For decades, the public in the United States could count on the costs of education moving in one direction: higher and higher. Whether or not the economy was in recession, tuition costs would inevitably increase year over year. The higher education industry has appeared completely immune to the regular rules of supply and demand, being able to charge 150 thousand dollars for a worthless degree. So how did this situation come to pass?
Federal government policies have made access to education loans very easy, especially compared to loans for other purposes (such as business financing or mortgages). Subsidized interest rates and government guarantees enabled a surplus of money to be available for students wanting to borrow. Naturally the colleges figured out that it was in their best interest to scoop up as much of that easy money as possible. As such, tuition rates skyrocketed along with new “for profit” institutions opening their doors.
Even though the costs of higher education began outpacing the value of degrees offered, lenders had every reason to continue loaning money. Bankruptcy rules generally made student loans non-dischargeable. So borrowers were stuck with their student loans regardless of changes in their financial situation. Whereas with credit cards, borrowers in over their heads could use bankruptcy laws to make the credit card debt go away, no such option was available for student loan debt.
Too Many Degrees
With the proliferation of easy money and easy access to schools, the end result was that the market was flooded with graduates of various degrees. Many of these degrees had few job prospects. So students were entering the workforce with 100 or 200 thousand dollars in non-dischargeable debt, and no ability to earn an income because few employers needed the skills that those students provided. This issue goes to the heart of the education bubble – billions of dollars in outstanding debt that may never be paid back by people who don’t earn enough income to make ends meet.
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Change in the Air
The internet and easy availability of information has impacted the education industry in two significant ways. First, people are wising up to the fact that borrowing a quarter of a million dollars for a degree that has no job prospects is a bad decision. Schools have seen enrollment levels drop. Some institutions have been forced out of business altogether. Second, information that once was only accessible by attending expensive universities can now be found online for almost no cost whatsoever. Legitimate online degrees are now readily available from several reputable sources.
In the past, “getting any education” was considered a positive career step. Those days are long gone. For better or worse, education must now be viewed through the lens of any other investment. Will the time and money invested yield a future payoff? That is the ultimate equation in the post-education bubble era. Getting a degree that does not provide a return on this investment must now be considered a luxury. For people who are already wealthy, degree options are much more open. But for someone with limited resources who depends on student loans to finance their education, it is imperative to choose the degree investment carefully.