News that student loan debt, at $830 billion, exceeded credit card debt for the first time has sparked renewed interest in the financing of college and its implications for students. Largely ignored in the discussion, however, is the shadow debt, which consists of unorthodox methods of borrowing for college, including home equity loans and lines of credit, retirement account loans, credit card debt, and run-of-the-mill bank loans. Because these borrowing instruments often have many alternative uses, we have to rely on surveys to determine how much of the total amount borrowed in each category is devoted to paying for college. The most comprehensive such survey is conducted by Sallie Mae and Gallup. Their findings indicate that shadow debt adds just under $30 billion to the annual borrowing for higher education (see this link for more details on the calculation). As shown in the table below, when this is added to the $96 billion in college specific loans, we can conclude that Americans borrow roughly $126 billion a year to pay for college.
Of course, there are a number of caveats to this number. To begin with, this is at best a back of the envelope calculation, and better data would allow for a more accurate picture to be painted. In addition, some of this may not be borrowing in the normal sense of the term. For instance, some well off families may pay for tuition on a credit card to receive the rewards associated with their card, and then pay off the balance immediately. There is also the fact that some of the education borrowing is not used solely for education. I knew people who used student loan money to purchase a car, or a big screen TV, and even breast implants. At the same time, not counted are informal loans from family and friends. Thus, $126 billion is the best estimate we have for the amount of money that Americans borrow for college.
Gillen is singing a song that I’ve expected to hear for some time. And it’s not just at colleges, for many of the same forces apply at private schools, except that it is facility competition that drives up costs there, more than personnel. It’s pretty clear that the bubble has to burst.
I been asking the same questions myself when I see bachelor degree workers working a a grocery store or Starbucks. Worst is the electronics industry were companies are requiring BSEE as bench technicians a position that can be filled by vocational educations. Worst is the job for an assembly tech requiring a Engineering degree, does government and families need to spend $50,000+ and four years of a person time for a job that used to take an High school education?
This coming bubble will be caused by over producing college graduates and underutilizing them in low paying jobs.
It’s a lead-pipe cinch that the student loan market is going to have to implode because people simply aren’t going to be able to pay this kind of money back; and not only that, but it’s going to feed back into the housing market because (now that the lending there is a bit saner) people are too overloaded with debt to take on a mortgage. Also, another factor which is putting strain on the system is the failure of academic endowments to produce as they have in the past.
Ah, C. Wingate, but the government now controls the student loan industry – so when loans aren’t paid back, it’s the taxpayers once again who are on the hook.
Nothing is more certain in this sort of discussion than that someone will make some sort of anti-government statement without apparent benefit of reading the article being discussed. If you will look at the handy table in the article, you will see that roughly a third of student loans fall outside the federal programs, with a quarter falling outside of any “student” loan program. Are US banks ready to soak up another forty billion dollar default?