The Student Loan Bubble

Heather-closeup-150x150 The Student Loan Bubble

As a recent college graduate, I am considered “lucky” to have finished my four-year degree in, well… four years. I paid the in-state tuition bills as opposed to the ridiculous out-of-state cost that some students incur and I walked away from higher education with ONLY $32,000 in student loans. For me, I would say the tassel was worth the financial hassle, but at what value is the bang actually worth the buck?

It was normal for students attending college in the 1960’s and 1970’s to work a part time job, lease an apartment, and make it to graduation without any debt! Today, this is nearly impossible. Sure, it’s possible – if you delay graduation two or three years later than anticipated, attend a community college, and take the minimum amount of credit hours to be considered a “full-time” student. But who wants to turn down their dream school, graduate three years later than their friends, and begin a career at 22 or 23 years of age? In the end, it may be worth it, but try telling that to your fresh out-of-high school, child or grandchild.

For a non-Ohio resident to attend the Ohio State University, tuition is right around $27,000 and this does not include room and board, textbooks, etc. This $27k price tag costs an out-of-stater 2.7x more than that of an Ohio resident. I personally saved $17,328 a year just by going to a school in my home state. The unfortunate truth is that the cost to go to college is going to continue to rise whether you or choosing an in-state or out-of-state school.

Tuition The Student Loan Bubble

Using the chart above, we find that since 2005, there has been a 29.4% increase in the cost of tuition to attend a public, four-year school. Conversely, household income has only increased by 20% over the past ten years according to the U.S. Census Bureau. While that may not be frightening enough, college tuition has proven itself a force to be reckoned with. In a year when the S&P500 fell -37%, college tuition actually rose during the 2008 financial crisis, at rate of +5.7%.

Interestingly enough, during recessions, college and University enrollment tends to increase. Students who wanted to “take some time off” before heading into undergrad or graduate school, decide to dive in, head-first. Employment opportunities that students turn down to attend college become less in a recession. Students who might otherwise consider dropping out, instead stay in school while waiting for the storm to pass. We are starting to get a clearer picture of where that +5.7% number is coming from.

All of this talk about recession can be a little uncomfortable, sort of like hearing the words “head lice.” We’d really rather avoid both, if possible. While conducting the research for this article, I stumbled upon an interesting description of the 2008 financial crisis (otherwise known as “The Housing Bubble”) on Wikipedia:

“The financial crisis was triggered by a complex interplay of policies that encouraged home ownership, providing easier access to loans for (lending) borrowers, overvaluation of bundled subprime mortgages based on the theory that housing prices would continue to increase…”

Then I thought, how would the excerpt read if we simply played around with some of the words, creating a similar scenario about college tuition that also seems very real:

“The financial crisis was triggered by a complex interplay of policies that encouraged students to attend college if they wanted to be successful, providing easier access to loans with the newly $65.7 Billion Pell Grant administered in 2013, overvaluation of college tuition based on the theory that demand to attend college was going to continue to increase…”

Ladies and gentlemen, we have a College Bubble on our hands. 15% of college graduates are choosing to default on their school loans. College grads are given a six month grace period to secure a job and income before beginning loan repayment and in many cases, this simply isn’t enough time. Not to mention, college loan debt is almost impossible to avoid, even in the case of bankruptcy.

The cost of higher education cannot rise forever, but we shouldn’t hold our breath for the day when we finally see a drop in prices. It is important to be proactive, get a handle on things as early as possible, and start saving for your children and/or grandchildren’s college today. As the old saying goes, “A dollar today is worth more than a dollar tomorrow.”

If you or someone you know has any questions regarding portfolio management, estate planning, or financial planning, please contact me and I’d be happy to confidentially discuss your/their personal situation further.

* Heather Atkins is a finance graduate of the Fisher College of Business at The Ohio State University. She works as a Para-Planner at Libertas Wealth Management Group, Inc., a Fee-Only Registered Investment Advisory (RIA) firm, located in Columbus, Ohio.


Financial advisory services offered through Libertas Wealth Management Group, Inc., a Fee-Only Registered Investment Advisory (RIA) firm. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss.


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