Student Debt Bubble - part 1

WILL STUDENT DEBT BE AMERICA’S NEXT FINANCIAL BUBBLE?

by staff writers from Online Colleges
June 27, 2013

STUDENT DEBT IN THE U.S. (PART 1)

The first of a three-article series about the nation’s ever-rising student debt levels.  This article examines the dynamic between reduced state spending, higher tuition rates, and increased student debt levels. The second article examines historical student debt trends and the third article explores some potential consequences of the debt crisis.

As college costs spiral upwards, unpaid student debt has reached a record high of $1 trillion, slowing down economic growth and causing many young individuals to lose control of their finances. Many politicians, media outlets, and educators are focusing on cuts to state and federal subsidies as the reason behind these astronomical tuition hikes. But while this may be true in cases, it’s not that simple.

Paradoxically, many studies have found the opposite to be true: as federal and state subsidies increase, colleges and universities actually charge more for tuition, exacerbating the student debt crisis. Here we will trace the problem back two decades, examine funding trends and college costs to pinpoint what exactly is behind tuition increases.

STUDENT DEBT: THE LAST 20 YEARS

 student-debt1 The rise in student debt is by no means a new phenomenon – borrowing has gone up every year since 1993. According to the National Center of Education Statistics, average debt began to creep up in 1993, making small jumps from an average of $10,000 per student until it had doubled to $20,000 twelve years later. Then it began to increase very sharply. By 2013, the average debt per borrower hit $30,000. 

The rise in borrowing naturally correlates with increasing college costs. The average yearly tuition and room-and-board in 1990-1991 was $8,485 at a public 4-year institution. By 2010, that had leapt up 83%, reaching an average of $15,605 per year.

Concern over this upwards spiral is all over the news, as unpaid loans take a major toll on the economy. And many are worried this is just the beginning.

Tuition rates are predicted to rise over the next two decades, with costs hitting $41,228 per year for in-state public tuition and $92,869 for private colleges in 2029. This ridiculous level of debt could not be sustained by parents in stable careers, much less by students with poor financial history. So why is this happening?