In my opinion, the bubble is being sustained by federal loans taken by unsuspecting students that would normally not qualify for such loans from private banks. This in a way seems similar to Fannie Mae and Freddie Mac guaranteeing loans in the housing crisis that no private bank would gurantee, but the impact of default on the economy will be far worse. The main difference is that one cannot write off student loans. So, they will stay on your credit forever, restricting a citizen’s borrowing power for life. When enough people have such loans and cannot borrow, it will choke the US economy and put us into a perpetual recession. Normally, recessions go away because bad loans are washed thru the economy thru the bankruptcy mechanism. However, there will be no washing away these loans.
So, when will this bubble burst? just like it always does when interests rates go up, a recession occurs and people can no longer afford to make loan payments. It will be insidious because it will burst slowly, low income people first, middle income later as cost of college keeps going up, but there is no soft landing here, it will burst over a longer period of time. Think Japanese economy which never really recovered because it refused to allow its banks to default.
The solution is an educational campaign explaining to people that it is unsafe to borrow from a loan shark who never forgives a a loan. This shark is worse than the guy who charges slightly higher interest rates, but doesn’t break your legs if you don’t repay him.
??? @perazziman, you are aware that there is a limit on how much in Federal loans that undergrads can take out? Granted, there isn’t a limit for grad degrees.
I do not know all the facts and figures on the loan issue. If the “average” student loan debt for the class of 2015 is $35k (a huge figure IMO for a 22 year old), and 29% had no debt at all, how many thousands, perhaps hundreds of thousands in the 2015 class alone, have debt far exceeding $35k? That lucky 29% with no debt at all must be pulling down the “average” quite substantially.
Edit: I just saw one report estimating there were 2.3 million 2015 college graduates. That’s a ton of kids whose debt would exceed, and perhaps far exceed, the “average” of $35k. And that’s in one graduating year alone. And college is getting even MORE expensive, while salaries are generally remaining stagnant. It’s a very real problem for sure.
"The average college debt for the class of 2015 is $35,000…and that is only for the 71% of the class that has student loans. The other 29%, zippo. "
This states that the $35,000 is average for those who HAVE debt, not of all students, so the 29% aren’t added to the total to get the average. I do think that $35k is a lot of debt for the average graduate. We have no idea how many of those with debt majored in something like engineering where there is a chance of the grad getting a job is good or those who have degrees in fields that don’t pay as well or where there are few jobs. I’m a lot more comfortable with my engineer taking out a student loan than with my art history major doing it.
No, the average debt of $35K reflects only the average of those who had debt. The 29% who had no debt don’t affect the average at all. If you calculated the average debt of ALL 2015 graduates by including those with no debt in the denominator, that would bring the average down to about $24,500, or slightly less than the full 4-year sticker price of COA at an elite private college or university.
Doesn’t the problem have more to do with colleges and universities running enrollments up in departments that can’t sustain the number of graduates produced? I was at a large state university commencement a year or so ago. The parents proudly gave us a copy of the program for that day, listing all the graduates sorted by college and major. I spent most of the rest of ceremony astonished at how many grads there were in Psychology, Advertising, etc. This is a large state school, total enrollment of nearly 50,000. I think they had 5 graduates with mathematics degrees, about 15 with Chemistry degrees, and literally many hundreds with BA or BS in Psychology, Advertising, Political Science. The engineering school had quite a few tech grads, but I remember thinking, what are all these kids going to do for a living? How many advertisers did the area need?
Obviously, there is a problem here. With $1.3T in student debt, yes we have a problem. The generic ‘college education’ is essentially worthless. Too many ‘…ology’ or ‘…studies’ majors clogging up retail minimum wage jobs trying to service debt. Multiple studies indicate reasoning skills have not changed significantly for most in their college years. Yet, the product continues to cost more and have lower value each year.
My suggestions: 1. Require a year off between HS and College, especially for men. Community service, a real job, etc. will provide a better base to value the time in college. 2. Student loans should be underwriitten by the school. This would result in college caring about the outcome of their students and of holding down costs. 3. Fund community colleges to increase vocational education, especially to help local business. This is done well in a few areas, make it more universal. US has this hangup about college and the ‘benefits’ to our society. Somehow, the underemployment and massive student debt is not discussed enough.
Just wondering…How much of the perceived* decrease in the value of a college degree comes from the fact that college education is a much less male-dominated pursuit than in years past. I mean, there’s plenty of evidence that as women move into various fields there’s been a wage-depression effect as employers pay less out for female than male workers, so could the same dynamic be affecting the salary-bump effect (or at least the expectation of what the salary bump would be) of a college degree?
Because I'm not convinced it's really decreasing in value, but posts like #108 make it clear there's a perception out there, at least among some.
There is no “college bubble”. As stated the top colleges and universes turn away on average 4 out of 5 students and some only accept 1 out of 10. Basically, like most anything else, you get what you pay for. Unfortunately we have a growing lack of real quality education in all but the elite schools. We tell high school kids, college is the only way, and as a result many who do not belong dumb down the level of instruction. Don’t take that the wrong way. I refer to the kid that would be happier and make an excellent auto mechanic or a efficient secretary. These top students and their families are not throwing away money. They are not stupid. There is good reason why so many bright students are willing to pay. The answer is there is no substitute for a QUALITY education.
At elite schools you find:
!. You are in the company of the best and brightest and therefore you must apply yourself to the business of education.
2. Your professors are outstanding educators.
3. You learn that you are not as smart as you think you are. In a word you learn humility.
4. Connections.
5. Earning a degree from a elite school opens doors and careers, regardless of the major. e.g. On average philosophy majors score higher on the GRE,GMAT and LMAT than business, engineering and science majors. Google seeks out cross- disciple majors more than a STEM student. The world is changing.
But the traditional areas of study are still there for the taking - or learning -History, Mathematics, Biology, Philosophy, , languages - at non-elite universities, private and public.
The problem may be that many students are now treating four-year colleges like vocational schools.
I’m thinking of a few of the posts I’ve seen here on CC, and in student reviews online, from students complaining about having to take a core curriculum… “It doesn’t have anything to do with my major…” “Why do I have to take writing classes?” It makes me want to ask why they want to go to a 4-year college or university.
If you just want job training, seek a vocational program.
The schools are being treated as job-training centers because a 4-year college degree is now being treated, by some employers, as a high-school degree was 20 years ago. However, I don’t see how this would necessarily “dumb down” the typical university curriculum. But in a tight job market and shaky economy, people are scared, and scared people want a sure thing to success - if I learn this, I will definitely do that. It’s the students themselves who don’t want to major in something like History or French, and who knows if they’ll end up in advertising or insurance, or if they don’t watch it -waiting tables?
And this is where the ROI factor rears it’s head…
But I maintain that the traditional LAS subjects are available at most non-elite colleges and universities, along with qualified faculty to teach them.
All of those things you mentioned, @4hunter, I learned as a literature major at a state school. It’s still listed as a major there.
Hearing these things from students while I walk around the university I work at frustrates me to no end—do they really think they’re not going to need to write in their jobs (or lives, more generally) after college? I mean, yeah, you won’t need to write a 10-page paper on, I don’t know, Romantic-era poetry, but you sure are going to need to do the sort of research that paper showed evidence that you could do, and then synthesize the research you’ve done for others to consume.
And I’m not even a literature professor defending my own turf here—I work with human behavior and numbers. Of course, the students who don’t understand the value of the content of a basic math or stats course boggle my mind still further…
@dfbdfb, one problem is that most college students have never worked in an environment where they can see quality research writing and stats knowledge valued. Most have not had the responsibility to support themselves, much less others. Consequently, most 18-20 year-olds do not have a mental model of the world that fits the world as is.
It won’t burst because student loans are not dischargeable in bankruptcy, and risk-free student loan money is the major inflator of the bubble. If a student later decides the degree is worthless they can’t get out of paying for it as they could with every other consumer item sold on credit (and make no mistake, an education is now - sadly - a consumer item)… This, and the state lottery bonanza, have allowed schools to build up huge administrative infrastructures, and have departments of tenured professors in the humanities areas who’s degrees can only be used to meet the vanishingly small demand for tenure track professors in those same areas. The few cautionary tales in the media about baristas with $250K debt for a “studies” degree are largely ignored.
Disclaimer: My wife works in bankruptcy and both my parents and stepmom are retired tenured professors at large research universities.
Huh??? About 70% of college students take out loans, with an average debt load (for those who borrow) of around $30,000 at graduation. OK, that’s a lot of money, but it’s just a little over 10% of the 4-year sticker price of a top private college or university, the schools with the highest costs. Can you explain how a student’s ability to borrow 10% of the cost of college operates as “the major inflator” of the cost of college? I can see how in principle it could account for 10% of the cost, but what about the other 90%?
And in what sense is it "risk-free’? Student loan debt can drive you into bankruptcy, but it can’t be discharged in bankruptcy, which means you can never get rid of it except by paying it off (or dying, which does discharge the debt). That hardly sounds like a “risk-free” proposition. To the borrower, there’s far less risk in taking on debt that can be discharged in bankruptcy, like a mortgage or credit card debt. Run into financial difficulties, declare bankruptcy, the debt simply goes away and you get a fresh start. Not so student loan debt which can dog you the rest of your life, bankruptcy or not.
What “state lottery bonanza”? Of the 44 states with lotteries, only about half use any portion of their lottery revenue for education. Most of that money goes into K-12 education; nationally, very little goes into public higher education, though that may be different in a small number of states. And even where some lottery revenue goes to higher education, most states have used those lottery revenues to substitute for appropriations from the state’s general fund; legislators see a dedicated stream of lottery revenue as an opportunity to cut back on general fund appropriations to state colleges and universities, so from the schools’ perspective it’s at best a net wash, and in the overwhelming majority of states, state support from all sources (including the lottery as well as general fund appropriations) represents a sharply declining share of total higher education revenue. The net result is that public colleges and universities have less money from the state, not more. This shortfall of state support is the principal driver of tuition increases at public colleges and universities. The “state lottery bonanza” is pure fantasy.
Oh, and I forgot to mention that, even apart from its factual inaccuracy, the “state lottery bonanza” argument doesn’t even make any logical sense. If public colleges and universities were awash in cash from the state lotteries and using that surplus money to “build up huge administrative infrastructures” and support large and obsolete academic departments, how would that drive up tuition? If the “state lottery bonanza” is paying for all that, there should be no additional cost to students. If it’s paid for, it’s paid for; no need to charge for it a second time.