A few people don’t seem to understand exactly what the term bubble means.
It’s hard to say exactly what the intrinsic value of a college education is, but it’s clear that many people are spending much more money on degrees than they’ll ever recover as a result of that degree. Yes, we have a bubble, and it’s going to be very nasty when it bursts.
Let’s keep our heads on here. The average student loan debt is $23,186.
That’s the price of a car, an item which most Americans- college educated or not- will buy and pay off several times in their lifetime. While it’s a good chunk of money, it’s not exactly soul crushing quite yet. I mean, the average consumer manages to rack up over $4,000 in credit card debt on stuff that in many cases won’t improve their earning potential at all. Wouldn’t that debt be a good one to look at first?
I do think we need to reign in tuition- and as someone who realized after graduation that they paid up the nose for piles of facilities I never even used, I do think reducing the “country club” aspect of college life would be a good start. Let’s start looking at what it actually costs to hold classes and maintain the library. Then we can decide who wants to pay to run the pottery co-op, sauna, and dining hall theme night.
I’m pretty sure that average is 1.) Undergraduate only. 2.) Public schools and community colleges only (community colleges drop it down a lot) 3.) Scholarships and grants bring this way down 4.) “Average” debt figures usually only take tuition into account, which is a small part of the actual cost of college.
Also, some people tend to tout “average amount of subsidized loans taken out” as the average number, so I’m not sure if this number you reference, but didn’t cite, is taking private loans into account. Another thing to consider is a lot of people spend 8 years working full time and going to school 3/4 time or half time. This lowers their debt after school, but the actual cost is higher, as they probably paid off half of the debt with their income.
Let’s not confuse average debt with the actual cost of college. Not everybody gets into school with a full ride scholarship, hefty grants, mommy and daddy paying for everything, or are able to work full time while doing it.
For instance, my wife got her Masters with a total debt of like 6k. Her mommy and daddy paid for tuition, gave her money for rent, food and gas. She worked about 10 hours a week as a TA for extra spending money.
Me, I went to college later in life. I had a car loan (which I paid off shortly into college), my parents didn’t contribute anything other than a co-sign on a private student loan. I tried working 40 hours but my grades dropped. I ended up working 25-30 hours, which limited my pay, so I had to supplement my income with extra loans just to eat and have a roof over my head. Needless to say, my student loan debt was more than 10 times my wifes. And probably closer to 3 times the “average.” Yet the government looking at my debt probably only sees the 25k or whatever of subsidized loans I took out from them. They don’t see the other private loans I took out.
ETA: Some of my money issues that came up were probably not something an 18-21 y/o has to deal with a whole lot either. Like no dental insurance and having to get several root canals/crowns, etc. Medical problems that cost a bundle, etc.
And still this hijack where you tell me what I already know is completely and utterly beside the point of the topic.
Yes, this is why I was confused as to why you were trying to teach me about supply and demand. I was indeed speaking of the latter.
Right, and the link I posted to in the OP has some cites regarding the rise in tuition across the board, not just at private universities on a yearly basis. The numbers as presented were kind of shocking to me. The post itself is kind of a polemic and is long-winded, but he’s got cites to sources that are useful.
There’s a big difference between the housing bubble and a possible education bubble.
If you default on your mortgage, you normally lose your home.
If you default on your student loans, they can’t take away your degree.
Can you imagine:
“I used to have a Master’s degree in Electrical Engineering and worked on designing fighter planes for the Air Force, until I defaulted on my student loans and they took my degree away and then they fired me for losing my degree…”
Depends how you look at it. I haven’t looked at the default rate or at how many loan balances actually do end up being written off, whether for death or disability of the borrower or simple inability to pay - I don’t even know that the income contingent repayment plan has been around for 25 years. I do know that I’ve been paying my own loans off faithfully every month, with interest, from when I got my B.A. in 1989 until I started grad school in 1994, and from the end of my post-grad school grace period in 1996 until now, with a forbearance of a few months when I had thousands of dollars in medical debt due to an accident that wasn’t covered by insurance. (And during a forbearance, any interest that I couldn’t pay was capitalized, meaning added back into my principal balance.)
If you want to dig up the balance sheet for Federally guaranteed student loans and their impact on the U.S. Federal budget, knock yourself out.
(P.S. Student loan borrowers are also taxpayers before and/or after they are borrowers, and sometimes also during.)
Yes. However student loans have various payment plans and my understanding is lenders are willing to work with loan holders during rough patches.
Of course, the longer you take to pay off the loan the more interest you have to pay.
Obviously, but what I think is even more significant is if there is a point at which people will simply stop being able to afford college and then there is a massive scaling back of university services in this country.
Not so much with private loans. I am unemployed and cannot find a job in my field, but cannot get a deferment. I can defer my federal loan, but only for six months and the process to get it deferred can take 6 months. Also, I have to be registered with a local job service (I am, state employment agency), but I have to be willing to take any job (not willing to work at McDonalds, for instance- I didn’t get 80k in debt to flip burgers). However, I do apply for all janitorial jobs, entry level jobs and of course, the field I went to college for, IT.
My other loan companies (AES and Chase) say that my loans do not qualify for deferment.
Let me play devil’s advocate here…I don’t think that’s necessarily emblematic of a bubble, though. If I spend $100k getting a degree(s) and my lifetime earnings are only increased by $95k, then I’ve effectively lost $5000 as a result of earning a degree. However, this says nothing about whatever else the degree may be worth.
That’s more applicable if you are the type that is meant for college. Many people go to college purely so that they can get a job, in which case college has no value in and of itself or more specifically has a binary value in that it increases the earnings potential or it doesn’t. Most corporate jobs DO NOT require a degree. We could very easily give people job training in vocations and then provide six month courses. Like get an office worker associates degree, then when you want to move up to Management take management courses, or go get a certification for a particular piece of software that the company uses, or many other options. The four year degree has done two things, reduced standards in High School, and thus the value of a high school education, and put people into debt unecessarily. You do not need a college education to work in Excel and Powerpoint, you just don’t.
However, what college was created for was as a generalist finishing school for people who needed a broader skillset, IE the classical education, which Liberal Arts degrees are a woefully inadequate facsimile of. Too many people major in beer.
But the real question, and this is what makes it a bubble is, “What happens when the earnings potential is demonstrably less than the cost of the debt burden?”, and suddenly people stop going to college? I don’t mean no one goes to college but lets say attendance drops by 5%. Universities across the country are going to have to start cutting programs.
Here’s an interesting topical video I just ran across. Apparently there was a riot resulting in 14 arrests over a 32% hike in tuition at UCLA.
I saw this and thought of this thread too. I think the huge hike is mostly due to California’s budget crisis which would probably be having issues even without the recession.
I see this refrain over and over again on this board which leaves me with one or more of several possible conclusions. That a significant number of people here:
-are not college educated (or not educated at a very good college)
-have never worked in a large company
-have worked in a large company but only in a low level, administrative or relatively unskilled capacity
As I have repeatedly said before, “office worker” is not a job description. Nor is the nebulous “manager” position. Companies hire people to perform particular roles or functions within the company. And those functions generally require people who are educated.
Even if it were true that most jobs don’t require a college degree, it would still be a desireable qualification that would make one candidate stand out over another. Most jobs don’t need military experience or having been the captain of your high school basketball team either. But if an employer is trying to decide from a pool of candidates, they might favor someone who has previous experience demonstrating leadership and discipline.
I don’t know about you, but I didn’t go to college (and grad school) to just get a bullshit job pushing paper around that any monkey can do. And that is the source of the potential problem.
There is a danger, IMHO, if that there are not enough “good” jobs, competition would become so intense that the cost of going to ANY college would become prohibative. You would end up with a very rigid class society where only the best and brightest with the wealthiest parents would go to the good schools. Some would get hired by the nations law firms, management consultancies, investment banks, engineering companies and other high paying prestigeous institutions while a significant number would remain underemployed or unemployed and become disgruntled. And the rest of society would simply “opt out”, unable to afford an education and forced to take whatever menial jobs they can.
I think its small private colleges that face the most risk. The lower tier.
State schools - as long as there are subsidies in place (and most at least benefit from land grants) will remain in demand because they have cost on their side. They are usually large as well and benefit from economies of scale.
The top tier private schools (colleges and universities) - and not just the Harvards, but the good regional private colleges that currently admit a small percentage of their applicants (and here I’ll get regional because I know the regional colleges well) will do fine. Carleton in Northfield Minnesota only admits 10% of its applicants. Macalester in St. Paul 40%. They’d have to see a large drop in applicants to have issues (or see a huge increase in the need for aid that they can’t support through endowments and grants - which is probably more likely.
On the other hand you have the “less intensive” small private colleges. The bill is nearly the same for Augsburg or Gustavus Adolphus, but the admission requirements are much less stringent. They are (around here) seen as the second choice colleges for people who can’t get into Carleton or Mac. Those are the schools likely to face an “enrollment crisis” where they can’t keep enrollment at sustainable levels as people decide that going $100k into debt for a degree in Russian History might not be the best plan for future success.
Can anyone point to a study or studies about why the cost of tuition is rising so quickly?
It is not a bubble at all. It may be a problem, but the cite uses the scare word bubble for no good purpose.
Bubbles happen when the value of assets get overpriced, and when they burst those values go down - stocks, houses, tulips, Beanie Bables. But there is no market for an already granted college degree, and even slots in colleges going begging because of the high prices is not going to change the value in terms of employability of already granted degrees.
The article mentioned that there might be a run of education bankruptcies like medical bankruptcies. The value of education loans might go down if they are not guaranteed. Colleges might see major price resistance. We might even see low prestige, expensive colleges closing. But none of this constitutes a bubble.
msmith537 I didn’t mean to imply that there were no corporate jobs requiring a degree. However, would you argue that many of those job you are talking about could not be serviced just as adequately by more targeted certification programs? Is there something about a ‘liberal arts’ degree that confers something special that rounds you out well for lots of different office type roles?
I have worked in a lot of offices. I do not have a college degree, but I have been a temp in offices, and done IT support for many different types of jobs. I have seen people fresh out of college who really have to learn the stuff almost from scratch. I had this opinion formed when being the Apple IT administrator in a medium sized office and how I wowed people with my mad skills teaching them how to use QuarkXPress, Photoshop or Outlook, which they had gone to school for.
Dangerosa Fair enough.
Hmm, good question. As I undertand it, it’s mainly administrative costs that are rising.