The Student Bubble Loan
Personal Capital, a company focused on wealth management emailed me asking me if I would share my thoughts on the student loan bubble. It is only a matter of time before this implodes and there will be a slight tremor felt.
College is expensive. If you don’t have the privilege of parents who can afford it or given the opportunity to receive a some form of a scholarship then that means borrowing the cash. College might not be for everyone but the ability to spend four years feeding your brain with knowledge before embarking on your career is a privilege that most should take. Yet walking away with hundreds of thousands of dollars in debt is not a sensible approach to beginning your adult life. 70% of undergraduates walk away from college with some kind of debt. That is an insane number.
The expense of college is a combination of many things and I am not sure how they get the prices down but certainly it might help taking the annual funds raised for the bigger and better facility go towards lowering the cost. In the past state budgets would make up for some of the expensive but that is being taken away. Wisconsin just shifted over $300m that went towards University of Wisconsin to build a sports arena so they could cover the debt on the state issued bonds. Yes..that is the type of Governor that Wisconsin voted into power. Princeton has raised enough capital that any kid who can’t afford going there gets to walk out on the other side debt free. Now that is impressive.
When kids take out loans the cost of those loans are utterly ridiculous. Banks and our own federal government are making money on loaning those kids cash. They shouldn’t. That alone would change the endless payments kids have to make after college. What you borrow is not what you borrow but a lot more. Similar to the mortgages that people take out with a kicker on the interest. Borrowing for a home should not be the same thing as borrowing for an education.
I know people who have gone back and renegotiated their debt. At one point some will have to default on their debt and then there will be a few more and at one point I believe there will be a tsunami. The politicians know this is coming because it has become a topic in the Presidential race. There is over a trillion dollars in debt outstanding in college loans and the majority of them are held by the Federal Government. Yes, our government makes money on loaning kids cash to educate themselves. It will be just like the mortgages that were bundled to people who at one point couldn’t afford to pay their debt instead that was debt for the banks. Those people who defaulted on their loans had their homes taken away. You can’t take an education away in fact we should be giving education to everyone and teach people to be better with their finances.
My guess is the federal government will have no choice but to change the system at one point once the tsunami hits. It is probably then that we will begin to look at that overwhelming debt to send kids to college and fix the system. We don’t spend enough on educating kids from K-12 which is ridiculous too. Don’t we want the kids in this country to be highly educated no matter what field they choose as adults? I know I do.