This report just dropped, in mid March 2024. Is a college degree really worth the time, work, and cost in today's world? Obviously, for some careers, you absolutely need a degree. But the number of college grads in the workforce has exploded, and the financial cost of college degrees is higher than ever. There's a drop in enrollment in many colleges now, even at large universities. The whole idea of college is in for some major changes in the next several years. I've been saying this for years, and this issue is now... finally... just starting to make it into the mainstream news.
Let me begin by saying that I have never taken a single college course. I have nothing against college, I just didn't have the money to go to college when I graduated high school, so I took a year off, and then another year. I didn't have a real strong drive for any career that needed a degree when I was 18. My high school friends, who were not BMX guys, were all outdoorsy guys. We all talked about becoming wildlife biologists, because that seemed to be the one career where spending a lot of time out in the mountains seemed possible. But I didn't take that path. BMX freestyle riding soon led me down a different road, and college never happened for me. It just wasn't my path, I don't hate colleges in general.
That said, back in 2017, I had lunch with a friend in North Carolina, and his friend, who was an American living in Denmark. We talked about all kinds of things, many comparing life in the U.S. to the culture of Denmark and Scandinavia. The subject of college, and student debt came up, and we all wondered why student debt had exploded to the ludicrous amount (then) of $1.3 trillion dollars or so.
When I got back home after that lunch, I was curious, so I looked it up. It took me about 10 or 15 minutes of Google searches to find the answer. From about 2009 on, student loans had been bought and packaged into huge bundles, just like high quality and subprime mortgages had before the Great Recession. It turns out that from 2009 to about 2020 , U.S. public student loans were bundled into SLABS, which stands for Student Loan Asset Backed Securities.
They are virtually identical to the Mortgage Backed Securities (MBS), that helped spark the 2008 financial crisis. Here's the classic Margot Robbie bathtub scene from The Big Short movie, explaining Mortgage Backed Securities. Here's a Linked In article explaining and comparing SLABS and CMBS (Commercial Mortgage Backed Securities). When I looked this up, and discovered that SLABS existed, I had already seen the movie, The Big Short, about the guys who bet against the U.S. housing market in 2008-2009. So I knew what happened when enough people didn't pay their loans, which the MBS or SLABS are made out of. Here's the Jenga Scene from The Big Short, explaining these mortgage bonds, and this whole idea, with the visual metaphor of a tower of Jenga blocks.
After 15 minutes of Google searching in 2017, and finding out about SLABS, I did some very simple thinking. At the time, there were around $1.3 trillion in public student loan debt. After the collapse of subprime mortgages in 2008, regulators came down on Wall Street for the Mortgage Backed Securities made out of subprime loans (loans where people didn't really qualify). So Wall street financiers just took the same idea, and did it with student loans. They made tons of money on fees for making the SLABS, and selling the various levels of investments created from the SLABS. They needed lots of new student loans, so the loan brokers had major motivation to make lots of student loans, regardless of whether the students could really afford to pay back the loans or not.
After all, people are not allowed to get out of their student loans, even if they go bankrupt. So the amount of student loans exploded from 2009 until 2020 or 2021. Wall Street also bundled, made bonds, and sold investments, made out of commercial mortgages, like those on office buildings (Commercial Mortgage Backed Securities-CMBS), business loans (Collateralized Loan Obligations-CLO's), and even auto loans and credit card debt (Asset Backed Securities).
All of those debt bubbles kept growing larger and larger from 2009 until 2020, until the pandemic hit. Guess what's happening right now? Thousands of people and businesses are having trouble paying many of the underlying loans that the SLABS, CMBS, CLO's, and ABS are made from. That means all those investments are falling in value. Some investors, like major banks, hedge funds, pension funds, and other institutional investors, own those investments that have dropped in value. The rise in interest rates over the last two years made this even worse.
Go back and watch that Jenga Scene from The Big Short again. That is what is happening to all of these investments right now, in 2024. Commercial Real Estate (CRE) is the biggest worry right now for regional banks, but all of these debt bubbles could crash. That's where we are right now. But now there's another $400 billion in student loan debt, it's over $1.7 trillion now, far more than the $1.3 trillion in subprime loans that collapsed the economy back in 2008. The other debt bubbles add up to hundreds of billions of more debt.
Way back in 2017, I started thinking about this, and concluded that there would be a huge crash in the student loan SLABS system at some point. The easy financing provided by those SLABS led to much more money going to colleges and universities, which is part of the reason tuition could increase so much from 2009-2020. My thinking, back in 2017, was that when the SLABS market crashes, it would cut the number of people who could get student loans, and therefore, there would be far fewer people who could afford to go to college. Here's a blog post, from November 2017 where I mentioned the student debt issue, commenting on a Rolling Stone article about the huge debt burden student loan debt poses.
I began to see a College Apocalypse coming in the 2020's because of the inevitable (as I saw it), collapse of the student loan financing system. When financing collapsed, far fewer people would be able to go to college, enrollment would drop, and colleges and universities would begin to struggle financially. My belief in a coming College Apocalypse was tied entirely to the economics of student loans and the SLABS system, regardless of other factors.
Later on, I dug into this idea more, and found that many small colleges had been closing down since about 2000. Around 100 small colleges have already closed down since then, or merged with other schools. Then I learned that there's also a demographic issue with young people. Fewer families had kids after the Great Recession of 2007-2009. That turned into a drop in the population, and that age group with fewer people will start hitting college age in about 2025. So that's another reason for a drop in enrollment, one that colleges themselves have had an eye on for years now. Oddly, no college seems to have figured out that the SLABS system will eventually crash, as well.
Here's the real kicker, it looks like we are in, or headed into, a serious recession right now (March 2024, as I write this). A deep recession will amplify the economic effects, and speed up the drop in enrollment, due to financial condition of potential students. In a weird bit of synchronicity, the breakdown in the SLABS bubble looks like it will happen right before the demographic wave of fewer students happens. It's like a Perfect Storm of negative events for colleges in the next few years.
I first described my thoughts on the "College Apocalypse," in depth, in my online book/blog, Welcome to Dystopia: The Future is Now, chapter 14, written around March or April of 2020. It's down near the bottom of this post.
My take is that we will see many more small colleges close or merge over the next 5-10 years. We will see major colleges begin to struggle financially, and will likely see closures of some of the less popular campuses in the major systems over the next several years. All in all, I wouldn't be surprised to see 20% to 30% of all college campuses close down. Think about the Retail Apocalypse. We've had somewhere around 30,000 retail stores close down since about 2015. But we still have many brick and mortar stores. The Retail industry had to adapt and re-invent itself, to go forward, and become viable, in the Information Age. The same kind of dynamic is happening now for colleges and universities. The entire college and university system has to re-invent itself, to become viable and functional, in the emerging Information Age. That means a lot of change to come, and less school campuses overall as time goes on. A driver to much more online courses seems to be a huge part of this transition, which has been happening for some time.
I've been waiting for the College Apocalypse to start becoming visible for seven years now, and a couple of articles or news clips mentioned it. But now even Cal State, a major university, is seeing declining enrollment, before the student loans system crashes. Here are several news stories and videos on this subject, most of them from the last year or so.
KPIX: California colleges grapple with drop in enrollment - February 2024
Gen Z is souring on college degrees as a path to success - September 2023
Forbes: The Future of Colleges and Universities - April 2023
Don't go to college: Watch this instead - November 2023
CNBC: Why college is so expensive in America - Spring 2019
Closed Colleges- lists and statistics - March 2024
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