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.