In these “tough” economic times, where will the US government be forced to open up it’s wallets to save the nation’s crumbling economy:  higher education.

The US just passed a historical “economic stimulus” package that lays the groundwork for socialized medicine, provides under 10% of its funds for states & infrastructure, provides the middle class with an average tax break of $400-$700 for the next two years, and takes great strides in funding and advancing currently-in-place social economic programs. 

But one need not look back more than a year to see two other bailout/stimulus packages that Washington have tried to get the economy back on track.  Is it too early to start thinking about where the next big bailout/stimulus package will impact?  Now, I’m not talking about the second waive of TARP, or the proposed additional financial market bailout…but where’s the next area of the economy that could be on the brink of collapse and require billions and billions of greenback infusions?

This is just a hunch, but keep an eye out on higher education.  Colleges and Universities are typcially propped up by state and federal funds.  Yes, even “private” universities still receive governement funds, so we’re talking about everyone from the lowest of junior/technical colleges to the Ivy League.

In case you haven’t noticed, many states are having economic troubles.  California and Kansas are two glaring examples, where the situation is so dire that paychecks to employees and tax refunds are going to be put on hold for a while.

So as colleges and universities see their statewide funding decrease, they’ll probably look to increase tuition to make up for costs.  But here’s where the house of cards stands to really fall. 

Sallie Mae could potentially be the next Freddie Mac and Fannie Mae.  If you are one of the fortunate people to not have a student loan, Sallie Mae is the government backed loan corporation that foots the bill for federal student loans.  One difference between Sallie and Freddie/Fannie is that student loans are non-bankrupt-able.  That means they’re with you until (a) you pay them off, or (b) you die.

How does this play into everything?  WIth the economy crumbling and colleges and universities seeing their revenues shrink, raising tuition will be one of the main ways to keep afloat.  However, as the economy crumbles, so will people’s ability to pay back their student loans, which could create issues for Sallie Mae in issuing student loans.  So a bad economy will limit people’s ability to pay for college as avenues for student loans shrink due to lack of payments on existing student loans, and rising tuition costs.

In this scenario, colleges and universities will be severely impacted, and then there would be two options.  Either the schools could drastically cut expenses by limiting enrollment and letting go staff, or Washington will step in with another billion dollar program to keep teachers and other faculty employed, as well as strive to make it easier for people to go to college.

With the slippery slope of socialism upon us, it’s not unthinkable that a nationalized higher education system wouldn’t emerge, but I wouldn’t make that leap just yet.  More than likely the government will prop up the universities, and artificially inflate students’ ability to pay for school. 

One interesting side effect of this scenario would be the emergence of a larger class of people in the US that cannot afford to go to school, or refuse to take on the enormous amounts of debt required to get a degree.  The tough economic times would add to this scenario as a student, facing rising tuition, graduates with a degree strangled by $50-100k of student loan debt while entering a profession where jobs are tough to find and don’t pay well.  Making $25-$30k a year after incurring $70k in student loan debt doesn’t make much sense financially, as trying to provide for a family with food, transportation and housing, along with servicing this large debt amount, would prove to be very tough — although highly doable — and many would not like the standard of living necessary to overcome this obstacle.

Now, I’m not saying that I’m in favor or against a higher education bailout (although if you’ve read my previous posts, you probably know that I’m a very FISCALLY CONSERVATIVE individual).  We’ll have that discussion if and when this happens. 

But, I just thought I’d throw out this little thought of mine.  Based on the economic situation we find ourselves in (worst since the early 80s, and potentially –if things get worse by 2-5 times over the next couple of years — worst since the Great Depression), and based on the new political regime in Washington, more bailouts are probably on the way.  Identifying troubled areas, prioritizing our efforts, and making sure that well informed and thought-through decisions are made (not just decisions thought to be bold and swift) will be crucial to the success of our nation.

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