Skip to comments.The Student Debt Bubble Expands As Parents Do More Of The Borrowing
Posted on 07/14/2018 5:05:56 PM PDT by SeekAndFind
Not so long ago, student debt was mostly the responsibility of students. That is, you paid for college with loans and then paid off those loans with the proceeds of the good job you got with an advanced education.
These days its a little different. The cost of higher education is soaring, the jobs available to college grads dont pay as much, relatively speaking, as they used to, and the size of loans available to students though huge dont cover the full cost of many degrees.
One might expect these changes to lead more students to work for a few years and save up, or choose a cheaper degree, or eschew college altogether (as a lot of successful people now recommend) and substitute work experience for a diploma.
Some of that is happening but apparently the biggest change is that parents have stepped in to cover the difference between what their kids can borrow and the cost of a degree. As the chart below illustrates, until just a few years ago, the average debt of students exceeded that of students parents. But post-Great Recession, parents have given up trying to moderate the cost of their kids education and started doing the borrowing themselves. Theyre now taking on the majority of new debts, and the gap is widening dramatically.
Source: Mark Kantrowitz (SavingForCollege.com)
So we can add student loans to the list of instances where people who once tried to control their borrowing have stopped trying and are now just going with the flow. Which means several things.
First, kids who if left to themselves and the market would probably opt for one of the aforementioned cheaper alternatives are still in high-cost, frequently low-reward degree programs, and are being sheltered from the consequences by well-meaning parents.
Second, the retirement crisis that everyone is talking about in which people who have never saved a penny are approaching retirement age and looking at 30 years of abject poverty is being made that much worse by parents taking on new debts at a time of life when they should be aggressively trending towards debt-free/cash-rich.
Third and most important for people who arent participating in this game of financial musical chairs, the eventual implosion of the student loan market i.e., the point at which loan defaults become intolerable will lead to a government bailout, making student loans everyone elses problem.
But of course the government wont raise taxes or otherwise inflict immediate consequences on the electorate. It will borrow the money and create enough new currency to cover the first few years interest, leaving the longer-term consequences for later years and other people.
As with all the other mini-bubbles out there, if student loans were an isolated problem in a sea of rock-solid financial behavior theyd be easily managed. But theyre just one of many time bombs set to explode shortly.
Auto loans, credit cards, underfunded pensions and increasingly mortgages and home equity lines are all heading the same way domestically, while emerging market dollar debt (which dwarfs the US mini-bubbles) is just as precarious internationally.
The question then becomes, how many of these bursting bubbles can the US paper over before the currency markets figure out that each will be followed by another, for as far as the eye can see?
I caught part of a discussion on the local AM station about USC mandating medical insurance either through parents or purchase the university brand for thousands more.
That’s good. Screw the parents. They got money. It’s not like some 22 year old graduate with no collateral.
Excellent information. Very scary for ALL of us, parents or not.
My two attended Tech College. One is a City Planner and the other is an IT Guy. They lived at home while they went to school, drove beater cars, worked and paid as they went. No debt. Good salaries. Not living in my basement!
Younger Sister was coddled by Mom & Dad. She defaulted on her student loans and Mom & Dad picked up the tab. She went to a snotty, private, all-girls college; never has used her teaching degree, she’s never done anything other than Secretarial work. Do you have to ask what political stripe she is? Yeah. I didn’t think so. *SNORT*
I joined the Army and they paid for 90% of my education.
I am 100% debt free and I retired at 56.
It can be done. :)
There’s this thing called cost-benefit analysis.
Too bad it’s illegal to apply it to investing in a college degree.
Send your kids to cheaper schools.
I worked at that screwl of higher learning and no surprise when it comes to greed.
That was probably the second worst job in my professional life.
The phb-ette tried putting the squeeze on just me to donate to various student funds. I threw the forms in the trash. Fatso didn’t like it.
“...and increasingly mortgages and home equity lines...”
Yeehaa...crank up the casa cash machine. It worked so well before...
I think a lot of these kids think if they graduate from an elite university (usually at a cost of 5+ times state schools ) with a “C” average think they will then waltz into a high paid job. Then reality happens.
I’m a 6 class pc fixer out of a tech college that got into a good IT career after some pain and suffering paying the dues.
No student loan debt. Only one real obligation left that should be retired at the end of the year.
Good for you! I bet you’re a fan of Dave Ramsey.
College loans should be based on ‘degree marketable worth’. For instance, a humanities degree would be worth a loan of no more than 20% of that degrees charged cost. A degree in the sciences/math would be worth a loan of 80-100% of costs. At present, colleges/universities are in a win/win situation as they are paid ‘upfront’ whether one achieves their degree or not. Place more burden on said institutions and their interest on your success after graduation should be heightened along with a more ‘competitive cost situation’ for their degrees. As mentioned before, institutions of higher learning should be required to present a cost/benefit ratio analysis to ALL perspective students for their chosen field of study.
"Young man, your parents left you this fully-paid condominium worth $500,000.00. Unfortunately, it will have to be sold to pay off the student loans they took out to finance your bachelor of arts in gender studies. This could have all been yours."
At some point, we are going to care more about qualifications than which school a student went to.
That’s a shame.
one of the things not talked about that is causing the student loan crisis is that a kid at 18 does not have a understanding of debt so they don’t think about taking out loans. that gets combined with parents that are totally irresponsible having there kid take out the student loans to use as free money. they don’t need this money while going to junior college. the money is then spent on everything but education and eventually the kid graduates with a debt that is 2-3 times what it should be and the parents who spent the money walk away saying that it is there debt even though they were the one who pushed the kid into taking the loans so they them selves could get ther money from the kids.
I saw my sister do it to my nieces
I only had one year to go in college. I majored in Black Studies. Just think, I could have been black by now.
Actually, that has been the case for a long time now
I can understand a 20 year old not understanding debt, interest, and amortization. But if their parents are that stupid, I have no sympathy at all.
There’s really an easy formula - the debt for a degree should not exceed what one can reasonably expect to gross during the first year of the first job you can get with that degree.
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