Tuesday, September 21, 2010

The Amazing College Debt Bubble

Teaching One Student Costs Only $1,456 A Year?
September 20, 2010
By Andrew Gillen

News that student loan debt, at $830 billion, exceeded credit card debt for the first time has sparked renewed interest in the financing of college and its implications for students. Largely ignored in the discussion, however, is the shadow debt, which consists of unorthodox methods of borrowing for college, including home equity loans and lines of credit, retirement account loans, credit card debt, and run-of-the-mill bank loans. Because these borrowing instruments often have many alternative uses, we have to rely on surveys to determine how much of the total amount borrowed in each category is devoted to paying for college. The most comprehensive such survey is conducted by Sallie Mae and Gallup. Their findings indicate that shadow debt adds just under $30 billion to the annual borrowing for higher education (see this link for more details on the calculation)...

...This heavy debt load is causing much suffering, and whenever there is suffering, it is tempting to blame it on some easily vilified scapegoat. The for-profits seem to be serving that function these days, and while they are by no means blameless, there is plenty of blame to spread around.

First up are students and parents. While earlier generations that paid only a few hundred dollars a semester can perhaps be forgiven for continuing to believe that college is a nearly risk-free decision financially, today's students do not have that luxury. Exploding tuition and the related horror stories about crushing debt loads appear regularly in the media. Yet students and parents largely ignore these warnings. The views that more (formal) education is almost always a good thing and that the loans needed to finance it are "good debt" since it is an investment are both widespread and contribute to the problem. While true to an extent, these views can be and are being carried too far by some, blinding some individuals to the dangers of debt. the rest image by Will Hart


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