Notes on U.S. College Debt

Lately, I’ve becoming more and more interested in the rapid rise of student related debt in North America. I thought I’d share some of the key notes.

  • All in, students owe over $1 trillion due to college educations. In August 2010, the volume of college related debt exceeded credit card related debt.

  • As shown below, Student debt has grown 511% since 1999. The graph below plots this as red, compared to the housing bubble (blue line).

  • Yes, that blue line really is the housing bubble that triggered a major meltdown.

  • As you can see, the U.S. has gone from around $90bn in student debt (1999) to over $550bn in student debt (2011).

  • The average debt per student on graduation is $23,186, as compared to $13,172 12 years ago.

  • Clearly the intake of students has not increased by 511%; this debt intake becomes much clearer when looking at the average 4-year college cost.

  • This graph stops at 2006, with an average college cost of $120,000.

  • The rather concerning trend line is the average increase in 4 year college education costs (including living), when compared to to the average increase in general goods and services.

  • With rising costs, I was interested in looking at what type of debt students were generally taking.

  • Note that this graph does not account for convenience users.

  • Comparing 2004 to 2008, student Credit Card debt increased on every key metric. At least 30% of college students are putting tuition related expenses on credit cards.

  • Taking a look at samples, Loyola University, North Dakota and Kentucky State have averages of 77%, 85% and 76% of their students paying tuition via loans respectively. Both North Dakota and Kentucky have average tuitions of under $8,000; clearly this is not isolated to high price institutions.

  • Part of this trend is due to students receiving less financial support from parents. Surprisingly, the average family with children in college spends more eating out ($3,102) than supporting education ($2,055).

  • The following graph compares cumulative College Credit to Insurance, Auto, Mortgages and other key financing arenas:

  • As Daniel Indiviglio points out in The Atlantic, mortgages and home equity have increased threefold since 1990, as has household related debt. Meanwhile, student debt has grown six-fold.

Sources: Chart of the Day: Student Loans Have Grown 511% Since 1999, The Atlantic

Let College Students Get Into Debt, The Atlantic

The Debt Crisis at American Colleges, The Atlantic

Student-Loan Debt Surpasses Credit Cards, Wall Street Journal

Students Borrow More Than Ever For College, Wall Street Journal

Student Loan Debt Climbs, Wall Street Journal

Charlie Munger & Lollapaloozas

The Innoculated Investor recently posted a transcription of 39 questions with Charlie Munger. It was a fantastic read, and I’d suggest you take a look.

What is fascinating about Warren & Charlie is their understanding of human behavior, and the understanding of irrationalities or rationalities (depending on your view) that models can’t explain. Charlie goes on to explain how economists, using marginal utility, could not understand why popcorn and drinks are priced so high at theatres relative to their prices.

Charlie calls these situations lollapaloozas, and believes they are best explained by a holistic approach from multiple disciplines vs. an exclusively economic lens. He then goes on to explain to explain many confounding circumstances, such as the failure of Keynesian economics and failed companies, using lollapaloozas. His point is that quite often we get caught following processes, models and logic and fail to think outside of our training.  For example, perhaps Keynesian economics is failing not because the model is ineffective, but because it partly relies on the publics ignorance of economic theory. At a high level, this has changed as a result of recessions and recoveries.

This comes back to a point I often make, and is a key learning from when I was troubleshooting business units: that quite often individuals understand their models, customers and companies, but rarely have an implicit understanding of macro trends. An implicit understand is hard to teach, but increasingly I see companies and executives move in directions and markets they do not implicitly understand (‘China is booming, let’s do business there’.)

I’ve embedded the interview with Charlie below. It is worth the read.

Conversation With Charlie Munger

Forget Acquisitions: Apple Control the Supply Lines

With Apple holding more cash than most companies will generate in revenue, the question often becomes ‘who will they buy’. But Apple make fewer acquisitions than their competitors, and tend to hold the cash (they do generate a healthy return through an investment portfolio), so the question becomes: where does the cash go?

Over on Quora, an anonymous user posted very revealing insights on Apples’ investment activities. The answer: to stay ahead, they over-invest in their supply chain.

New components are not cheap. The upfront capital requirement to build manufacturing plans is huge, and the margins shrink so quickly as technology moves that manufacturers cannot raise capital. According to the anonymous responder, Apple pay a significant portion of the factory construction cost in exchange for exclusive rights to the output for a set period of time, and then for a discount once this period expires.Not only does this allow Apple to come out with new components long before rivals, but these components are impossible to duplicate (think of how long Apple had the touch screen monopoly for).

By the time competitors catch up on component production, Apples’ lower cost period is in play. That means that every time a competitor buys a component, they are potentially overpaying so that the factory can subsidize Apples discount.

Not only does Apple seemingly have a superior software, user experience and a higher price tag, but superior hardware that is sourced more cheaply than competitors. As competition increases and competitors catch up, it will be interesting to see how heavily Apple restrict their supply lines, especially with reports showing that Apple staked a consortium for the winning bid on the remaining Nortel patents.

It reminds me of the military strategy: control the supply lines, and if you must supply your enemy, make sure they pay (see how this is working with Libya and Oil.)

If you want to see the original Quora post, click here.

Speaking at NXNEi

Tomorrow I am speaking at NXNEi with Saul Colt, Steve Hall & Soniya Monga.

Our topic is Mind the Gap: Why Brand Fans Can’t exist without Employee Evangelists with

Helix Hive

Tomorrow is the Helix Innovation Hive day, be sure to come out. I’ll be doing a panel in Innovations in Aerospace, as well as introducing our lunch keynote speaker Peter Aceto, CEO of ING Canada.

Wall Street Journal Launch Wikileaks Killer and Promise to Out You in the Process

Plenty of big news today, such as the Wall Street Journal launching a Wikileaks killer, called ‘Safehouse’.

The WSJ claim that all entries will be reviewed by an Editor, who will decide the correct course of action. It’s only been a matter of time until somebody tries to capitalize on the Wikileaks success, and the WSJ make sense: they have a huge journalistic reach, and the ability shed light on issues where others may not.

But, friends, let’s take the WSJ as an example of how to NOT write a terms of service. A T.O.S. should understand your users, their motivation, and ensure that you are protected without alienating users. When we read the T.O.S. for Safehouse:

“”we reserve the right to disclose any information about you to law enforcement authorities or to a requesting third party, without notice, in order to comply with any applicable laws and/or requests under legal process, to operate our systems properly, to protect the property or rights of Dow Jones or any affiliated companies, and to safeguard the interests of others”

I don’t claim to be a genius, but something tells me this is not an attractive proposition to whistleblowers. Whether you consider whistleblowing ethical or not, clearly the WSJ have stumbled. If they have not alienated their potential user base already with this move, it will only take one execution of this rule to erode any trust they build.

Speaking on a Saturday!

Tomorrow I will be speaking at IEEE Women in Technology: Innovations in Web Technologies with Dr. Cindy Gordon. You know where to find me.

Warren Buffet’s Principles for a Sound Business

We startups often get distracted in our own world, management practices, business models, financial structures, etc. We like to think that the “other side” (big business / the dark side) is totally different and lacks the approaches / insights we have. It’s true that the startup / technology space is unique in many ways, but quite often there are very direct parallels between the most successful big business and the most successful startups (once they become a business, that is.)

Berkshire Hathaway, philosophically, get many things right (and their website is amazing.) I ran across an article the other day in which Warren Buffett listed his 6 guiding principles for building a solid business, in the context of acquisition targets:

  • Large purchases (at least $75 million of pre-tax earnings unless the business will fit into one of our existing units);
  • Demonstrated consistent earning power (future projections are of no interest to us, nor are “turnaround” situations);
  • Businesses earning good returns on equity while employing little or no debt;
  • Management in place (we can’t supply it);
  • Simple businesses (if there’s lots of technology, we won’t understand it); and
  • An offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown.

Source: How Buffett’s Most Recent Big Deals Have Done by Michael J. De La Merced

Why I’m Speaking on Less Panels

Last year I was on a slight tear. I was speaking everywhere, from MARS & Next Media in Toronto to KM World in Washington, and all sorts of places in between. I even made a Speaking page on this blog, which I never formatted, updated once and have not touched since. Contrary to the dusty speaking page I did maintain speaking commitments; though I got more and more selective.

This year I’ve been a little less visible with my speaking. It iss 100% intentional and due to a new rule I’ve self-imposed to curtail my speaking engagements, speak less panels. So, why?

Panels are general

I’m not saying all panels don’t add value. But, I find the incremental value is small.  We each have about 10 minutes of airtime. It’s a difficult tempo to get in when you have a few, 3-5 minute bursts with the microphone. In that time I can provide an opinion, a basic fact and generalize a trend. I understand this type of content is not for everybody, but, let’s be honest here. Most of us web panelists are saying the same thing. That’s gotta stop.

If you are new to an industry, panels are great to get a quick catch up. Most of the faces I see at my panels I’ve seen elsewhere, they are certainly not new.

Planned, Deep Content

One of the things I try and do in a panel is provide value. Because most panels in my industry are becoming general, it’s more and more difficult to do.  I’d rather provide something deep and sustained. What I can’t do on some panels is deep dive into the why’s, hows and intricacies. I like to pull out real numbers, graphs and trends. I like to pause and ensure the audience is caught up, and keep information relevant. The problem is, this is hard to do. Hence, most of my newer engagements are solo or co-presenting.

A little more relevant

Sadly, working with me is like herding a cat. It seems many other panels are too. In response, there are generally two types:

  • Those that go completely off the rails, with speakers spending too long discussing something irrelevant, or who fail to stick within a solid topic scope. It’s hard to keep a panel relevant in these cases; and
  • Those that are overly transactional, where speakers quickly chime in an opinion, give a soundbite and move on. I appreciate what the moderator is trying to do here, namely, avoid no. 1. However, without some personality and fun the panel also becomes ineffective. It’s also important we remain responsive to audience questions.

Either way, both 1. and 2. miss the mark of audience relevance. There needs to be some degree of live changing, but we need to stick within topic.

I barely speak

Yes, this one is absolutely self-promotional, but let’s be fair here. Most panels are solid for branding and don’t necessarily generate sales leads. I love to come and speak / help people out, but if I’m there to brand myself I’m there to brand myself. After welcomes and intro’s, each panelist normally gets about 10 minutes of airtime. I’d much prefer more to drive my branding goals forwards.

We bore the audience

Arguing on panels can be great fun, but it’s rare. Audiences get bored of rapid fire questions and answers. Generally, questions have been pre-prepared for panelists, meaning we are not switching it up live to respond to their mood, or are too busy interacting with each-other to interact with the audience. Additionally, there is always that one speaker who is a distant Vogon relative, spends too long making his points or uses words nobody understand. That person loses us. That’s why I’m preferring to speak solo, where I really can interact.

Panels are not all bad

I’m not bashing all panels. I’ll continue to speak on some, but reject far more than I once did. Sadly, I think we are getting lazier and lazier with events, more names (panelists) draws more audience and nobody has to be rejected. If I feel a panel has been constructed in a way that:

  • Has a narrow enough topic to provide value;
  • Has the right speaker-set to add value;
  • Is constructed in a way to remain fluid with the audience; and
  • The speakers have a chemistry.

Then I may consider it. I’ll continue to speak at these events. The rest, sadly, I will walk away from.