Bankruptcy isn’t pleasant. It’s humiliating. But it exists for a reason.
It allows borrowers to escape from unpayable debts that would otherwise haunt them for the rest of their lives. It also forces lenders to be more responsible about who they lend to and under what terms. And it allows those who act responsibly to NOT be punished for their good behavior.
It’s absurd that student debt isn’t viewed the same as a business loan or a credit card line. If you have the means to service your debt, you pay it. If you don’t, you go to bankruptcy court and hash out a deal. That’s how the system works.
Of course, we could also ask why the federal government is in the business of student loan sharking to begin with.
If universities can judge a student’s character well enough during the admissions process… why can’t they judge their creditworthiness as well? Come to that, why can’t they make the loans themselves?
Harvard has an endowment north of $50 billion. You’re telling me they couldn’t use that nest egg to offer low-interest loans to their students?
Perhaps credit underwriting could be a “context-dependent decision” like allowing on-campus antisemitic bullying!
Unfortunately, forcing universities to operate like businesses – and yes, they area business – isn’t likely to happen in this lifetime.
And in any event, they have a more pressing crisis to deal with.
Cheap federal debt enabled universities to raise their prices faster and higher than regular CPI inflation. But that wasn’t the only contributing factor.
Demographics also played a major part. When you had virtually unlimited new high school graduates fighting for a limited number of slots, rip-you-face-off inflation was inevitable.
My, how the hens have come home to roost now.
College enrollment fell 9% between 2019 and 2023. In the past decade, enrollment has fallen by nearly two million students, as you can see in this chart.
Obviously, the pandemic played a role here. If the costs were ever justified, they certainly became a lot more unjustified when classes went virtual. I’m not so sure I would have been able to maintain my own interest in college, back in the day, had there been no keg parties and I was stuck taking classes from my dorm room.
But the trend here has little to do with the debacle of virtual learning and everything to do with demographics.
There were 4.32 million babies born in 2007… and it’s been falling ever since. By 2012, annual births had dropped by almost 400,000 per year.
Those kids born in 2012 should be just about ready to graduate from college now. And those “missing” 400,000 kids per year go a long way to explaining why enrollment is down.
It doesn’t get better from here.
Births are now clocking in at about 600,000 per year less than their 2007 peaks.
The good news is that campus “safe spaces” will be so much more… spacious…
We can laugh about the university crisis. In the end, life will go on, and if a few second or third-tier colleges close their doors, it’s not going to change much.
The Social Security trust fund is forecast to be fully depleted in about 11 years. As I wrote earlier in December, that puts the government in a sticky situation.
The easiest way out for them is to “means test” and take Social Security away from those of us who “don’t need it…” or to simply inflate the obligations away.
That’s why The Freeport Investor members already have several inflation protection investments in the model portfolio. To discover what they are, plus the other stocks we’re holding in preparation for the November elections, watch this presentation now.
To life, liberty, and the pursuit of wealth…
Charles Sizemore
Chief Investment Officer, The Freeport Navigator
P.S: A Happy New Year to you and yours. As the age of chaos ramps up into the November Presidential elections, The Freeport Society will steadfastly remain your safe haven of reason, integrity, and honesty. Here’s to a prosperous 2024.
