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Eduction; Mathematically Incorrect;

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Good Morning Middle America, your King of Simple News is on the air.

EDUCTION costs are making the news. More correctly, getting the money to pay for higher education is making news as the availability of capital for student loans seems to be drying up. Investors seem to have lost their interest in buying the student loan backed paper.

You see, the federal government doesn’t have any actual money to make student loans, so federal guaranteed lenders such as student loan giant “Sallie Mae” passel up a bunch of loans and put the paper up for auction. To have an auction, three people need to show up, the seller and at least two buyers. Of late, sellers are plentiful and buyers are as scarce as new Starbucks stores.

I’m thinking that the investors have two concerns. One, they know that to get paid back, the student will need not only to get a job, but a better than average job, and two, if the student defaults, the government will have to pay the money back. Either way, Las Vegas seems a better risk.

With education costs literally skyrocketing, while at the same time even white collar jobs are leaving the U.S. in record numbers, what will the younger generation do with their expensive learning’s?

While this article is aimed at higher education, it should not be overlooked that K through 12 costs are accelerating at the same pace. Well beyond that of inflation and income increases. Property taxes are increasing in nearly every state in an effort to support an educational system that has, if nothing else, proven that money spent has little to do with outcome.

Education is a protected subject that is about as touchy to approach as a pet porcupine. That being said, let’s get a couple of things out of the way before we start. Contrary to popular belief, public schools, grants, scholarships, student loans, government paid programs, parent paid programs, deferments, forgiveness programs, and state and federal subsidized institutions of higher learning, all cost real money. In the instance of many students; someone else’s money.

From a pure mathematical standpoint (a subject apparently not offered in college) and considering the current job market and the worsening economic situation, many college educations make no financial sense. Having someone else pay for another’s college education in order to make the education viable from a return on investment standpoint, does not justifiably dismiss the flawed economics.

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Looking at the financial side of this subject from a different standpoint; would you purchase a business whose purchase price was such that it guaranteed an operating loss each and every year? I think not, unless of course, you could get someone else to pay the purchase price and incur all of the losses while you participated only in the profits. Nice work if you can get it.

Americans today have a negative savings rate. As a nation, we spend more than we make. There is evidence that this trend will only get worse. A contributing cause for this dismal fact is that parents, rather than saving for their own retirement, are hopelessly attempting to fund the ever increasing cost of their adult children’s education.

I would be one of the last people to tell you that I don’t believe in education; I certainly do. I believe that every American should be required to be educated to a high degree of proficiency in economics 101 and 8th grade general math before they can legally leave home. This new requirement would near certainly peak the interests of the parents.

America does require a diverse educated populous. We can’t all sit around selling stocks and insurance to one another. People educated in every facet of our once viable economy must return to the work place if we are to have any hope of restoring our economy to even a semblance of its’ former self.

But regardless of all the political and social rhetoric, the cost of any education must make fiscal and economic sense. Currently, it doesn’t.

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But then, there is hope. Should we hang on long enough for Mr. Bernanke’s induced inflation plan to take hold, perhaps we can continue to borrow against our depreciating $40,000 autos or our artificially appreciating mini-mansions, or even against the inflation adjusted declining balances of our retirement accounts. At least for long enough to allow our children to become hopelessly mired in, “The Biggest Lie Ever Believed.”

Wake up Middle America, this darned math thing is becoming a problem.


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Mike Folkerth is the author of "The Biggest Lie Ever Believed" and is not your run-of-the-mill author of finance and economics. The former real estate broker, developer, private real estate fund manager, auctioneer, Alaskan bush pilot, (more...)

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