For a few years I have been warning that higher education costs have escalated uncontrollably as wages for the masses have flat lined. As with autos and housing, the stop gap that enabled prices to vault well beyond income and productive utility, has been the availability of credit underwritten by the government and often packaged into securities sold by Wall Street.
Not surprisingly, a growing number of students are now defaulting on these loans because they have insufficient income to make the payments. In the process, investors are facing mounting risk in the so called “AAA bonds” that securitized these loans. See: $40 Billion of AAA loans at risk of becoming junk. With $1.3 trillion+ in student loans now outstanding, risk-repricing here is just getting started and the ramifications will be widely felt.
For more insight on how higher education devolved into yet another credit-fueled-price bubble in search of a bust, see: How American universities turned into corporations. You can also watch documentaries like Ivory Tower. Here is a direct video link to the trailer.
Here again, policies and practices that have grossly enriched administrators and corporations running this self-imploding financial model, are leaving our economy weakened in the process, with consumers struggling under crushing debt. Alert to older folks: this is also holding young people back from forming households and starting families, and buying all that expensive real estate that Baby Boomers are hoping to off-load.
The cost of these bad debts is already flowing back onto the taxpayer tab as usual. See: US to forgive at least $108 billion of student debt in coming years.
Another Ponzi-like financial fiasco that ends up enriching a few at the front end of the origination process, at the expense of everything else. These self-destructive models must end. Costs need to move back down in line with incomes to be sustainable. Adding even more debt, to sustain unreasonable prices, only makes the costs even greater in the end.
