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The Roundup May 12

Higher education continues its slide into oblivion, but, believe it or not, that spells real opportunity.

Even before the recession, money was tight on many campuses. From 2000 to 2008, state aid to public colleges nationwide fell from $7,800 a student to just over $7,000, according to the group State Higher Education Executive Officers. (That number is inflation-adjusted for the rising price of running a college.)

The drop looks worse if you consider what happened for the competition. Top private universities, propped up by high tuitions, big endowments, and donations, were poaching some of the best faculty from flagship public schools . . . Now top private schools spend almost twice as much per student on instruction as top publics. . . .

There is a basic supply-and-demand problem. The demand is self-explanatory: Despite the squeeze, the best state colleges still offer terrific academics (and often a great football team to boot). They give students the chance to rub shoulders with faculty and researchers on par or close to those at the Ivies, where the great minds are gated off from all but about 10% of a largely privileged, high-caliber applicant pool.

(“The trouble with public colleges,” Money, May 11) Perhaps the single greatest problem with both public and private universities . . . and source of opportunity for entrepreneurs . . . is that they think like separate institutions. And every business that profits from them (profits wildly, I might add — take the example of Elsevier) does so by treating them as just a discrete set of clients. As budgets become smaller, staff becomes more spread out, and students more desperate to meet rising costs, there’s a real opportunity for entrepreneurs who can figure out how to use the power of the entire system of higher education to corner the market in instructional materials, textbooks, information technology, and so on.

Remember Wamu’s last ad campaign, the “Woo-hoo”! thing? Well, now that Wamu is Chase, if you’re a small business, the new slogan is “Eff-yoo!”

JPMorgan Chase (JPM) suspended credit lines for a large number of business owners. According to someone familiar with the matter, the move affected thousands of businesses. They had been clients of Washington Mutual before Chase bought the ailing bank in September 2008.

(“Snipping Credit Lines for Small Businesses,” Business Week, May 7) For business owners, losing a line of credit means that all outstanding balances must be paid at once, converted into a term loan (which means monthy payments go up since lines of credit can be serviced with interest-only payments), or the small business can default. It’s cold, it’s cruel, and it’s good banking policy. Say you have a $10,000 line of credit with only $500 drawn on it. The bank’s loan exposure is not, as you might think, $500, but the full $10,000 line of credit. If they cancel your line of credit and convert the $500 to a loan, their loan exposure is $500. Instantaneously, they’ve wiped out $9,500 off their loan sheet and improved their capital ratios without raising or collecting one red cent. But, as for the health of small business and the economy as a whole, well, that goes into the toilet.

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