It’s a SCAM folks……. It’s a big ponzi scheme and a massive bubble waiting to burst. Anyone working in higher education should think long and hard about looking for a new job. Students taking out massive student loans that are unsecured and that most likely will never be paid back are the next major bubble that will ruin many colleges and universities, while also leaving many university employees jobless. Remember the “Great Recession” back in 2008 when are the sub-prime mortgage loans almost ruined the housing industry and left many people jobless and underwater on their loans at the same time? Well guess what, student loan debt is the next “Great Recession” and could be much worse, let’s explore why.
Anytime loans are made by the government and are really easy to acquire people tend to take them without thinking about the long term effects so they get into much more debt than they ever should. For the vast majority of student loan applicants once you factor in the loan amount and interest that will accrue every single month and compare that to the return on that investment they are on the losing end, most will not earn enough to make the massive loans worth it. Secondly when money flows so easily into a specific industry it causes businesses to expand to unsustainable levels once the money dries up. Universities have built massive infrastructures and extremely bloated budgets, all of which will crumble once everyone starts defaulting on their student loans. Another really concerning topic is that some states are moving to offer free associate degrees, so they are dumping massive amounts of money into an industry, causing prices to be falsely inflated, which causes the universities income statement and balance sheets to look good at the moment so they continue to expand with the expectation of continued free money. But now the government is giving away their product for free at the same time, so they are causing false demand in the market and at the same time devaluing the very same product. This will not only ruin many universities but it will devastate many students. With the housing crash at least people had the loan attached to a tangible item, even though the home was worth less than what they owed, they could still live in it or rent it out. With diplomas there is nothing tangible about them, they are pieces of paper that are worthless. Imagine trying to sell a diploma with your name on it, what would the buyer want with a useless piece of paper? Another thing to remember is that for 95% of jobs once you have a year or more of job experience they could care less about where you attended college. Once students realize that they owe tens of thousands of dollars on a piece of paper that is worthless than a single dollar bill they will decide to stop paying the loans. Once payments stop coming in the private loan companies will begin to tighten their loan standards which will make getting student loans tougher, this will cause there to be less money flowing to the universities, the universities will start with laying off staff, then they will begin to defer maintenance and any planned developments, eventually due to the law of supply and demand they will drop the prices on tuition, this will mean that someone that graduated the year before is paying more for the exact same degree, this will further devalue the worthless piece of paper that so many people are paying hundreds of dollars a month for. This will eventually lead to massive loan defaults and we will see private loan companies going out of business, this will cause many more job seekers to be in the market competing with the unemployed ex-university workers that are now job hunting, making in even harder for them to find jobs. My advice is to get out of higher education now, look for an industry that is recession proof. Below are some staggering statistics about student loans.
Americans owe over $1.48 trillion in student loan debt, spread out among about 44 million borrowers. That’s about $620 billion more than the total U.S. credit card debt.
- $1.48 trillion in total U.S. student loan debt
- 44.2 million Americans with student loan debt
- Student loan delinquency rate of 11.2% (90+ days delinquent or in default)
- Average monthly student loan payment $351
- Median monthly student loan payment $203
In 2012, 71 percent of students graduating from four-year colleges had student loan debt:
- Represents 1.3 million students graduating with debt, increase from 1.1 million in 2008
- 66 percent of graduates from public colleges had loans (average debt of $25,550)
- 75 percent of graduates from private nonprofit colleges had loans (average debt of $32,300)
- 88 percent of graduates from for-profit colleges had loans (average debt of $39,950)
Twenty percent of 2012 graduate loans were private
Graduates who received Pell Grants were likely to borrow, and borrow more:
- 88 percent of graduates who received Pell Grants had student loans in 2012, with an average balance of $31,200
- 53 percent of those who didn’t receive a Pell Grant had student loan debt and borrowed $4,750 less ($26,450)
Private student loan debt statistics
- Private student loan debt volume hit $7.8 billion in 2014-15, up from $5.2 billion in 2010-11.
- From 2011-2012, borrowers didn’t take advantage of federal student loans as much as they could have: 19 percent didn’t take out Stafford loans, 8 percent didn’t apply for federal financial aid, 11 percent applied for federal aid but didn’t take out a Stafford loan, 28 percent had Stafford loans but borrowed less than they were eligible for
Graduate student loan debt
About 40 percent of the $1 trillion student loan debt was used to finance graduate and professional degrees.
Combined undergraduate and graduate debt by degree:
- MBA = $42,000 (11% of graduate degrees)
- Master of Education = $50,879 (16%)
- Master of Science = $50,400 (18%)
- Master of Arts = $58,539 (8%)
- Law = $140,616 (4%)
- Medicine and health sciences = $161,772 (5%)