The past several years, as western jobs have migrated overseas and vanished due to technological advancements, more people have continued in school– some for further training and some for lack of direction or ideas about what else to do with their time. Higher-learning institutions enjoyed a huge boom in business as college degrees became as expected as home ownership and apple pie.
While more education sounds like a good idea, there are some definite downsides to recent trends. First, as the credit bubble billowed the same reckless lending packaged through banks backed by government entities, spread through the student loan market. Money was cheap and plentiful. It was easy to get and easy to spend. This meant that students were aided and abetted in self-destruction on credit right out of the gate. It also meant that many parents and grandparents borrowed more than made sense to help fund their kids. They borrowed lots against escalating home prices.
Frequently it meant students could lack fiscal discipline and spend more than they should. Sometimes it meant even those who had no real career path or end goal took vague or questionable courses of study–because they could. Many did not live as frugally as they otherwise would have, without credit. Where they might have lived at home or dorms and used public transit, with easy student loans they were able to rent apartments, drive cars and buy iPhones. This was great for lenders, car companies, for-profit-education providers, even Apple. But coming full-circle, the general economy is now paying the price for these trends as they managed to bring future consumption forward and leave younger and older generations drowning in debt payments.
And of course, while the banks are given the gift of virtually zero borrowing rates from central bankers, student customers are paying back their loans at much higher market rates. Nice spread for the banks. Killer for the kids though. Also killer for the housing market and boomers looking for younger people to buy their over-sized homes from them. The debt overhang will naturally subdue spending and prevent younger buyers from entering the housing market over the next few years. Turns out the education dream is a bit of nightmare when it is fueled by very little critical thought or wisdom and lots of “advisors” on the take.
This Bloomberg clip discusses some of the latest numbers.Here is a direct link.
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Bank wins, public loses.
Bank wins, public loses.
Bank wins, public loses.
I think I see a pattern.
“Higher-learning institutions enjoyed a huge boom in business as college degrees became as expected as home ownership and apple pie.”
I like reading what James Altucher says about college degrees, home ownership and eating after 6 pm. It’s a no on all three accounts.
I feel sorry for the kids. Starting in elementary and especially high school, they’re conditioned to believe that college or university is the path to success. For many, it’s a path to debt, underemployment, and humility. Next time you go to the mall or a restaurant, talk to the person serving you. You’d be surprised how many degree and diploma holders end up working as sales clerks and servers.
Parents need to realize that it’s up to them to help their kids choose their education wisely – and to realize that college / university isn’t the only way for everyone. When they’re young, introduce your kids to organizations like Junior Achievement. Encourage them to start their own small home based business fixing bicycles, flipping stuff on ebay, cutting grass, whatever. As they get older, investigate apprenticeships like auto mechanics and elevator repair that pay you to learn. Take advantage of all the great e-learning resources on the Internet. There are lots of ways to learn how to earn a living that don’t require a huge up-front investment in a degree or diploma. I would recommend parents do this even if their kid has what it takes to be a successful doctor (or anything else that absolutely requires a degree / diploma) as a lot of professionals end up running their own businesses so it would help if they already have some entrepreneurial experience under their belt.
Actually, one more comment if I may. You say that with easy student loans students were able to rent apartments, drive cars and buy iPhones. I have to laugh because over here in Vancouver, there are parents who buy apartments for their university-bound children. The days of renting an apartment while at school is over. I just witnessed a TV show which took place in Toronto called something like My Money/Your Home where two not-very-wealthy immigrant parents go condo shopping for their entitled 18 year old. She of about-to-be-bequeathness bemoans her golden handcuffs. The possibility of stepping out on your own at 18 is not even on the horizon for anyone in the car: mom, dad, kid and certainly not the Realtor (Tee. Ehm.)
Back here in Lotus Land when we went to see a rental two years ago were two 20-something children of one wealthy Chinese father who bought four apartments for this purpose. They were bored with the neighbourhood and incredible views from this 2-bed & den Westside apartment and wanted to move to one of their other ones downtown.
Sometimes when I visit Seattle, I wonder how long it will be before Vancouver families start buying Seattle apartments so their children can cross-border shop safely. I know it will be painful for everyone when this all ends yet in some ways I can’t wait. Top that off with the Real Housewives of Vancouver and I’m ready for the aliens to land and take me to their planet.
No to college degrees as a general principle is nonsense. Higher education is valuable. But if the end goal is to equip oneself to earn a respectable income and career, then what one studies and how much one goes into debt to do so, all impact success.
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I was reading about a US couple recently who declared chapter 7 just to get rid of their debt along with their student loan.
Well, they didn’t plan ahead properly, because they lost a house and pretty much everything, however the US$ 92 thousand student loan debt wasn’t discharged since it doesn’t qualify for it.
Poor fellows, they’re still in the hole, actually even in the bigger one.