October 16, 2008

Did government-subsidized easy access to debt cause a Great College Tuition Bubble, similar to the (Late) Great Housing Bubble?

In other words, did the schools, like homebuilders and realtors, rape the over-leveraged students simply because they could?

And like housing after the credit and buyers went away, will college tuition costs now crash back down to earth?

Steep debt will enslave many college graduates

The near doubling in the cost of a college degree the past decade has produced an explosion in high-priced student loans that could haunt the U.S. economy for years.

While scholarship, grant money and government-backed student loans — whose interest rates are capped — have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 percent.

Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time.


Anonymous said...

YES!!! 35-40K per year for tuition is INSANE!!! Especially for a (probably fun to study) degree that will probably earn $35-40K per YEAR out of college!

My son is off to college in the fall. I told him that he could go to any college to which he could earn a full (or nearly full, if it was good enough) scholarship. After taking Dave Ramsey's class at church, we are committed to having both of our kids graduate from college debt free. Which college they go to will be the result of how hard they study (we homeschool, btw). It looks like my son will be accomplishing just that, probably earning nearly a full-ride at a very good (in-)state university.

Anonymous said...

Speaking of a great college tuition bubble, see http://NoSuckerLeftBehind.blogspot.com

Anonymous said...

yes, but doubt the prices will come down. And why worry? obama is promising college for everyone. If everyone goes to college a 4 year degree will mean what a high school diploma currently does.

Anonymous said...

Why does everyone want to go after 'big oil' (fair enough), but say nothing about 'big education'.

The colleges have been no different than realtors - cheering the rising prices financed by burdening the public with greater debt.

The way to make college or houses more affordable is to MAKE MORE of that thing available.

If the government is going to intervene, at least subsidize the creation of more stuff, rather than encouraging more debt to purchase the dwindling supply.

The banks are screwed, people are wising up to all kinds of debt.

Cutting off college loans will make college cheaper, not less accessible.

Lofty professorial and administrative salaries will just have to come down to earth.

Boo freakin' hoo.

born to lose said...

There will be a huge number of sophomore and juniors in the next 2-3 years that will not be able to finish college because their parents HELOC was cancelled or reduced.

Huge numbers of kids who thought they were going to college but their parents don't have the money.

College tuition rates were so tied to the run up in housing, there's no way we don't see an absolute crash in the old system.

Anonymous said...

That's the next bubble to be popped by the credit crunch.

Anonymous said...

RE: "but say nothing about 'big education'."

just wait till there's a bunch of victims; things will get dicier.

Anonymous said...

What some people did or are doing (if possible right now) is taking out cash advances on their credit cards and paying off their student loans. Then....they file bankruptcy and "poof", in 10 years your FICO score will have recovered and you are out from under your student loans for good. Amazing how you can work the system and Americans are once again left holding the bag.

Anonymous said...

Obviously, the price rises to whatever the purchasers will pay. So give them access to loans and the price will rise to match the maximum they can get.

Now the prices will fall, since people aren't going to be getting those loans.

And the idiot anon who doesn't understand the difference between opportunity to go to college for everyone and everyone actually going.

There are a bunch of countries where citizens can go to college on the government's tab (and then pay them back via extra taxes), hence college is available to everyone - no matter how much they or their parent's earn.

Of course you still need to make the entrance grade. So a medical degree is just as valuable as the one the American student paid a few hundred grand for. As is the engineering degree. The Arts and Literature degree is equally useless, I admit.

Anonymous said...

You are all over it here Keith...My Son entered his first year of college this fall and I told him we got to get him through this debt free. That means going to a local school,staying @ home & working after classes.

What is funny is how they use to say "Start saving now for your kids education". There is no way I could have kept up with the greed displayed in the cost of college...Just the books go up 50% a year and you never use the same one twice.

What a scam...

Anonymous said...

Colleges are run by Obama loving liberals...

look how they love to raise tuition..

good libs... say one thing, shaft the others.

univ have endowments that should make tuition near zero... but they dont' they rather give that money to OBAMA than help students

Anonymous said...

I knew there was a general credit bubble a few years ago when I noticed that many degrees cost so much that it did not make economic sense to pursue them.

These degrees were leading to jobs that did not pay enough to save for retirement and pay back debt. Basically, if you were studying it was for personal satisfaction only.

Anonymous said...

It's such a sorrowful thing to watch a young person become saddled with crippling debt before the age of 20. This is how America chains us to our jobs for a lifetime.

Many schools now approach 50K per year.

Anonymous said...

Also don't forget that Gen X & Y are (mostly) trying to paying off those loans, so "sorry, junior you have no college fund" will be the norm. We will definitely see a lot of the larger systems closing satellites.

Just wait until State U starts accepting the highest bidder--and J6P thinks we have a lot of foreigners "taking away" spots at our universities now!

The bright side is: we might even have employers (assuming there are some) paying for job training and the universities can go back to being for learning something.

Anonymous said...

College is just like every other asset bubble/ industry in Americonned....yes prices are driven by credit availabity.....

...the value of higher education goes down as higher education becomes more and more prevalent...there is very little intrinsic value in this stuff - the value is that which the market grants for being the first to be more educated than your peers (substitute the words "to enter the stock market", "to buy California real estate", ect).

Once everyone is highly educated, the value is diminished vastly...

America's economy is not real folks. And most of the jobs done by college graduates add no real value.....work is not glamourous but rather has real value when it is effective at efficiently acomplishing basic tasks....our complexification will be our downfall.

Anonymous said...

A bachelors degree is the new High School diploma.

Anonymous said...

Student loans have allowed colleges and universities to raise tuition and fees with impunity. Same for books.

Student loans are generally not dischargeable in bankruptcy.

This is the next bubble, but the deflation will be interrupted and resisted by government intervention, just as we are seeing in housing. I like Obama, but he's got the wrong approach on this.

What ever happened to "working your way through college?" I had a partial scholarship to an inexpensive college. My parents could easily afford the balance of my expenses. I was too immature to appreciate what I had been given. Years later I worked days and went to night law school. It was a maturing experience. Today, students don't just borrow for tuition and books, they borrow for living expenses also.

Unknown said...

Anyone notice that McCain's plan to make college more affordable is more student loans. Student loans only make sense if the degree you are seeking will pay you enough to pay back your student loans. I have a degree in engineering, no problem. Someone with a degree in art history is going to be out of luck.

Old man McCain seemed particularly senile last night when it came to his rambling discussion of education. Anyone else notice that he floated a plan to send people straight from the military to classroom without getting those silly teaching credentials.


Anonymous said...

I set the enrollment targets for one of the most reasonably priced and academically sound institutions in America (if you're in-state). I can tell you two things:
1) The cost of delivering an education isn't going up much but the cost of research is out of control. I don't see this stopping unless private industry takes back R&D.

2) Because we're reasonably priced, I see our enrollment skyrocketing, but only because we're taking students away from private schools charging $30K+. I don't think education is recession-proof this time, but working for a state school with low tutiton helps.

Deb said...

The whole generation is going to default. What are they going to do, put them all in jail? There was no way I could afford even in-state costs for my two kids on my single-mother, two-jobs budget. So my kids are going to be VERY in debt when they graduate. Fortunately they are dual citizens, they also hold European nationality. I've told them if they need to, just skip out on those loans and go live in Europe where the US bankers/rapists can't touch them. I feel NO obligation to pay back these absurd loans. When I graduated a VERY EXPENSIVE school one generation ago (in 1980), I was all of $4200/debt (my widowed mother could pay nothing toward my education, either). And that was at 3%! My kids will be in debt at least TEN TIMES that, and at triple or quadruple the interest rate. It's a joke. I look forward to the whole generation saying FUCK YOU.

Anonymous said...

Just wait till O'Bama is in office. All student debt will be forgiven. You read it here first.

Mammoth said...

Was going to post about the obscene price of college textbooks, but another poster beat me to it.

Anonymous said...

I went to college and graduated with 20K in student loans. Pretty good considering it was out-of-state. Pretty bad considering in my parents generation, you could go to school and pay for it with a summer job.

Anonymous said...

Yes, it was rape, of the date-rape or acquaintance rape variety, with the hope of unlimited economic growth and other lies being the analog of GHB or rohypnol slipped into the drink. It's messed up the educational sysytem in so many ways that I can barely begin to guess where the future of education in this country is headed. EducationPANIC, anyone?

Anonymous said...

Absolutely! I've been harping on this debt-laden educational system for twenty years now.

It is clear that the easy access to govt.-backed loans has fueled the 2x increase-over-inflation-rate rise in college education. There is no other explanation for it. I mean, is getting a left-wing indoctrination worth twice the rate of inflation? I think not! :-)... Just another example of how liberals in the educational establishment (that's redundant since they OWN education) have fucked us over.

They screwed us in housing with the CRA and forcing banks to lend to high credit risks -- now a well-established FACT -- and they did it with education by lobbying the govt. for easier credit to penniless students.

Without this easy money, there is no way college costs could increase so much. No Way!

I am convinced that liberalism is nothing more than a death wish for any civilization.

Anonymous said...

I've been putting away $500 per kid per month since each of my 3 kids were born and with today's prices and the BS returns in the market that probably still won't be enough.

My parents put 5 kids through college on a middle class income.
Try doing that today.

For selfish reasons, I would love to see this tuition bubble pop.

Anonymous said...

According to Schiff, yes.

Anonymous said...

amen keith. hearing the talking heads talking about: people need credit. they need to be able to buy cars and houses and go to college.

wtf? no they actually do not. they dont need to be able to buy a house, they can rent!
they dont need to be able to buy a car, they can take the bus or repair their current car or buy a cheap used car.
they dont need to go to college. college is not a right. as great as it sounds that every american goes to college, (un?)fortunately not every job requires a college degree. the future solution of course is just outsource and have illegals do these tasks.

to each of these i thought. no credit for house, great house prices go down. no credit for cars, great people live within their means. no credit for college, great college costs come down.

finally, the people do not need this easy access to credit. the govt needs it. the country needs it as it has become based on consumption.

Once we can get this economy and the GDP off of being about 80% consumption, this country will have hope.

Anonymous said...

State colleges demanding that kinf of money have lost their mission, which is to give all able students a shot at an academic degree.

Anonymous said...

"If everyone goes to college a 4 year degree will mean what a high school diploma currently does."

I agree with you, but I differ slightly. A 4 year degree already means what a high school diploma used to mean.

The reason I say that is because people are realizing college doesn't make you smart. Good managers look more at ability and experience than education.

It's why I have a high school diploma and am in a senior position at 38, equal to a coworker in his 60s with two masters degrees. Actually I think the college boy is going to get demoted or even fired. He has a bad attitude and just doesn't get how to do his job. So what good did college do him?

Anonymous said...

i'm sure there is a price to earnings ratio for education.
i think we will be seeing fewer communications majors.

Anonymous said...




Anonymous said...

Wow, when I was going to UC in the 90s it was about 12K per year. Massive massive bubble in college education. How are these people going to get loans? He he...

Anonymous said...

Another example of the hate towards children.

Anonymous said...

"What some people did or are doing (if possible right now) is taking out cash advances on their credit cards and paying off their student loans."

Do you know anyone who has actually done this? Does it work?

I have mentioned this to several colleagues, but it was generally regarded as a hare-brained idea.

If I had 200K in student loans like some of my newly minted coworkers, I would do it in a second, especially now with the banks getting bailed out and such.

F*ck them, the people getting bailouts and all the rest of you getting your stimulus checks and other government assistance - I am tired of pulling your fat asses.

Anonymous said...

I hope it comes down. If the schools get as desperate as the homebuilders, I could get my MBA for 5K vs 20K per year. That would be great!!!!

Anonymous said...

"My Son entered his first year of college this fall and I told him we got to get him through this debt free. That means going to a local school,staying @ home & working after classes"

Forget it, if he's not in a pharmacy or premed->MD 6 yr program, a.k.a. guaranteed great paying job upon graduation.

Here's what you need to do...


~$6K USD for the whole program (not including exam fees).

It's the best undergraduate program (LSE curricula) outside of the residential Oxbridge, Imperial, and LSE, in England. The whole thing is distance education and has been around since the days of the overseas British Empire, not a Phoenix Univ scam of yesterday. Yes, it's a brand name school so it can be used to impress the admissions committees of US graduate programs.

Trust me, you'll need to save the money because most college graduates will need to be attending business (like Wharton) or law down the road when the normal BA jobs are offshored.

Anonymous said...

a population bubble, along with an aggressive building campaign, caused my alma matter's costs to go up dramatically.

one evening, when the university called to ask for a donation, i flat told the student i could not donate any more money until the cost of tuition fell.

will give some credit when it's due: an ever increasing amount of tuition is picking up more of the education costs - nearly 60% of $37,000.00 covers the cost of a full year's tuition (room and board not included) per the last president's report. Sheeesh.

figured the other day that if my tuition (way back to mid 1980's prices) were invested in Berkshire Hathaway instead of college, I would not have to work (am in my late, way late, 30's) now. oh, the opportunity costs.

college is a waste unless one intends to enter one of the professions. and then, most professions (like CPA), require the equivalent of a master's degree anyway.

why did the 'Regan Revolution' stop at the door of only the blue collar workers?

Anonymous said...

The good news is you dont need a college degree at WallyWorld, just a blue vest, and not at McDonalds either. The bad news is that they have suspended $300,000 McMansion loans for those workers since this summer.

Anonymous said...

Absolutely...you are right on the mark. But with all the bailouts going on, why should they be motivated to lower tuition? They'll just beg the government to buy up all their "illiquid assets" (unfilled enrollment slots) and presto chango, problem solved.

Anonymous said...

Absolutely - it's all about "P/E". I'm going to date myself but when I attended college in the early '70s tuition (private univ.) was about $3500/year and a starting salary for an engineer was around $12,000/year - say 3-4 to 1. That same school today (in PA.) charges tuition of ....around $42,000. The same "P/E" would argue for a starting salary of at least $120,000. As if.
I forced my kids to stay home, go locally and they've got jobs and are doing fine. So much for the cachet of private universities. Besides - growing food will be the most important skill anyway.

Mammoth said...

Natural Eyebrows asks, “What ever happened to "working your way through college?”
Man, I remember pushing grocery carts out in the -24°F FREEZING f*cking cold weather in eastern Washington back in my college days!

And then going home to study those nearly incomprehensive Engineering textbooks ‘til 1:00 am before calling it a day, and then getting up for class at 6:30 the next morning.

Thanks to working my way through school, I graduated with ‘only’ $25,000 debt instead of $50,000 debt. Paid it off in 10 years.

Today’s college students can probably reduce their college debt to a paltry $50,000 if they work while going to school. Good luck!


blogger said...

I've got a feeling today's college grads on a whole are intellectually equal to the high school grads of a generation or two ago.

When everyone can go to college, the mean drops. When everyone has to go to college to get a crap job, then the ROI drops. And when kids aren't pushed by their parents, and aren't motivated to do the hard work, then they fall behind.

Meanwhile, US colleges raped students because students and their HELOC parents got easy access to debt. Costs didn't go up organically. No, the schools saw students able to borrow more, so they raped them.

Meanwhile, the students don't take college anywhere near as seriously as past generations.

So what will this produce? College grads with $100k in debt with no chance to compete in the global marketplace. They'll expect $80,000 out of school, when grads from overseas will work for $5,000, and those grads will be smarter and better trained.

America has great schools, but the great, hungry and hard working students are increasingly not American. And the lazy American students, saddled with debt and possessing inferior intellects, are gonna be toast.

Anonymous said...

I graduated college in 1989 Bachelor of Science Degree in Accounting. While in college I worked part time in the President's office. I was given the job of calling other colleges to find out what their tuition/room/board was going to be the following year. When I asked why we needed this information, I was told so that our college would then know how much to raise our tuition the following year. So, college tuition was not a function of accounting figuring out how much teachers, physical plant, etc cost, but how much the other colleges in the area charged.

Anonymous said...

As someone who recently graduated from college, I can tell you that it's grossly overpriced. There are too many college grads, not too few, and most people who graduated in the last 30 years don't seem to be qualified to work at many of the jobs requiring a college degree. It's funny when you find engineers who can't do basic math or accountants who can't manage their personal finances. I can agree that there is a huge tuition bubble, probably much bigger in proportion than RE.

I think total college costs at most universities is maybe worth $500 - $2000 per year tops.

Anonymous said...

I guess I actually went the good route!

In 1984, tuition, room, and board at Iowa State University was $10,000 FOR FOUR YEARS! My parents couldn't afford it, and my guidance counselor was clueless, so I joined the US Air Force.

I started off as a Korean Linguist (got lots of free school and training for that, and I still know the language... great for arguing with my wife or chewing out my kids in public ;) ), after which I cross-trained into computer programming, which I really wanted to do.

After cross-training, I took my USAF training, college credits, CLEP test (all free in the military) to a college guidance counselor at the education center, and I was told I was only two years away (2 classes per 8 week semester) from a BS degree! Wanting to finish as quickly as possible, I took that route, and finished up in 18 more months. I worked in the computer lab in the evenings after work and when I wasn't taking classes.

I'm guessing the total tab out of my own pocket (after reselling books, working in the lab, tuition assistance from the USAF, etc) was between $1,000 - $1,500 ! For a BS in Computer Science! That, plus my military experience helped me quickly work my way up to a fairly comfortable living (supporting wife and two kids) today. I spent a total of 10 years in, then I got out to try my hand in the private sector.

The military has even better programs for education today, and the work experience, discipline, and expanded world-view you get are all very beneficial in the "real world."

I recommend this route to a lot of kids, but most are too "scared of dying in Iraq or Afghanistan."

As someone once said, "The only thing worse than having nothing worth living for is having nothing worth dying for."

Anonymous said...

What all you belly achers about the Gov't helping pay the cost of college are forgetting -- It costs somewhere around $50K per year to house one inmate in California. Oh yeah, now there's a college we should fund!

Seriously, which would benefit us more, paying to lock up pot smokers for the same price as paying for college?

Not even a close question. America needs to stop all of its stupid wars, including the war on drugs. What a waste of people and money.

But the do gooders, rrr's (religious right retards) never get that they are simply mean-spirited talibans hiding out claiming to be superior.

Anonymous said...

That actually is one of the more ironic things: you're made a debt slave to get "credentials" to get a job that's supposed to free you from debt serfdom.

I didn't go to a 4 year college, I did the Community College thing and have an associates.
My friends all have $30K+ to still pay back, and we're all pushing 30 now.

I got damn lucky and got a steelworker job. Yes, I do work my ass off in the freezing cold and blistering heat, but I now make over $75K, a whole $35K over my highest earning friend.

No foresight, just some dumb luck. But if I was able to do it, it woulda been nice to see my friends do it too, and not have so damn much to pay back.

Anonymous said...

"... did the schools, like homebuilders and realtors, rape the over-leveraged students simply because they could?"

Yes, and a lot of them will make less, after adjusted for their debt burden, compared to non-college graduates.

Anonymous said...

But the do gooders, rrr's (religious right retards) never get that they are simply mean-spirited talibans hiding out claiming to be superior.

Hey, genius... a "religious right retard" here...

"Talibans" would be a double-plural, since "Taliban" means "students" in Pashto.

Besides, I don't believe that we should be incarcerating people who get caught using recreational drugs. I think we should be fining them.

Now the pushers and users of the heavy stuff, it can be argued that they are a danger to society and themselves, and should be locked up.

Anonymous said...

I am a physician who regularly reads this blog. I have long wondered how colleges can continue to charge what they do. In my case, I was lucky to go to an inexpensive state college (no debt at all) followed by an expensive medical school (~$150K for 4 yrs). While my interest rate and actually per month cost is incredibly low, I can't imagine how much I would owe if I also borrowed for undergrad too (and I know some MD's who have). How many qualified people avoid a medical career just for this reason?
Frankly, I think that undergraduate and graduate schools are too long anyway- I can hardly remember all the crap BS extracurricular classes I took in college. Did I really need music theory? No, I took it because it filled a requirement and I had played an instrument before (and therefore did not have to study a single minute for the class).

I have sometimes proposed to colleagues I know who are in SERIOUS debt (300-400K) how they would feel about the government paying for their education (ie no loans) is exchange for maybe a 25-30% cut in their ultimate salary (avg MD salary ~ $150K). Most would take it.