Thursday, October 30, 2008

Do We Need an Education Bailout?

A new Forbes article "The Coming College Bubble?" details the struggles Universities are suffering:

According to a September 2008 study by the National Association of Independent Colleges and Universities, of the 504 member institutions surveyed, one-third said the credit crunch had hurt enrollment, and about a fifth of respondents said they had fewer returning students than expected. Roughly the same number said they had a smaller incoming freshman class than expected.

As can be seen above, the credit turmoil has caused AAA rated securitized student loans to spike 400 bps from historic levels. For students seen as a greater credit threat (i.e. parents have a less income / they go to a less prestigious school), rates are significantly higher. This threatens to turn college into a luxury item.
But while head counts slide, needs rise. Demand for student aid is up, but charitable donations from foundations and individuals will fall during a downturn. Ditto for investment returns. And thanks to tanking tax revenue, federal aid may take a hit, too. Taken together, many independent institutions start to look vulnerable.
Can we really justify 9%+ student loan rates, while we spend trillions bailing out the financial and manufacturing sectors? Increasing the attractiveness of a higher education (i.e. making it more affordable) when our workforce is expected to shrink over the near term from the slowing economy, may be just what the doctor ordered. In other words, why not subsidize college expenses vs. paying out unemployment?