The real estate bubble is a memory, the oil bubble may or may not be finished expanding, the food bubble may just beginning, but no one knows what to make of the education bubble. This is too bad because the aftershocks from the pop will continue to ripple through society for decades to come.
The price we pay for college study has all of the hallmarks of a classic bubble: we fall in love with something and then borrow like crazy to suck up much more than we can afford. 18 year old kids used to be able to work their way through the best colleges waiting tables. Now you need a six-figure income to afford the tuition after taxes. Most kids and their parents borrow and borrow and borrow.
The size of the debt is substantial. The amount the younger generation pays to service the debt is often more than they spend on gas and heat, even after the run up in oil prices. It’s not uncommon for a young graduate to spend $7000 a year or more on the interest charges alone. New doctors can easily be paying $40,000 a year or more just to retire their debt.
The hint of the bubble’s end is already hitting the marketplaces. It used to be easy for high school students to get private loans to pay for the parts of the education not covered by financial aid. Who wouldn’t want to lend money to someone who will be cashing big checks after graduation?
This year though, the bankers turned cautious and everyone started wondering if those big paychecks will be big enough to cover the loans. Increasingly, the banks turned away from the deals and left the job to the US government. Some say that this was a battle over fees because the US government always guaranteed the loans. Perhaps. But rational lenders are closing up shop and that can only be an indication that college diplomas aren’t worth enough to pay off the loans.
The problem is simple enough to diagnose. Just as people bought more house than they could afford to pay off, kids are consuming more education than they can ever afford.
Fixing the problem, though, is hard because education is more important to our self-identity than a steak sandwich or a tank of gas. Skipping college or choosing a cheaper one means making a deeper decision about ourselves and our self-worth than just choosing to eat a Subway sandwich for lunch instead of a three course French meal. Our paranoia about college makes it seem like the suburban homes and the nice cars are kept behind gated walls where only the graduates of socially-acceptable colleges may step foot.
The danger to this kind of dreaming is that it only takes a few signatures on a form to load up on a huge pile of debt. I know one couple of 40 year oldsdoctors. The degrees are impressive and you don’t want to get into a debate with them, but they’re so crippled by the debt that they can’t buy a house. All of their salaries goes directly to the banks.
Mortgaging our future affects all of us. Couples delay children until their student loans are paid off. The middle aged are forced to decide between paying tuition for their kids and supporting their own parents. Colleges skillfully manipulate the politicians into pouring billions into fancy wood-panelled buildings, dubious research projects and outrageous salaries
This might make sense if the education was absolutely essential but the money is increasingly go to waste. The Greatest Generation came back from WWII and flourished with an education in spartan dorms and classes run by real professors.
Today, it’s easy to find college presidents that make more than one million dollars in salary alone. Schools are building fancy libraries and labs that are among the most expensive construction projects in the country. Some schools even talk about building enough dorm rooms so kids don’t need to have roommates.
There may be no easy solution, but one young man recognized this problem in the middle of his freshman year.
“All of my working-class parents’ savings were being spent on my college tuition.” he said recently. “After six months, I couldn’t see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. It was pretty scary at the time, but looking back it was one of the best decisions I ever made.”
That was Steve Jobs describing how he dropped out of college. He didn’t stop learning because he kept reading and studying, but he did stop consuming the education he was told to buy at list price. Taking responsibility for his future made all of the difference.
Society needs to make the same decisions as Steve Jobs. We’re frantically spending all of our parents’ savings on four expensive years of learning because, well, society says we need to get a college degree or we’ll spend our life on a subway grate. It may be pretty scary to imagine a less-educated society, but it would be one of the best decisions we could make for taking a weight off the shoulders of the next generation.
C Davis is the author of Beating the College Bubble: How to Learn What You Need Without the Debt
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