The Education Bubble

Nearly everyone believes in the power of education to transform someone’s life. We as a society in the United States, and for the majority of the western world truly believe “knowledge is power”. We are so obsessed with everyone going to college. High schools are even ranked by the number of students that attend a university after gradutation. However, many people don’t ask the question “is it financially sound to get a college degree”. Because of the massive amounts of student loans being given out and the large increase in the number of degree grating institutions I believe we are approaching another economic downturn because the education bubble is about to pop.

Lets look at the most recent bubble to pop which was the housing market. While there were many aspects that led the housing market to crash I am going to focus on two. The first large aspect of the crash was due to the amount of high risk loans that were given out to people who had no business taking a loan out of that size in the first place. I believe the government is now doing the same mistake with students. The University of Washington’s online website says an instate tuition while living at the Universitystudent-loans of Washington costs $25,948 for the year. Multiply this by four to get your total debts and you’re over 100k in debt to start of your young professional life (assuming you are not working while in college and receive zero grant money). Now while this is not exactly a house payment it is still a large amount for anyone to have to pay off. Most students starting their college endeavors have not had to pay for any sort of service let alone any debts because they have lived with and depended upon their parents their whole life. I would argue that these people are unqualified because they have no previous history of credit and have no business taking out that size of a loan. I also believe it is irresponsible to give out this size of loan without some sort of checks and balances. If we look at the dollar amount for student loans being given out since 2010 it has grown 10x. Obviously this is unsustainable and it has a lot to do with the rising cost of college tuition but many people are not getting declined loans.

Secondly, at the time of the collapse there was increase in homes on the market with demand for homes starting to decline. The result? A sharp drop in housing prices bursting the housing market bubble. We can see something similar happening with colleges. There are so many universities and even online institutions you can get a degree almost anywhere nowadays. However, the number of students entering American college programs in 2016 is about 20.5 million up about 5.2 million from fall of 2000 (about a 25% increase) while the number of degree granting institutions has grown from 4,182 in 2000 to 7,253 in 2013 (a 73% increase)  according to the National Center for Education Statistics. This shows we are creating institutions faster than we adding people to college. Which means when the demand starts to decline we will get a sharp crash in tuition costs and the education bubble will burst.

So what happens next? Well the bubble is going to burst. It is just a matter of time. Afterwards I believe we will see shift of people going back into trade schools to become electricians, mechanics, etc. I have a close friend who never was much of the school type but was always interested in cars. He wasn’t interested in going to a 4 year university so he went to ITT tech and got his mechanics license and specified in Audi’s. He was working after two years for trade school. Now he has been working at the university Audi in downtown Seattle for 3 years, has moved out, paid off his extremely small amount of student loans, makes good money and loves what he does. Now granted this route is not for everyone but once the bubble burst, I believe a rise in trade school educations will take place.

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