Is higher education the next financial bubble?

Rumors have been circulating over the past few months that higher education is the next financial bubble, and now it looks like it could be bursting. Student and institutional debt has soared into the trillions of dollars, making student debt the number one consumer debt in the nation.  President Obama has called on state governments to invest more in public higher education since state support of public universities is at its lowest (per student) in 25 years. Although public institutions are facing the challenges of slashed budgets, is public high ed too big and too important to fail?

The federal student loans of today are very different from what they used to be. According to The Project on Student Debt, 37 million current and former students owed upwards of $25,000 each in student debt in 2010. And interest is set to double on federally subsidized student loans from 3.4% to 6.8%. And finally, to make matters worse, most students cannot free themselves from excessive debt through bankruptcy thanks to the almost impossible to fulfill “undue hardship” clause of the Bankruptcy Code.

For financial experts, the higher education debt situation looks like a textbook financial bubble: “easy credit, the accumulation of excessive debt, the bubble stops growing, borrowing becomes harder.” And it seems that the nation’s lenders are moving colleges and universities into the second half of the timeline. US Bank recently announced that it “will no longer be offering private student loans” and JPMorgan Chase has stated that it will only continue its lending to established customers. Financial experts are saying that this shift in lending policies is “an early warning that the party is almost over.”

In response to this looming crisis, the Chancellor of UCLA has suggested that “instead of more cuts, we need an emergency plan to rescue and revitalize our public higher education system.”

Posted by: Devon Thorsell

Sources: Huffington Post, Richmond Times- Dispatch, Benzinga

Photo credit Harvard University Building courtesy of flickr user Lori SR

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One Response to Is higher education the next financial bubble?

  1. deaconhayes says:

    I hope it is a bubble that bursts. I think that due to the cheap access to debt more and more people are willing to pay the extremely high tuition fees. If people were not so inclined to borrow money they will have to find other ways to pay for it, like working their way through college. This could potentially drive down tuition cost because less people would be able to go and thus make post-secondary education more affordable.

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