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The College Debt Bubble

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Advisers-College-Debt-Graduates-Student-Loans

Our nation has a 1 trillion dollar student college debt bubble. In todays society, college is a necessity. It is more or less “rare” to come across an individual who only received a high school diploma. In the 1960’s the average cost of tuition in the United States was somewhere around $1,500 per year. Today, the average tuition runs anywhere from $20,000 to $70,000 a year.

Until the late 1970’s, there was no such thing as student debt. A summer job was enough to pay for your school tuition. So what happened? Well, it started with funding cuts under Ronald Reagan and the conservatives in the 1980’s by changing higher education from a public good to a private good. The theme was that the public shouldn’t pay for education when you are the one benefiting from it. If you want to gain from it, you should pay for it. Because of that, these Universities starting operating as businesses promoting and expanding their campuses. With an abundant amount of loans from the government to students instead of colleges, colleges started charging what the consumer could bear.

Colleges are businesses, and like all businesses, they have to differentiate themselves in order to create demand. In order for these Universities to create demand, they started building extravagant facilities for their students such as Arizona Universities indoor pool and University of Missouri’s rock wall. These resources obviously aren’t necessary for educational purposes, yet they are crucial for the colleges attendance.

Statistics show that the average salary of a graduate in comparison to someone with a high school diploma is much higher. This gap is continuing to widen, so much so that  in the mid 60’s, the gap between college graduates and high school diplomas had a difference in median annual earnings of $7,500. This means that on average, a

college graduate was only making $7,500 more than a high school graduate a year. Today that gap has widened to $17,000, a big difference compared to 50 years ago. Competition is fierce and the collegiate population is taking up much of the workforce. Why would an employer higher a high school graduate when they could hire a college graduate for the same amount of money?

With such a high tuition, you want to get the most out of your degree. Some of the largest return on investments are in the medical field. A medical doctor with a degree costing nearly $300,000 earns an average starting salary of $150,000. A high price to pay, but a rewarding outcome. Nursing is another great profession for a college student and has one of the highest ROI’s. Someone who wants to pursue the study of  a Licensed Practical Nurse has a degree that costs $28,000, but an average starting salary of $20,000. Both of these degrees would take under 2 1/2 years to pay back with relatively fast return on investment. With this, students are less likely to accrue as much debt as their counterparts.

The same is applicable with colleges. Students that graduate from ivy league or prestige Universities tend to have higher rate of returns. A University such as Stanford costed $236,300 to attend in 2013 however was analyzed to have a 20 years return on investment of $789,500. Another prestige example is the Massachusetts Institute of Technology which costed $233,400 in 2013 and had a 20 year net return on investment of $831,100.

When you pay off debt, you start with paying interest and a small amount of principle. With this, the government makes hundreds of billions of dollars because you

have to pay the interest but not the principle. If you only pay interest and not principle, then the amount of the loan will continually carry over until you start paying interest with principle. Students take out huge loans, not really thinking twice and are unable to pay it back after they graduate.

Degrees are very important, they allow you unlimited potential and connections with alumni. Our economy has been put into great stress though higher education, and because of this huge ditch we dug, the 1 trillion dollars in accrued student loans has the potential to start another economic crash.

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