Student loans: the new bubble? (chart)
from Merijn Knibbe
At this moment I’m using the work of Reinhart and Rogoff, “This time is different. Eight centuries of financial folly”.
1. To avoid a common misunderstanding: this book is not just about government debt – it is about how all kinds of debt again and again destabilized entire countries. And about the endemic vulnerability of monetary, debt based economies (no single emerging economy ever escaped a phase of default. Not one.). To quote Reinhart:
“You can’t just focus on a single indicator, you have to look in conjunction. Our book is not about a bubble in housing or a bubble in the equity market. You look at pricing in these markets in conjunction with what is happening with capital inflows and the current account deficit. What is happening in conjunction with indebtedness. When several of these indicators start running off the charts simultaneously, you have a vulnerable situation.”
2. Which gave rise to the next thought: at this moment quite some governments are tinkering with ideas to fund higher education by, in the end, higher student loans. This will add another layer of debt to households, on top of existing layers of mortgages and credit card debts. Might this be the next bubble, as having a degree is not as profitable anymore as it used to be? Can we state that in countries like the UK and the USA investments in education are or will be financed by deficits on the current account? Is a policy which, as in the case of the UK, tries to swap government debt for private debt a ‘bubble in the making’? Should we have a ‘graduate tax’ instead? P.S. – the Dutch experience indicates that students who have a side job up to one day a week actually do better than students who do not have a side job. Which might fund their education (and diminish their loans) in two ways, as they also graduate faster.
Kash Mansori has, by the way, produced a nice graph which shows the relation between housing price inflation and deflation and the USA current account:
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—– look inside —– $5.94 / $20.00
—– look inside —– $4.90 / $8.00
—– look inside —– $15.99
—– look inside —– $5.99 / 12.99
—– look inside —– $5.93 / $12.99
—– look inside —– $4.97 / $9.90
—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
What I want to know is why the cost of higher education keeps rising at the rate it is. How was it that some 40,50,60 years ago, people who wanted to attend college could pay for it without assuming outrageous debt? I had to take on tuition debt in 1983 and graduated with about $10,000 in student loans which took me approximately 12 yrs to pay off. Our oldest daughter will be graduating in May and just told me that her debt will be $60k!! (which made me feel sick when I heard it) Governments should not be tinkering with new ways to fund higher ed until there is some kind of tuition “cost containment.” Someone’s making out like a bandit and it’s certainly not the students.
That’s the bubble…
see also:https://rwer.wordpress.com/2011/09/15/the-cost-of-higher-education-in-the-usa/
“the cost of tuition and fees has more than doubled since 2000. That’s a bigger percentage increase than, well, pretty much anything else”
Higher Education throughout the liberal western democracies is increasingly run as an oligopoly/cartel, and once handed over to the private sector as in the US it acts as a gatekeeper monopolist, trading off access to better jobs/higher income to ramp up prices in the absence of any regulation. As we all know, all markets tend towards oligopoly/monopoly in the absence of regulation – as elite control begins to restrict the market for HE you fairly quickly get a situation where you have elitist monopsonist institutions such as Oxbridge/Ivy League on top, a secondary strata (the Russell Group in the UK, for instance) and then a plethora of stragglers who are trying to find niches where they can and narrowing the range of courses that they offer. As this phase of the market matures (as it is beginning to do in the UK), the elite institutions dominate and can charge more or less what they like since their name-recognition, political influence, commercial contacts and growing dominance in the economic sectors into which their students graduate increasingly guarantee high-strata employment for their students who follow. In a restricted market such as the UK HE sector the secondary universities have the choice of competing in a rigged game, sticking to their own specialized operations or finding more and more students abroad. The stragglers are going to be picked off one by one, particularly if (as seems very likely) increased tuition fees cause a decrease in the numbers of young people willing to make the trade-off between current debt and future high-income employment, something which is increasingly doubtful any way. Long story short, privatization = less departments & less universities, increasing dominance by wealthy, powerful universities => unrestricted fee-charging bearing no resemblance to the private cost of providing the education and having an increasingly deleterious effect on the public good of a better-educated, better-trained population. QED.
Student loans are definitely in a bubble. Student loan just surpassed credit card debt. It’s essential to have a higher education in today’s world, I just wish more students would get science and engineering degrees rather than a useless liberal arts degree.
For several of us simply graduating high school we’ve had a desire of a better potential with a college career whether pursuing a certification of a few types, associates, bachelor’s or getting high hopes of a masters or perhaps Ph.D. Many of us all have likely noticed this prior to at one point or any other which a college education is necessary to move significantly in life and also to have a greater having to pay job. Many of us all give up college because we merely don’t appreciate school, it is hard to emphasis or, in most cases, the cash for college course just are not accessible.:
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