Friday, August 14, 2009

Thoughts About The Education Bubble

As people crow about Pittsburgh's bulletproof economy built around "Eds & Meds", (we are still losing jobs) It might be good to take a hard look at how well these "industries" really are doing and the danger our dependence on them might mean.

Of course, people need to go to school and people need healthcare, but the fact is that people need a lot of things and what matters most in a truly sustainable economy is the balance between current consumption and future investment. The heart is important and so is the brain, liver and stomach but when one grows out of all proportion to all the others---you might have cancer.

An article on The Examiner tells the harsh truth

"As usual, the numbers tell the whole story. According to the College Board in early 2009, total student loan borrowing more than doubled between 1998 and 2008. The numbers are staggering. We're talking about $85 billion in loans, as compared to $41 billion ten years ago.

Privately funded student loans have risen, too, from 7% in 1998 to 23% of all student loans in 2008. It makes for quite a brew for cash-strapped Americans this year, who are already saddled with unemployment and loss of income. Sallie Mae, for example, had a delinquency rate of 9.4% in Q3 2008, as compared to a rate of 8.5% just a year earlier.I'm willing to bet that rate gaps higher as the months go by.

The student loan market has been, is, and will be riddled with trouble. Expect higher default rates, as students can't pay back these loans."

Even more disturbing is that the real explosion of college costs have not been fully felt by people(which is why they exploded in the first place) because of government loans and subsidies. As that well runs dry-the reality will hit like a rock and real hard cost cuts and college closings will begin.

1 comment:

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