for-profit schools draw more than 80% of their revenues from federal loans. It’s no wonder that a number of very smart hedge fund investors (especially value-oriented ones) are long Sallie Mae.

And what has all that money bought us? Not much it seems. For-profit schools employ ten times as many recruiters as career services counselors, spend 1/4 - 1/8 as much per student on instruction as non-profit schools, and graduate students at 33 - 60% lower rates than non-profit schools. And still, despite all that, students from for-profit institutions graduate with 33 - 50% more loans than students from non-profit despite the fact that the nominal cost of tuition at for-profits is generally far less than that of non-profits. In 2009, the federal government granted some $30B in loans to for-profit colleges, yet half of the students who enrolled in those colleges that year left without a degree or diploma within four months. But it’s hard to get upset about that when you realize that students who graduate from for-profit colleges suffer face higher unemployment rates (27%) than students who drop out (25%). Keep in mind, those rates are nearly three times the national average for college graduates and greater than the unemployment rate for people who have only a high school diploma (23%). You say that higher education needs to be disrupted by for-profit companies; I say that for-profit companies have caused the very problems they claim to solve.

Keep in mind that all this futility is being funded by the federal government. As taxpayers, we should be furious at for-profit educational institutions. The 13% of all higher-ed students who enroll at for-profit schools take out 25% of federal aid dollars and account for 47% of loan defaults. That’s 2 - 3 times the default rate of students enrolled at non-profits.


Despite all this, I do believe that for-profit schools and other forms of alternative education have a significant role to play in our economy. I think this generation’s focus on 4-year degrees to the exclusion of community colleges and vocational programs has been harmful. I also think that not everyone learns best in the traditional academic environment, nor is every subject best taught in lecture format. MOOC, Kahn Academy, and other novel formats offer real promise to a certain segment of learners, and should be encouraged. All that said, I believe that publicly traded educational institutions — and indeed, the idea of building educational companies that generate returns on a venture scale — are generally (but not always) a terrible idea. Educators incentivized by profit aren’t educators so much as manufacturers. In some circumstances (e.g., certain technical trainings), that’s perfectly fine. But in the context of general higher education, the profit motive runs directly counter to the idea of training minds capable of seeing what’s around the bend. To the extent people can find better ways to accomplish that goal, I’m all for it. But that’s not disruption, it’s segmentation and innovation. And if along the way we can retard the profit-seeking “innovators” who’ve led the charge into our latest $500B high-risk credit market, all the better.


All of the images in this post come from SoberLook.com (@SoberLook), whose anonymous author has been pounding the table about the coming student loan crisis for well over a year now. It’s a treasure of a financial blog.