U.S. Student Indebtedness Will Affect Future Wealth Accumulation
While the global financial crisis may be fading from memory, the roots of the next one might already be taking hold. Even though there is no imminent worry about a new global financial crisis, nonetheless there is also little doubt that in some sectors of the advanced economies the debt situation is much larger than it was when the financial bubble burst in 2008.
Over the past ten years, extremely low interest rates in the advanced countries (particularly the United States, Europe, and Canada) made it attractive to take on debt.
Currently, the main concerns focus on three sectors of indebtedness -- student debt in the United States, increased corporate borrowing in the advanced economies, and emerging market country indebtedness.
The financial burden on post-secondary students in the U.S. has increased sharply since the 2008 meltdown. The amount of American student debt currently stands at about $1.5 trillion, more than double the amount which existed ten years ago when the financial crisis hit.
Student debt in the U.S. is now the second-largest category of household debt, after mortgages. Moreover, outstanding student debt is growing faster than money wages, suggesting future problems to come.
What caused the sharp escalation in student borrowing? The financial meltdown played a big role. Public colleges and universities, which were penalized by state government budget cuts, were forced to increase tuition fees.
The drop-in house prices also made it harder for families to tap into their home equity to pay for tuition. As a result, the financial burden shifted to students, who took on heavier debt loads to pay for school.
Roughly 11% of student debt was classified as delinquent last year, representing a substantial increase since 2008.
In July of 2017, the Federal Reserve Bank of New York published a report that examined the link between rising tuition, swelling educational debt and declining home ownership among Millennials.
The study found that 11-35% of the decrease in homeownership among 28-30 persons between 2007 and 2015 was attributable to tuition hikes and increased debt.
“The results suggest that states that increase college costs for current student cohorts can expect to see…weaker spending and wealth accumulation among young consumers in the years to come.” (Echoes of Rising Tuition in Students’ Borrowing, Educational Attainment, and Homeownership in Post-Recession America, July 2017, Number 820)
U.S. Student Indebtedness Will Affect Future Wealth Accumulation (2)
Disclosure: None.
So the question remains :WHY has the price risen that much? I doubt that it is the pay that the teachers are getting, but it may be due to the much larger administrative staff, now that computers can do most of that work. Where I attended there is now a huge student activities building that contributes nothing at all to the education, but it certainly enhances "the college experience", for whatever possible value that may have. I attended to learn a profession to use for a career, if I wanted "an experience" I would go to a concert. Vastly overpriced but cheaper than current college prices.
Good article. I had one published on this subject in 2015 together with an idea to fix it seekingalpha.com/.../3678416-student-loan-property-bonds-will-restore-growth-prosperity The economy got better since but that problem got worse. Whether my idea was workable or not I do not know but something needed to be done and nothing has been.
Would certainly be curious to read an updated version of that article here.
This article points out the very disturbing reality of the huge student debt. I was pay-as-you-go through college and owed nothing when I graduated in 1973. But when I checked on the cost at that school 15 years ago the tuition was 72 times what I paid, and when I graduated the tuition was over twice what it was when I started there 4 years earlier. So the whole thing sounds a whole lot like profiteering in excess. Like Dogbert says: "Because we can."
Yes, college tuition is way up. At the same time the need for a college tuition is way down. It defies logic.
Some of the most successful people of our time never went to college. And companies are starting to realize that actual experience is far more valuable than more education.
Yes, college tuition has exploded over the past 20 years.