These Debt Slaves are the Government’s Largest Asset Class, and it will Haunt the Economy for Years

“One of the biggest threats to our economic outlook.”

Endless discussions of how important inflation is to the US economy, and how there hasn’t been enough of it in recent years, and how more inflation would be a godsend, has become the standard. The threat of lethal deflation is being brandished to rationalize all kinds of absurd monetary policies. And we know why: inflation is good only for debtors, in an over-indebted country.

But that’s not true either. Because a lot of debtors, particularly those who funded their education with loans, are being strangled by … inflation.

“College Tuition and Fees constitute one of the biggest threats to our economic outlook,” writes Jill Mislinski at Advisor Perspectives, which runs an excellent series of analyses and updates on the topic.

The chart below (by Advisor Perspectives) shows the Consumer Price Index sub-component for college tuition and fees (red line) going back to 1978. It also shows the price increases of autos (blue line) and medical care (purple line), “both of which pale in comparison”:


Mislinski at Advisor Perspectives:

During the decade of the 1990s, when real out-of-pocket funding declined 25%, tuition and fees rose 92%, which sounds substantial … until you compare it to the 1272% across the complete data series. For early boomers (a decade before the time frame in the chart above) paying for college was sort of like buying a car. But in recent decades, it has become more like buying a house, for which the strategy of a minimum down payment is commonplace for first-time buyers.

The annual stair-step rise in college costs seen above is probably the most dramatic visualization of inflation data we routinely produce.

In a separate analysis, Advisor Perspectives today reported on the outstanding student loan balances for the first quarter, based on federal loans to students from the Fed’s Z.1 Financial Accounts of the United States. At $986 billion, the outstanding student loan balances have soared 853% since Q4 2007, when the Great Recession began — because there was never any recession for student loans:


But it’s even worse: This chart only shows data for federal loans to students. It does not include non-federal loans to students. No hard data exists for this. The New York Fed, which tracks household debt and credit via surveys, estimates that, based on its survey results, total student loans from federal and private lenders has reached a record $1.26 trillion. And it considers 11% of the outstanding balance in default!

Which begs the questions, as Advisor Perspectives puts it, “What line item is the largest asset in Uncle Sam’s financial accounts?”

Student Loans. They’re a liability for students and former students, often for decades to come. They crimp their spending behavior, delay home purchases, and trigger credit problems. Even hopelessly indebted student-loan debtors cannot get their student loans discharged in bankruptcy. But these loans are an asset to the other side.

Student loans have ballooned into the largest financial asset category on the balance sheet of the federal government, accounting for 45.7% of total federal financial assets, up from around 17% before the Great Recession, and up from about 9.5% in 2000:


“The student loan bubble, the biggest slice in Uncle Sam’s asset pie, will haunt us for many years to come,” Mislinski writes.

But student loan balances are not going to stop ballooning anytime soon. Why? Because it’s structural. It’s built into the system.

In the US, the price of a college education is determined by educational institutions. The customer (the student) who buys the product generally doesn’t have the money for that product. So they cobble together a support system (the third party): help from mom & dad and other relatives, and to a large extent, financial aid including student loans.

In this system, the seller sets the price based on what third parties can pay. That third party includes the deep pockets of the federal government, which enable these enormous price increases.

Customers are told they must have an education in order to succeed in life. So they can’t easily walk away.

What is lacking is market discipline — the threat that a large number of students (say, 50%) will simply refuse to buy this product unless prices come down. Suddenly, universities would see their “revenues” collapse. They would have to compete based on the cost of tuition and fees. They would have to become more efficient. They would have to produce more with less to bring their costs down. And if they fail to lower their prices enough, year after year, as is happening with TVs and smartphones, their customers would simply not buy.

But that discipline is not built into the system. Instead, tuition and fees get inflated year after year without market resistance. Sure, there are some student protests and the like. And after the police-strength pepper spray dissipates, tuition and fees are raised again.

Universities bear none of the risks. If former students cannot find employment with enough income to pay for this debt, and if they then default, or if this debt is forgiven in some manner, then lenders (mostly the government, and therefore taxpayers) eat the losses, while the university smiles all the way to the bank — when it should be the universities that eat the losses on loans of their former students.

This is inflation of the most pernicious kind that will haunt the US economy for years, and the Fed is blissfully blind to it.

So who is the most impacted? Ah yes, the Millennials. Read…  The Revolt of the Debt Slaves Has Started

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  75 comments for “These Debt Slaves are the Government’s Largest Asset Class, and it will Haunt the Economy for Years

  1. Ptb says:

    I found my bill of sale for my car when I bought it new in 1998. You can still get the car for about the same price. Funny coincidence.

    But I paid $212/qrtr to attend UC in 1983. Now there’s a jump in prices.

  2. EVENT HORIZON says:

    Having attended 9 years of colleges (3 degrees), 7 years of it was a total waste of time and money.

    The first 2 years was mandatory classes in useless nonsense, like “Humanities”, “History”, “Speech”, “Psychology”, “Music Appreciation” and other classes that are hobbies not worth going to college for. Play with those topics on your own, later in life, if you want to waste your time.

    The 4 year concept needs to reduced to 2 years. You go to college to learn WHAT YOUR MAJOR IS. I majored in Chemistry. Why was I FORCED to take these garbage classes which were nothing but propaganda, at best, and useless at worse?

    Get in and get out of college. Better, if you want to be an Architect, go straight to Architect school. Pharmacist? When you leave High School at 18 go to Pharmacy School and be done by the time you are 21.

    The idea of going to college for 4 years is from the 1800’s when one went to get drunk, meet other rich family members, and learn Latin and Greek. Sorry, it is a waste of time today.

    Second, there should be NO LOANS for something like college. It just enables the greedy leftist, socialist, money hungry, Professor class to rip off society with high tuition. My dad went to University of Alabama and worked as a waiter, part time, to pay his entire tuition.

    College today is your typical State sanction, monopoly, greedy money , liberal, socialist, democratic money machine to benefit the lazy professors.

    In the profession I practice today, I could teach each of you, to do what I do, in one month or less. That’s right. 4 weeks. Yet, I had to go for 4 years. It is a rip off. Now, that I am licensed and such, I am glad you all have to spend 4 years since that keeps the numbers of practitioners down, and thus, I can be over-paid for my job. Good for me. Bad for you.

    • nick kelly says:

      Chemistry was my one high school honors subject- the reason: the disciplinarian commuted my one month of detensions to chemistry homework.
      To a minor extent I’ve had the occasional glance at the field- bucky balls were kind of cool. A new huge carbon molecule in the shape of a basket ball- with 72 or something carbon atoms (valence 4) kind of holding hands in a sphere. And it has room for another atom inside!

      Sorry- if you can show a high school grad what you do in 4 weeks- you are doing some minor application of the field. A second year text would be completely incomprehensible to them.

      I do know a guy who went the whole distance- to Ph.D without a break.
      Got hired by CIBA at the age of near 30- for 80K in the 1980’s!

      If I could do my time again I would do Geology where a dose of Chem is
      helpful. But not Chem or Physics ( my No.2) They are way too hard.

      • nick kelly says:

        And better than ALL of the above- ‘get on; with the Fire Department at age 20 something. No post high school education required, no student loan. 95 K after five years in my town, triple average income.

        Dangerous? Not really, but if every time an electrician was electrocuted ( I bought a car from the widow of one) they had a parade, you’d think it was dangerous too.

      • night-train says:

        Nick Kelly: As a geologist, retired, let me say it is a 4.5 to 5 year degree due to the number of hours for the BS. Also because a summer field camp is required for most programs and can usually only be done in Jr. or preferably Sr. year. You also need at least a year of chemistry and physics, computer science, statistics, and math through trig (preferably calculus).

        If you want to be hired by a major oil company, or just to have a good career path, you need a Master’s Degree. That is at best two years of course work and probably an additional year for a thesis (optimistically).

        I worked my way through school for both degrees in the 70s and and early 80s. Took longer that way, but no student debt and during grad school, I was able to work in the O&G industry. I was late out of the box, so to speak, but enjoyed good pay and benefits and was able to retire at 60. And it was a heck of a lot of fun during the boom times. Not so much during the busts.

      • nhz says:

        I was educated as environmental and biochemist (similar to PhD level in the US) and I agree with both of you: no, you can’t learn being a good scientist in a month or even a year, it really takes years.

        But most people who study chemistry are not going to be scientists at all, they do specialist technical work at a big company, advisory work for the government or something completely else. For most of these jobs some insight in chemistry is useful, but 4-6 years of education is a waste of time and money. The same applies to many other university level educations (but of course the institutions will vehemently disagree).

        I didn’t get into science either, there simply were no jobs at the time due to severe recession. Which was good for the upcoming computer/media industry, because they were happy with all those scientifically educated workers ;-)

        I started a computer company and the only thing I learned from my eduction was how to spend my free time (which we had, despite having to work to pay for part of the cost and despite chemistry being one of the harder studies due to lab work etc.). Maybe my other advantage from the education was that my competitors (usually entrepreneurs with relatively little education) never understood what I was doing of going to do next ;-)

    • Silly Me says:

      College is also hidden unemployment.

    • OldCorpsEd says:

      An education as you describe enables you to do a particular job/profession, but nothing more. While I agree with a lot of what you say, I believe that a grounding in History and some other “humanities” is essential in order to be actually educated.

      By and large, a college “education” nowadays doesn’t prepare you for a job/profession, nor does it educate you. It’t the equivalent of less than a grade school education from my time.

      So the price has gone up – radically – while the quality has gone down. Too many people go to college who are incapable of actually getting an “old time education”, so we end up with reduction to the least common denominator. Liberal professors teach you to think their way only, and have little to no grounding in real-world conditions

  3. nick kelly says:

    The hottest field now and for the last 30 years has been computers and their applications. Few of the key pioneers of the micro-computer, Gates, Jobs etc. relied on their university education- Gates, the world’s richest man ( and self- made) dropped out to start MS.
    Even today a new hire in the field (or related) need not have any formal post secondary ed. It doesn’t hurt if the guy is an electrical engineer but what he can do now is more important.
    As for the MBA- I think it plays a large part in the problems of American business, including the bankruptcies of GM and Chrysler.
    By 2007 GM had become a financial engineering outfit with a sideline in autos. Until very recently the degree didn’t exist in Germany (1990’s) or Japan.

  4. nick kelly says:

    Re: student loans. I believe that almost 50% are in arrears or default.
    So I guess the Feds had better mark to market.

    Seriously, this is a repudiation of debt- its never going to be repaid.

  5. Petunia says:

    The govt student loans have payment options that allow forgiveness of portions of the loans. Working as a teacher or other type of govt service job reduces your loan. Some loans are capped by income, and some are retired after 20 years.

    • VegasBob says:

      True. This also means that the “financial assets” listed on the government’s balance sheet include a huge amount of student loan repayments that will never be collected…

    • Wolf Richter says:

      Once the government forgives a student loan, it turns into a wealth transfer from me the taxpayer to the education industry that already got fat off this money. So no, I’m not for it. I’m for forcing universities to EAT the defaulted student loans.

      • rob says:

        amen !

      • Steve Patterson says:

        Federal Government should “freeze” and confiscate university endowments greater than 400 million to pay down universty student loan debt. They should as part of that deal get out of student loan business. 50% plus of schools would fail and the education system which fulfills the needs of our country and economy would rapidly be achieved. I guarantee Gender Studies Departments would be the first to go. What is that anyway and I am an MD?

        • Barryl says:

          I believe the banks and other financial institutions have been getting back-door bailouts from the government. The reason I say this is back around 2009 my wife’s student loans were from one of the big banks and we were paying them just fine and even on track to pay them off very soon but suddenly we get a notice saying the loans have been transferred to Sallie Mae.
          The same with my home loan, paying just fine every month and around 2010 we get a notice informing us the loans is now held by Fannie Mae. We can say the government needs to get out of this or that but the banks are pushing the risk they signed on for to the government.

    • William Bell says:

      Petunia, very, very few people will ever qualify for these “forgiveness” plans. Plus, only loans taken out after 2005 are even looked at, which leaves out the majority of people that need to be in the program in the first place. Also, take into account that over 60% of people in the basic IBR plan (which is not the same as the partial forgiveness plan) have been kicked out for one reason or another, and will ow have to reapply (with new penalty fees added, of course). It’s a rigged system, no doubt about it. The plan is indentured debt servitude.

  6. VegasBob says:

    The 97% inflation figure for new car prices is accurate only if one accepts the accuracy of BLS hedonic adjustments. While it is true that there have been many quality improvements over the years, I suspect that these hedonic adjustments are also used to disguise the true rate of inflation in new car prices.

    For example, the MSRP for the 1974 Ford Mustang I bought in 1974 was about $4,400. Today, the Mustang starts at $24,145, representing a price increase of around 450%, considerably more than the 97% in the graphic.

    • Wolf Richter says:

      In 1976, I bought a 1968 Mustang (289, 3-speed manual, no AC, hand-crank windows, no power steering, etc.), and it was a piece of crap with every problem in the book. It was my first car, and I loved it, but eventually had to dump it because it was so bad.

      Later, I bought a new 1978 Mustang, and it had all the things that the 1968 didn’t have, but it was still a piece of crap, and I hated it.

      And now look at the Mustangs! They’re marvelous pieces of precision engineering compared to the iron we had to make do with at the time.

      • Jim says:

        One way to look at this is that student loans are effectively a direct tax to those willing to accept the obligation (student loan); only in the event of a default does it becomes a general tax. If only 10% of those obligors default, it is a better deal for taxpayers than a Bernienomics free education. If the wars in Afganistan and Iraq were similarly allocated, Oil Companies would have similar levels of “student loans”.

        • Wolf Richter says:

          But it should be universities that pay the price if their education fails (not me). It would motivate them to educate in a way that it works for their students down the road.

        • nick kelly says:

          The Iraq war 2.0 had nothing to do with oil. It was the deranged foreign policy of Bush-Cheney that linked it (incorrectly) to 9/11
          The result was the disintegration of the most secular state in the ME and the natural counter weight to Iran. The whole Isis bit, supposedly Threat 1.0 dates from the creation of this vacuum and the understandable rage of many young Iraqis.

          Iraq 1.0 Desert Storm was justifiable to remove Saddam from Kuwait. But the only reason Saddam thought he could invade was the response of US envoy April Glaspy who, when Saddam said things could get ugly with Kuwait, replied that the US had no interest in inter-Arab conflict.
          The whole foreign policy pre-Obama is like a bi-polar actress- now I love you- now I hate you.

        • William Bell says:

          Unfortunately, Jim, the default rate is currently way, way higher than 10%, and growing at a rapid rate. The system we have is unsustainable. Follow the money to find the root of this problem, then fix it. But we all know that won’t happen, so let’s all just sit back and watch the bubble burst. Somewhat similar to the housing bubble. It’s all leading to nowhere good. Meanwhile Americans are arguing about what to do and either bragging about how they got through college working 3 jobs at a time while eating peanut butter sandwiches for every meal, or every American should have joined the military so they can get their education for free or shaming those that graduated with debt but couldn’t find a job or got sick and defaulted. Same drivel on almost every single student loan debt thread.

      • nick kelly says:

        The 289 motors and 302 were good- rest not so much.
        What was really bad was the handling of some larger Fords.
        The Oct. 87 Popular Mechanics tested the Cadillac Brougham D’Elegance (barf name) and the Lincoln Town Car and tore the ass out of both. In fact at the time I thought a law suit might happen but I guess that would have made even more bad publicity.

        The Lincoln was credited with far better build quality.
        Only one problem: ‘even our professional drivers could not keep the car going in a straight line.’
        A few years later I got to see what they meant- a girl friend got a Granada- ( I flooded the back seat trying to launch a boat) and when I drove it I thought something was wrong with the steering.
        The rear tire pressure was a bit low- this made the car become an early self- driver.
        Fortunately for Ford it had overseas operations where drivers are less demanding of power and WAY more demanding of handling.
        Some of this ended up in Taurus which saved the company, for a while.
        BTW: Ford fans are fond of pointing out that Ford didn’t get a bailout in 2007-8. This was because the company was lucky enough
        in a sense, to be on the verge of bankruptcy BEFORE the Great Recession and did a huge and final re-fi.
        The business alone was not enough to borrow the money, for the first time the factories and land were pledged even the Ford Logo.
        (the latter since redeemed) But no one would have lent them this money once the stuff hit the fan a short time later
        But it seems to have worked- one difference from GM- a world small car, Focus.
        But they will both be in trouble again if oil hits a 100 again and/or this truck thing comes back to reality. I doubt that the mostly newish pickups in my city are running at 1% capacity, the box I mean, the reason for having a truck.

      • interesting says:

        “I found my bill of sale for my car when I bought it new in 1998”

        i bought a brand new convertible IROC in 1989 for a bit less then $30K (yes, back when i had money to burn i guess) and today an IROC cost almost $80K….or even more……just sayin

      • Petunia says:

        I bought a 94 for 20K, had it almost 15 years, not that great of a car. Driving it in bad weather was a life threatening event, too light in the back with severe fishtailing. A great drive in good weather. Not a car for an inexperienced driver.

    • night-train says:

      VB: In 1974 the Mustang was the Mustang II. Mine was a Mach I with a 4 Cyl. engine and a 12 month/36,000 mile warranty. What a complete piece of crap. My 1978 was a little better. But my 1966 was still my favorite.

  7. michael says:

    Any society that would prey upon their children in this way is doomed.

  8. Curious Cat says:

    Health care and education share the same kind of “market failure”. The individual who receives the services is not the one who pays for them. So pricing distortion results. One would think there would be an eventual bubble collapse, but with the government providing much of the funding for both they can go on pretty much as long as the government can.

    • nhz says:

      exactly, but I think we must be reaching the outer limits.

      In my country the cost of healthcare is more than that for education, defense, social security and a couple of other departments combined, probably 40% or so of total budget. The US probably is similar despite its much bigger defense budget. But I guess there is still some room for the healthcare and education complexes to steal money from the future by blowing even bigger bubbles that the tax payers will be bleeding for for many years (in my country this in addition to tax payers bleeding for all the government-guaranteed mortgages).

    • Marty says:

      That is not “market failure.” It’s government intervention. NEVER mistake one for the other!!!

  9. Humpty Dumpty says:

    So when the S hits the economic fan the student loan guarantees go away by an act of Congress. The choices will come and come hard and this one is a no-brainer.

  10. Neilo says:

    Would the idea of paying football(plus other sports) coaches $5m+ per year have anything to do with college fees ?

    • KFritz says:

      Among many other things. Vastly oversized administrations. High salaries for academic superstars (including Krugman and Reich). Luxury accoutrements to compete for students. The entire system/tradition of ‘going away to college.’ Research ‘faculty’ not teaching courses. Etc.

      A number of years ago, Dr. Andrew Weil gave a talk at SF’s Commonwealth Club, and when asked what would fix the US health care ‘system,’ he said, essentially, that given the current situation and public attitudes, it would need to collapse before there could be large scale structural change. IMLTHO, the same is true of ‘higher’ education.

      • Marty says:

        Yes, but here is another aspect that few notice. Most colleges are unowned. They are either state institutions or they are not-for-profit (ja, ja, ja) educational institutions run by trustees, not owners. They are a play ground for various stakeholders who have no accountability to the customer–parents–and no real responsibility for their failures.

    • night-train says:

      Neilo: The football programs cost/benefit depends on the program. Top flight programs make money and pay for most of the other sports at the school. Less successful programs no doubt cost the schools. Big TV contracts pay a lot of the freight. And every time we win a National Championship, enrollment jumps significantly, especially in out-of-state students, as do tuition and fees. Out-of state students pay much higher tuition. Roll Tide!

      Where I have seen unsustainable growth is in the administration. An ever growing number VPs of this and VPs of that, paying $200,000+, in a state that is between 47th and 50th in every metric published.

  11. Merlin says:

    you can look for Billary to add a student loan forgiveness plank to her platform any time now…………

  12. “In this system, the seller sets the price based on what third parties can pay. That third party includes the deep pockets of the federal government, which enable these enormous price increases.”

    I wrote about this a couple of years ago, this is called a ‘Conduit Scheme’. These are sophisticated, large scale frauds wherein the (finance) contributors and the promoters/final recipients work together to take advantage of the conduits — the persons in the middle who are the promoters’ unwitting victims.

    Sticking with this system is a bit like sticking with the Titanic because it has a nice piano bar. Best thing to do is walk away en mass and its false promises and start thinking and acting independently. If enough people step aside the Conduit rackets will unravel. Schemes and bubbles require a constant flow of new funds/credit; conduit schemes require willing recruits. The education racket insists its product has value, how much value can it have when police are cracking heads in its defense?

    • nhz says:

      how can the people who pay for this walk away? They can’t except by not working (officially) at all …

      I don’t think the conduits (the students, or e.g. people consuming towering amounts of medical services) are the victims at all as most of them will never pay for what they consume.

      And I’m not even talking about all those filing as a student just to have a several year vacation with free iPads etc. (don’t know about the US, but in my country this is a serious problem that one is not allowed to talk about). Same as e.g. whole families profiting handsomely from ‘handicapped’ children (handicapped due to ADHD, too much drug use etc.) that offer yearly budgets equivalent to several times the median wage.

  13. NotSoSure says:

    I went back to school over 3 years ago for a Master’s Degree. I was over 30 paying my own way while a lot of my cohorts were obviously taking loans. Now granted that the school that I went to only constitutes a single data point, but there were plenty of Undergrad and Grads who expects their loans to be forgiven. When I asked them how it’s going to happen, they couldn’t give a straight answer. I think “somehow it’s all going to work out” and it pertains not to them paying off the loan. They were pretty clear that the statement means that the loan will be forgiven.

    • nhz says:

      Same story as with mortgages.

      In my country we have 103% mortgages – down from 110% in 2007, and working towards ‘just’ 100% in 2018 or so but homeowner associations are already complaining that it is extremely unfair for new buyers that they would have to pony up e.g. the closing cost in future (= a little less potential revenue for current homeowners). 90% of recent mortgages come with a government-guaranteed free provision against loss: you can never lose money when selling a home because e.g. you have to move or have lost your income. In addition the mortgage payment is deductible from income tax (by far the biggest tax over here).

      Most ‘homeowners’ have no skin in the game and much of their monthly cost is paid by the taxpayers. If housing prices go up they win, if prices go down and they have to sell the taxpayer loses. The whole country is mortgaged to the max so if for any reason there is a significant decline (the last one was around 1980, when rates were over 10% and total mortgage debt was nothing compared to now) people fully expect debt forgiveness for everyone.

      Most homeowners expect that they will live in the home forever paying the current small mortgage fee (effectively 0.5-1.5% due to tax deductions) and never have to pay for the principal. They don’t want to understand how that is possible, ‘somehow it will work out’. And obviously, politics thrives on such stupid ideas.

      A recent poll indicated that 30% of Dutch first home buyers who have significant student debt do not mention that when signing the mortgage. Being honest would be ‘unfair’ to them because they would not get the full mortgage amount. So on top of a 103% mortgage they also have (usually double) load of student debt. I’m sure it will all work out well, we just need more home price and wage inflation, and even lower rates of course!

  14. stormcrow says:

    At the same time most of the higher education degrees are becoming increasingly unwanted and redundant:

    “In the wake of continuing technological revolution, human labor has officially been discounted, rendered obsolete and has become secondary in usefulness only. The effects of that truth are about to widely felt.”

    It is mostly women borrowing for these useless degrees:

  15. arcadia says:

    The real crisis is that–at least at many public universities–students are working so many hours (40+) to pay for tuition (even on top of the loans they take out), that they don’t put time into class work: they don’t do the required reading (can’t afford to buy the textbooks), learn the core concepts, put time and effort into writing essays, etc. But, because they are paying so much for their classes (due to state disinvestment from education), they expect to receive high, or at least passing, grades. The high cost of education, in other words, means that students don’t have the time or opportunity to be students, or for a degree to mean that they have really accomplished anything. The repercussions from this socio-cultural deficit will be just as debilitating as the financial repercussions about which Wolf accurately warns in this post.

  16. Jim says:

    Education is a disaster from start to finish.

    The natures of information and knowledge have changed, yet the systems that is there to transmit them remains mired in the 1800’s.

    Some work experience should be mandatory before spending money on education (at least it will teach a little about costs and money). The biggest problem is that students head off to college with no “life experience”. So they do not have the questions that are required for the answers that he professors spout to empty classrooms. They are just jumping through very expensive hoops and learning little.

    My son just finished an engineering degree, with coop. So five years that includes 2 years of work experience. He has a bit of debt (about 8k – because he likes his bicycles), but will have it paid off in 4 months. He also has a great job to start – with his last coop employer.

    Daughter is doing a “fast as you can” three year degree – no breaks, so it will take less time and cost less, so that she gets the all important piece of paper, any paper, that society seems to require. But she is smart enough to still use her time well. For courses she picks the best profs, no matter the subject, and has found it to be a far superior technique to taking the required courses – there are a few really good profs out there that can still make you think and help you learn. She also has a side business doing what she really wants to do – graphic design, and also takes free Coursera courses as well. This way she gets out fast, with no debt, instead of 50K+ in debt going to a graphic design school. (Portfolio beats school in this field).

    So my solution based on a limited sample size is mix work and school as much as possible. Make it an ongoing process, not a 4 year escape from reality.. BUT also make loans harder to get, much harder. The educational institutions need to be smacked across the head with a drop in demand. On the supply side they should be on the hook for a portion of any loan in arrears from their students, as partial cosigners on the loans.

  17. Silly Me says:

    College also functions as a safety valve by keeping a large number of unemployable young people off the street. Once they stop buying into the fraud, there will be trouble.

  18. unit472 says:

    Unlike inflation in the 60’s and 70’s where price increases were a monetary problem today ‘inflation’ is mostly in non tradeable services. Tuition, healthcare, rent.

    A bit of deflation here would be a huge bonus to debtors even if they had existing debt. Gone are the days of the automatic pay increase union workers and others once enjoyed. Does it really matter if your disposable income goes up due to a reduction in the price of gasoline or electricity or you,somehow manage, to get a COLA above the CPI?

    • nhz says:

      for all debtors with a mortgage (that’s a large chunk of the population) a bit of deflation will be nice as long as it is very temporary (quick, renegotiate the mortgage for even lower monthly payments) and doesn’t limit the yearly rise in home prices (‘values’).

      In the long run, this seems like an impossible wish to me: thinking that all the money that central banks are pumping into the economy will end up in the things you don’t really need but have invested in (oversized home, trophy art, stock market, overpaid job thanks to tuition etc.) and not in the things you really need in life or are forced by the government to pay for. More likely it is going to end up the other way round.

  19. Dan Romig says:

    When I began at the University of Minnesota in 1980, in-state tuition was $1,150 per year. Next year, it will be $14,186, or a 12,335% increase.

    One reason for the increase is that Minnesota has drastically reduced the percentage of the state’s budget that goes to our Universities. At the nearly 5% allocated back in my day, tuition would be about $7,000 to $8,000 for next year.

    This reduction was championed by Republican Governor Tim Pawlenty from 2003 to 2010. Now T-Paw is President and CEO of ‘Financial Services Roundtable’ which is a K Street lobbying group for bankers and predatory financial groups. Full circle, eh?

    By the way, I paid my way through University (though my parents could have easily), got a physics degree which I’ve done nothing with, and I’m glad I did.

  20. bead says:

    What were college administrators paid 40 years ago before they became such experts? Thought so. Latest hire I read about was getting 500K and this wasn’t even a president. And then there’s edifice complex, the perk and monument arms race.

  21. jan frank says:

    I think anybody going to university is proof that (s)he doesn’t have the nous to sit down with a calculator and work out the return on investment. In effect, anybody wanting to take a degree shouldn’t ought to be allowed to do so, since going for a degree is ipso facto proof that the person is too stupid to be allowed to study.

    Anybody who has the brains to go to university and decides not shows that (s)he’s using those brains for something other than guessing the right hole to fill in when completing a multiple choice quiz.

  22. Mr. X says:

    The bottom line is the story is correct. We have an entire generation of indentured servants put there by student loans. College is great but its no longer affordable. Plus when the talking heads say study STEM they mean, “study stem and work until you start making a bit too much money, then and HB1 Visa holder will come take your job”

    • polecat says:

      Yeap! ….It’s called the Financial/Scholastic shell game…and everyone loses, except for the grifters who promote it!

      • polecat says:

        Oh…and ‘eat your peas’ …….if your lucky enough to pick the right shell………

    • Bobcat says:

      The latest I heard was our engineering schools are turning out 2 STEM grads for every STEM job. Fifty-fifty ain’t very good odds after spending typically 5 years working your tail off to get an engineering degree.

      And even if the H1-Bs don’t take your job, they will depress your wages.

      This is why it is becoming nearly impossible to remain employed in technical work long enough to retire. _Some_ of the late boomers may be the last ones to be able to do it.

  23. EVENT HORIZON says:

    (Wow, can I kick start a conversation or what!?! A while back a few of you wanted to “ban” me due to my immature sarcastic sense of humor, but I can take it.)

    My present job IS a real job. In my original post I stated that to teach you to do, what I do, would take about a month is actually true since most fields are specialized. Thus, if you fine tune down to my daily routine, and eliminate the work others do in my field, then yes, you can be taught in 4 weeks or less.

    Think of it like a person who only repairs Harley Davidson bikes, but had to go to college to learn, over 4 years, how to work on Peterbilt Trucks, Harvesting equipment and 4 wheel drive dune buggies. See, he went to school to become a MECHANIC for all internal combustion vehicles, but all day he repairs Harley’s.

    You spend 4 years, rather than 1, and have a nice job and do a great job. If after the 1st year you realize you don’t care for motor-cycle work, then go back, for 1 year (or less since you have far more understanding) to learn about 4-Wheel drives.

    We all know that the vast majority of people with college degrees do not work in the field, directly, of their Major anyway.

    If we thought about it, we could eliminate the 3 years of learning how to take a wood chipper apart.

    (Just to show I am human, I found Statistics to be the most difficult class I ever took. For the life of me, I could not get it. Organic Chemistry and Calculus made perfect sense to me. I love Chemistry, but that F’n Statistics? HELL on Earth).

    • JerryBear says:

      I think the math you take in college should depend on the kind of major you have. People in engineering and the hard scientists must know calculus. People in the life sciences, social sciences, business and public service need to know statistics. Those going into computer science need to concentrate on linear algebra (think matrix math).

      EH. you are quite intelligent. I think you had trouble with statistics it is because you were badly taught. ?They probably snowed you under with arcane mathematical formulas and a bunch of weird vocabulary. Then I’ll bet they wasted a lot of classroom time showing you how all those formulas were derived. In fact, none of this really matters to you. There is excellent software for handling the complicated mathematical calculations. you don’t need to bother with it. Even a TI 84 Graphing Calculator can do some pretty decent statistical analysis. What you absolutely need to know in statistics is how to analyze the situation and the results you get. You need to work with real life examples and not just theory in textbooks. At its heart, statistics is very intuitive and pragmatic and based on common sense more than anything. When you work on a car engine, you analyze the situation first then select the right tool for the job. Same thing in statistics, you analyze the situation then select the right mathematical tools you need to do the job. I suggest you get one of those practical books like “Statistics for Beginners: Dummies: The Complete idiot: etc, and look through it carefully before you waltz out of Barnes & Nobles with it. This should make up for the awful instruction you received and give you real insights into how it all actually applies.

      • JerryBear says:

        Ouch ouch ouch! I have created a monster! My previous message somehow got embedded in my second message to create a huge mess! Wolf, could you remove everything from ….” I have spent more time in school” ….. up to …. “make a huge difference in a teacher’s effectiveness.” and place it in a separate message? Including the two quoted phrases? Pretty please? ^,..,^

        • Wolf Richter says:

          OK, technical problem…

          I removed it (and saved it). But I cannot start a comment in your name. So you have to start a new comment. If you no longer have the text, put a note in the comment to let me know. Then I’ll paste the removed text into it.

        • JerryBear says:

          Somehow you got it right Wolf. The two messages are separated and in different locations in my name. Thank you very much! ^,..,^ A bit wordy but education is my career and I have plenty to say about it.

        • Wolf Richter says:

          I only took out the part you said. You posted the other message somehow originally (I saw it before I took out the part). So maybe something funny happened with the software that tripped you up. At any rate. Glad we were able to fix it.

  24. Tim says:

    And at the same time as we have the massive tuition inflation, we have an open door policy for foreign professionals from low cost education countries. We’re pricing out production of our own professionals by the brain drain, and the tuition inflation.

    • nhz says:

      I guess that has to be preferred to what we do in Europe:
      just listen to all the young migrants who come over here for free sh** for life: they are all going to study for brain surgeon, pilot, lawyer etc. even if they don’t have basic education.
      Can’t be long before the educational complex taps into this vast potential, we just have to lower the bar a little because it’s only fair that they all get a ‘cum laude’ diploma even if they just party for four years. And no reason to worry about student loans either, these migrants know that everything is for free over here for them, so the taxpayers will get the bill for all that fun right away. Our politicians are already promising us that the returns on investment in all these high potential professionals will be enormous, they are going to pay loads of taxes so we can keep our social security, pension and housing bubble ponzi’s going a bit longer ;-(

      • Nick says:

        I’m not sure what your point is — in Canada, many useful professional fields like accounting, pharmacy, biomedical research, and medicine, are dominated by recent immigrants. Is that bad? Should I be angry at them for learning useful, applicable subjects?

        • Tim says:

          Well here in the US we already have abundant supply of homegrown professionals, and so I think that the open door/brain drain policy simply results in more unemployed home grown professionals with high debt loads, and so more defaults, and … higher taxes.

          Here, we’re seeing hundreds of applicants for openings, and so the policy isn’t making much sense. Professionals are not really in short supply. Professionals I know that can’t get jobs in their fields are becoming high school teachers. The continual corporate down sizing/consolidation/mergers etc are resulting in continuous waves of layoffs of professionals. I don’t know if this applies to all fields.

        • william says:

          Yes. You should be mad. They steal job from native Canadians.

  25. Ptb says:

    Govt intervention has really helped raise prices. Medicare for healthcare and GSLs for education. Make a big pile of money easily obtainable and people will take it.

    Student loans are now considered a ” performing” loan if the borrower is paying at least 10% of their income. And unemployed paying zero is ok. Add the govt job ability to discharge the debt over time and you’ve got a pretty sweet cover up of the problem. All done with laws. Nice!! But, the borrower will be paying a long time.

  26. interesting says:

    “Endless discussions of how important inflation is to the US economy, and how there hasn’t been enough of it in recent years”

    it’s only important to the price of assets, to my income “inflation” is a 4 letter word…….and there’s been less than “not enough of it” for more than recent years, more like freaking decades.

    do those in charge not own a calculator? This isn’t rocket science.

  27. william says:

    University pricing is based on the ability to pay. It’s shocking when you see the application process requiring declaration of assets and income for parents and child. And the aid is parsed out on a sliding scale forcing either debt or sky-high tuition fees.

    Obamacare is now similar with sliding scales of premiums based on income.


  28. ML says:

    Here in UK what little I know, university fees for non EU students are considerably higher than for UK and EU nationals. For the same course!

  29. Coaster Noster says:

    Just a shout out to you, Wolf, for putting together the numbers that we all worried about, fretted about, knew were outrageous, but had little baseline facts. I can match car stories with anyone, fun, but not as important as underlining the awful facts within this student debt financial disaster. Schemes to “forgive debt” are not the answer; the reason we no longer have university education for nominal cost has to be mitigated.

  30. JerryBear says:

    I have spent more time in the university than I did from 1st grade to 12th grade. I fell in love with chemistry when I encountered Isaac Asimov’s “The World of Carbon” and the “World of Nitrogen” in 8th grade. For my 17th birthday, I talked my parents into buying me an expensive graduate level text in advanced organic chemistry and spent the next year working through the text with delight. Needless to say, I was an organic chemistry major for my first two years, I was well above all the other students in the theory of chemistry but I was a real klutz at lab work and could not make better than a C. It dawned on me that if I kept on in chemistry, I would only be able to teach it so I dropped out and tried a variety of jobs. I finally studied bookkeeping and accounting at a business school for a year then worked for a bank for several years. I eventually got really tired of it and decided to go back to the university. While I was a chemistry major, I took a year of Chinese and a year of Japanese to satisfy my interest in the Orient. I still found I remembered a lot of Mandarin and there was a huge interest in China opening up so I majored in Asian Studies Chinese Emphasis thinking I might get a job over there. I loved it and finished the degree and ended up going to Taiwan and living there a year and some months. I became very interested in linguistics and decided to get a M.A. in Linguistics when I got back. I needed to work to pay my way but I was able to work as a teacher at the local community college as a teacher of English as a 2nd Language, While I was working on my degree, I took a lot of math courses as electives as I had been getting more and more interested in it, I worked about 7 years as an ESL teacher here and abroad. When I was unemployed due to a scandal involving rampant cheating at the terrible company I was working for I found myself unemployed when the school was shut down. I decided to go into Alternative Certification to become a high school teacher. Besides ESL, I was qualified to be a math teacher as (I had 20 hours math credits past calculus and also English as I had over 70 credits in English. I hoped for Math and a job and spent the next 11 years teaching math at 3 different high schools. In the last several years, I participated in a program run by the National Science Foundation to enable high school math teachers to earn a M.A. in Mathematics in a 3 year program. It paid 80% of the costs and arranged for the classes to be held weekends, evenings and the summer so they didn’t conflict with our jobs. This was great and I got the degree and I am still regard myself as a math teacher and I
    think of it as a great and deeply meaningful career.
    I mention all this to show my heavy involvement in schools and teaching.

    I read an interesting survey that looked into the statistics of college graduates earning so much more than high school graduates. What the study did was tease out the factors that contributed to this result. What it showed was income earning potential was strongly correlated with ability in mathematics and ability in formal written English. Nothing else much mattered. In fact, the reason college graduates earn more is because they are generally better at these skills than high school graduates. If a given high school graduate has better than math and English skills than a given college graduate, that high school graduate will generally earn more than the college graduate.

    This really calls into question the value of going to college if you really want to go into the trades, If you have a good high school education, you should go right into a trade after graduation then get a job after you graduate from that. There is no need to bother with college. The reason we have to do that is a large proportion of our high schools do such a terrible job preparing the students. This is the inherent result of our terrible educational system that focuses on “enhancing the students’ self esteem” and not on teaching them self discipline, the value of working hard, preparing for their adult lives and not, last. self respect. For years, the sorry state of our education has been firmly blamed on the primary victims, the teachers and the students. From my experience, fewer than 10% of high school teachers (beyond the first few years) are incompetent. On the other hand, I gave seen that at least half of the administrators are incompetent. They also have a much bigger influence on the quality of education but are almost never blamed in the press and media. Even worse are often the school districts which then sabotage the entire district with their incompetency and often corruption. The basic idea is the administrators cannot do their job under a bad school district and teachers cannot do their job under bad administrators. The students then get angry cynical, angry and rebellious when they realize they are not getting a real education and the fiasco is complete.

    This is why we need community colleges to make up for what the high schools failed to teach.

    The biggest villain of all is the Department of Education. It is run by a bunch of crazed politically correct fanatics that belong to the “child worship religion”. They firmly believe that the goal of education is a happy childhood and maximum self esteem.
    They tried to convince us that we were traumatizing the precious little darlings by making them take tests and failing them if they didn’t perform. They pressured us hard to substitute “portfolios of the student’s work” as the basis for grading. We just ignored them and as high stakes testing became more and more important they finally backed off.
    But their corrupting influence pervades primary and secondary education and has reached the Universities, dumbing down courses and softening standards, and student dominated campuses. Recently, they have been trying to infiltrate the community colleges, perhaps the last redoubt of real, pragmatic, straightforward education. But do you ever hear anything about this in the press?

  31. John Doyle says:

    The thing is,student loan debt is completely unnecessary. The government funds schooling to year 12. University education should be an extension of this. An educated workforce is supposed to raise the nation’s GDP and its competitiveness so if it’s part of the nation’s infrastructure the government should not be outsourcing it. The way it is now it’s just a gravy train for banks. That is a waste of money.

  32. wholy1 says:

    Assdebt class?

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