A Higher Education in Compounding

Member Group : Jerry Shenk

Higher education can be a good investment, but for some it isn’t. One “why” is in the math:

Simply explained, “compound interest” means “interest paid on interest earned.” Additional interest earned on the principal amount plus all previously-earned interest increases – compounds – the sum of an asset’s value. The longer an investment compounds, the greater the return.

Compounding is an investor’s friend, but, for borrowers, compounding can be relentless. For example, servicing a 5.8 percent, 30-year mortgage will cost a new homeowner more than twice the principle borrowed. Mortgages make sense for homebuyers who weigh the costs/benefits of ownership and avoid over-commitment. But easy money and borrower carelessness allowed too many mortgages to go “underwater,” resulting in the 2008-09 financial crisis and Great Recession.

Young people who don’t master the concept of compound interest and borrow carelessly can learn that compounding is merciless and debt a slave master.

Most Americans view college as an attractive investment in careers and financial success. But for many indebted graduates — and non-graduates — life has become a nightmare of escalating debt. The cumulative student loan debt bubble currently totals about $1.5 Trillion (women owe most of it), a sum compounding drives ever higher. In one example, a graduate reported that compound interest increased his original student loan debt from $55,000.00 to over $300,000.00.

Debt can destroy the lives of graduates who cannot get well-paying jobs. A significant part of the problem is how poorly institutions are preparing graduates to get such jobs, even as institutional costs have soared.

Tuition rates and fees, especially at public universities, are far too high. Administrative bloat — and the exorbitant salaries, benefits and pensions that go with administration sinecures — are responsible for much of the cost increases. In effect, easy-money student loans and crushing debt are a form of wealth transfer from young people to the adult employees of institutions, many of whom have no direct educational purpose.

An unadvertised policy of many colleges and universities is to attract, keep and indebt as many youngsters as possible. Aware that authorized lenders are not permitted to discriminate among majors having commercial value and those that have none, greedy institutions have cynically established remedial courses for unprepared undergraduates, hollowed out core programs, scrapped prerequisites, inflated grades and encouraged and allowed kids to borrow money for soft degrees in a myriad of “Studies” and other programs that contain little genuine scholarship and few employment opportunities.

Furthermore, American higher education has become an ideological monoculture in which “diversity” of opinion only means differences among progressives. Outside of STEM (science, technology, engineering, math) programs, but increasingly in those, too, there is room only for “scholars” who interpret their work and teaching through the lenses of race, gender and sexual preferences, while employers focus primarily on practical commercial skills.

So, college prospects, until institutions that fail to provide graduates reasonable returns on their investments are forced to bear part or all of the debt burden, do your homework — and invest wisely.