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Mortgaging your way to a college education

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The Consumer Financial Protection Bureau (CFPB) came out with a report that confirmed what many of us were projecting. The CFPB has noted that both private and federal student loan debt has now hit the $1 trillion dollar mark. This is a big deal for a variety of reasons and will have an impact on the housing market for years to come. For new home buyers many are already stretching every dollar they can through loan down payment loans via FHA insured products. More and more Americans are attending college but at the same time, many more are plunging into massive levels of debt. Student default rates are surging at a time when the cost of going to college is at all time highs. Public universities are hiking tuition since state budgets are in poor shape. This is important because a college education is now becoming the second most expensive purchase for most Americans right behind housing.

The rise in tuition costs

The University of California recently stated that should the November ballot initiative not pass, tuition is likely to increase an additional 20 percent:

uc tuition and fees

Source: Keep California Promise

“(Contra Costa Times) California voters know their K-12 schools will see dramatic cuts and perhaps the nation's shortest school year if they reject a November tax increase. Now, the University of California has revealed its stake in the election: a 20-percent tuition hike for its nearly 182,000 undergraduates.

UC's annual cost could bump to $14,670 a year -- one more threat among many if Gov. Jerry Brown's sales tax and tax on the wealthy fails. California State University students would see their tuitions leap 5 percent to $6,120 a year.”

This is a significant increase. As recently as 2005 the annual tuition to attend a UC was roughly $6,000. It is now double that and should the tax measures fail, it is likely to jump to close to $15,000 per year. You also have many students enrolling in for-profit institutions and going into deep debt:

2 year schools private loans

Source: CFPB

Most of the private student loan debt at two year institutions is flowing into the for-profit sector that is facing default rates similar to what was experienced in the subprime mortgage sector. This is important to note since the return on many of these institutions is minimal. It is hard to imagine but student loan debt is much worse than housing debt. Why? With a mortgage, if you have not noticed, you can stop paying and it will take some time before you lose your home. After losing your home in most states your liability on the property ends and your only penalty is a dinged credit score for a few years. Student debt does not go away. It will follow you around similar to unpaid taxes. This is why I found this part in the report interesting:

cosigned loans

In California, many of those buying these $500,000 homes with low interest rates think they got a major deal. It is likely they are middle class so they are unlikely to qualify for many grants and aid. So many of these home buyers with kids are “school obsessed” so they are likely aiming for elite public universities or top private schools that cost upwards of $50,000 per year. As you can see from the above chart, many parents are co-signing the loans for their children. A student going to a private school might end up having $100,000 or more in debt when they are done and many are moving back home. That co-signer is on the hook as well. The data shows growing default rates:

gross defaults

There is no guarantee of a good paying job in this market even with a college degree. The unemployment rate of those with private student loans is 16 percent (twice the nationwide headline figure). Of those with a bachelor degree the unemployment rate was 11 percent. As previously noted, more private student loan debt is going to for-profit institutions so this is likely to push the unemployment rate even higher than the headline unemployment rate. So you have to wonder how eager will these young graduates be to purchase that first home and take on more debt?

Homeownership rates have fallen significantly for those 34 and younger:

HomeownershipRateAge

It is important to note most of the student debt problems are hitting the younger generation:

Past-due-balance-by-age

Over two-thirds of past due debt is hitting with those 39 and younger. A good amount is hitting the under 30 crowd. Remember those co-signed loans? There is little doubt why the housing recovery has been so tepid nationwide. In California, home prices are still out of sync in many locations but just think about a more realistic nationwide scenario. A young graduate comes out with $50,000 in student debt and the starter homes they are looking at cost $150,000. This is very typical. How easily can they shoulder that new debt amount? Are they even willing to take this new loan on? Virtually every other debt segment has pulled back since the recession hit outside of student debt. Home ownership rates for younger Americans have fallen dramatically in the last decade and this burden of “other” debt is becoming a big issue. It is also impacting baby boomers as kids boomerang back home. Another trillion dollar debt market with major issues. You don’t need a Ph.D. to know this is a big problem.

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Mon, 12/17/2012 - 15:32 | 3072065 EmmaG
EmmaG's picture

Some people think that getting a graduate degree and that once they finish they will have a job. They don't understand that they need to study a lot and be good at what they do not just "drink" their way through the years and get passing grades. Those mortgages are pretty hard to pay back, believe me, I know.

Fri, 11/30/2012 - 05:12 | 3022982 EmmaG
EmmaG's picture

When I finished high school I had to borrow a lot of money to take the courses on human service degree. I was lucky because I managed to pay everything back in 6 years but some other people are not so lucky. Mortgaging is a really hard thing to do if you think you can't handle the pressure in the future.

Mon, 10/08/2012 - 06:59 | 2867088 annie22
annie22's picture

Is it really worth it to accumulate such an enormous debt just to get a college degree? I think there are many ways to achieve your education goals without getting into too much debt, you just have to be open for them. I've got my emergency management degree and kept myself debt-free, so it's not impossible.

Mon, 09/03/2012 - 02:21 | 2757144 Kimale
Kimale's picture

If we have the financial opportunity to gradually invest small amounts of money towards their college expense have plenty of cash piled up for your child’s tuition, room, and board.essay writers

Mon, 08/13/2012 - 06:58 | 2700370 AmeliaV
AmeliaV's picture

Well,college tuition prices can not stop rising,the costs are just astronomical. And people used to think that if they have no higher education then they can not get a good a good job and a successful future, that's why those who haven't save money for college consider taking out a student loan as the only way to get a college degree. But higher education isn't a guarantee of employment and lots of graduates are struggling with paying off their student loan debts. Some of graduates get low paid jobs or work below their skills, take out personal cash loans to pay off the debt. The education in the US is extremely expensive and I think there should be more attention paid to programs which allow to avoid student loan debt, and people should get more information about the alternatives they have.

Tue, 07/31/2012 - 03:31 | 2664283 ABELIA
ABELIA's picture

Statesman and statesman Americans are attending college but at the duplicate indication umpteen many are plunging into monumental levels of debt Enrolled default rates are surging at a instance when the toll of achievement to college is at all moment highs. get testbells exam

Fri, 07/27/2012 - 18:55 | 2658243 Dburn
Dburn's picture

My nephew wanted me to c-sign on a for-profit student loan of 50K. Not a chance. I told him to get his IT Training OTJ. This was before the recession. Now he has no school debt . A $50,000 (=$125,000 in NYC) IT job with about 401k Matched contributions ( which is the only way a 401K will grow)  , Health Insurance , paid vacations and other odds and ends. He worked help desks at first .. Now he is slowly growing into medium enterprises. He travels to on-site locations. He has a savings and a trading account, no  debt and looking for his first house at age 30.

I try not tell him that the world as we know it will end. He thinks I'm looney tunes enough. What's amazing about it, was he took the advice. What isn't surprising is how quickly they forget who kept out of  Serfdom.

WTF, when they don't take our advice, they blame everything on us.

When they do take our advice and it works out for them, they still think we are assholes.

Uncle Who?

 

Wed, 08/08/2012 - 09:45 | 2687327 kall
kall's picture

That was a lucky case and things are fine now with him. I am making my own plans to get a communications degree but I don't want to risk the chance to lose my house for it. To be frank I never saw things from this perspective before.

Fri, 07/27/2012 - 18:07 | 2658164 Never One Roach
Never One Roach's picture

Good article. Explores some of the macro problem aspects not only for the future housing decline but also our culture.

It looks bleak if you ask me. Mountains of debt are piling up and there is no end in sight---the lenders still handing out zero down loans and kids being handed $100K for 4 (or 5) years of partying and WS still on track to crash civilization.

Fri, 07/27/2012 - 17:21 | 2658094 Stuck on Zero
Stuck on Zero's picture

Colleges are a bargain even if you have to take out a $250K loan ...  compared to selling your soul to become a politician.

Fri, 07/27/2012 - 16:41 | 2658026 Ruffcut
Ruffcut's picture

The first thing the students need to learn is money management.  Taught by parents that are not morons and with debts seeping out the anal cavity.

Fri, 07/27/2012 - 16:24 | 2657980 Jack Sheet
Jack Sheet's picture

Good recent Bloomberg article on the employment prospects awaiting new graduates:

http://www.bloomberg.com/news/2012-07-10/low-paid-grads-on-tight-budgets...

Hey all you Bachelors and Masters with double majors in gender studies and nude photography: welcome to a job as a dog walker (15$ per hour) or janitor, bartender, dishwasher or waiter, or file clerk or data entry clerk if you're lucky.

Fri, 07/27/2012 - 18:56 | 2658244 Dburn
Dburn's picture

Classyporn.com

 

Fri, 07/27/2012 - 16:21 | 2657974 Meesohaawnee
Meesohaawnee's picture


 

"They should just impose a debt on you when you are born. Essentially the same thing."   Yes.. its called QE1,QE2,Operation Twist

Fri, 07/27/2012 - 15:02 | 2657788 Atlantis Consigliore
Atlantis Consigliore's picture

COLLEGE DEGREES DEBT CREDIT NO DOC LOAN FORGIVENESS  IN EXCHANGE FOR VOTES;

 

 bribes for college debts....10 million suckers with $ 1 Trillion in debt slaves cant be wrong, add to the 47 million on food stamps.

 

lol

Fri, 07/27/2012 - 15:24 | 2657846 AldousHuxley
AldousHuxley's picture

DEBT is how rich get richer

DEBT on necessities of life (college degree even to become a secretary) is how rich keep you down

DEBT is how banks TAX your work

 

STUDENT DEBT = HIDDEN TAX ON MIDDLE CLASS

 

lower class don't care since they wouldn't go to college anyways, so government has figured out way to pay old and poor using COLLEGE KIDS.

 

This is sick.

 

Middle class must revolt. Cut welfare to poor, cut the idle rich. Middle class needs neither since they do all of the work.

 

Fri, 07/27/2012 - 14:57 | 2657771 RichardENixon
RichardENixon's picture

So in other words, things are working out pretty much as planned.

Fri, 07/27/2012 - 15:06 | 2657799 williambanzai7
williambanzai7's picture

They should just impose a debt on you when you are born. Essentially the same thing.

Fri, 07/27/2012 - 15:21 | 2657839 RichardENixon
RichardENixon's picture

They already do. By their own dodgy reckoning, a newborn's share is about 16 trillion divided by about 300 million.

Fri, 07/27/2012 - 15:20 | 2657836 Real Estate Geek
Real Estate Geek's picture

The Unincorporated Man is an interesting sci-fi novel exploring just that concept.

(ISBN:  978-0765318992)

Fri, 07/27/2012 - 14:56 | 2657769 Binko
Binko's picture

Tuition rises to insane levels. But we never hear a single word about cutting costs at public universities.

The University of California says that tuition will rise another 20% if the latest batch of tax increases fail at the ballot. Currently tuition in the UC system is something like $15,000 a year. When I went to UC Berkeley in the mid 70s it was less than $1000. What is that? 100 times the rate of inflation?

Rather than place ALL the burden of a failing economy on the students and their families it is long past the time to make some major cuts to the bloated administrative and faculty staffs. Yes this is never even discussed. How many administrators does the UC system have making well over $80,000 a year? Thousands, most likely. How many tenured Professors teach a handful of hours a week while pulling in over $100,000 a year? More thousands.

Professional academics are the most pampered class of workers on the face of the earth. They literally don't even consider that their luxurious pay structure and bloated staffing may not be sustainable.

Fri, 07/27/2012 - 19:04 | 2658254 Dburn
Dburn's picture

Binko + 100

 

Take a look through the salaries of any state university, especially out in California. I think your numbers are a little to low. That sounds more like pay in fly-over country. That doesn't count the benefits which are at least equal to the salary , consulting work, speaking fees, books , trial  expert witnesses, stolen inventions through University research that somehow get their names on the patent and assigned to themselves personally, pensions, unsolicited BJs for As by the kids Mom and the kid..( ok, I'm making that part up...Hmmm, come to think of it...ah , never-mind.)

Fri, 07/27/2012 - 19:33 | 2658292 AurorusBorealus
AurorusBorealus's picture

If you are a male college instructor (and not gay or 75 years old, hired before 1970) 1) you must be in the math or hard science programs (Chemistry or Physics), because you cannot and will not be hired by any other department in the name of "gender equity" and 2) if you do not give every female student who so much as asks an A just for asking, you will be accused of sexual harassment, suspended pending an "investigation," interrogated by a tribunal consisting of 5 angry lesbians, and fired.

Fri, 07/27/2012 - 18:12 | 2658178 Offthebeach
Offthebeach's picture

Massachusetts Senate candidate Elizabeth Warren and her husband each teach a single class and each get $350K. Plusbenefits.

Fri, 07/27/2012 - 17:30 | 2658106 Gromit
Gromit's picture

Yes. I refuse to support my Alma Mater until they are willing to slow down the increase in tuition costs.

Fri, 07/27/2012 - 18:10 | 2658173 fnordfnordfnord
fnordfnordfnord's picture

They can't.

* Inflation.

* Reduced funding from state & federal sources.

Fri, 07/27/2012 - 16:11 | 2657945 RichardP
RichardP's picture

How many tenured Professors teach a handful of hours a week while pulling in over $100,000 a year? More thousands.

I'm convinced this will change in the coming years as technology takes hold in the academic world.  A good example of this is the Los Angeles Unified School District (LAUSD) that has some seriously good on-line curricula for those who are being homeschooled or who simply don't want to participate in classroom education.

And if you have kids in school, or know people who have kids in school, you should know about Khan Academy if you don't already.  I think it is the prototype for the technology that will help topple the current [bloated] administrative structure at Universities world-wide.

At this first link, scroll down to see all of the courses offered - and maybe pick one that interests you to see how the subject matter is presented.  Self-paced, self-directed education.

http://www.khanacademy.org/

http://www.ted.com/talks/salman_khan_let_s_use_video_to_reinvent_educati...

http://www.khanacademy.org/new-and-noteworthy/v/microsoft-ceo-summit--in...

Fri, 07/27/2012 - 16:38 | 2658010 Rainman
Rainman's picture

Agree. Khan Academy is the canary in the coal mine for the structural physical education cartel. It can't come soon enough in my view. A solid education should never require extreme student debt enslavement. 

Fri, 07/27/2012 - 18:08 | 2658171 fnordfnordfnord
fnordfnordfnord's picture

Professors are not the problem*. Agree that MITx, CDN2, etc are going to revolutionize education. But, don't try and tell me I am living in the lap of luxury. My wages don't come close to competing with equivalent private sector employment. I routinely suppliment my income with consulting and my wife has a job too. I also lament the fact of the expense of education, relative to the payback; and the fin-aid hucksterism. The real problem is low wages for the graduates**. Who gets the benefit of all the productivity gains of the past 50 years? Hint, it isn't us.

Khan - Just fills in the gaps neglected by the public schools; and Hank bless him for it.

* Disclosure - I am one.

** And not just the "useless humanities" grads

Fri, 07/27/2012 - 14:54 | 2657756 csmith
csmith's picture

Student debt does not go away.

 

The FIRST act of BHO's second term will be to make student debts dischargable in bankruptcy.

Fri, 07/27/2012 - 17:56 | 2658149 fnordfnordfnord
fnordfnordfnord's picture

Let's hope so.

Fri, 07/27/2012 - 17:28 | 2658103 Gromit
Gromit's picture

Then he has to bail out the people who lent the money in good faith....like your insurance company or your pension plan.

Fri, 07/27/2012 - 15:18 | 2657833 Shameful
Shameful's picture

If he did this he would dominate the youth vote, hell announcing it would energize that base.  Let people walk from their gov loans, get the youth campaigning hard for him.  Hell I'd be looking at engineering a bankruptcy for myself at that point.

Fri, 07/27/2012 - 16:38 | 2658014 MachoMan
MachoMan's picture

I always find it funny when I see applications for things that include a check box for employment as "student"...  I can say without a doubt...  that being a student is not remotely a job.  It has nothing to do with the real world and the stakes and demands of the real world.  If I could put the tab on someone else and then go back and grill out all day, lift and train, and then play beer pong all night again...  well, I'd get killed by my wife...  but it's a neat thought anyway.

I also don't advocate making student loan debt dischargeable unless we're going to let TBTF actually fail...  otherwise, it's just going to a massive one-off tax hike on the only idiots left paying taxes.

Fri, 07/27/2012 - 18:15 | 2658187 fnordfnordfnord
fnordfnordfnord's picture

Your failure to treat your education seriously might explain a thing or two about your life. At the very least being a student is a good excuse to show a gap in full time employment. Are you proudly proclaiming that you'd like to be a grifter on the backs of other taxpayers?

Fri, 07/27/2012 - 14:45 | 2657732 Stud Duck
Stud Duck's picture

The really big problem with the Universities today is that they are teaching the student WHAT to think instead of HOW to think critically.
There are no more philosophy or ethics classes included in the ciriculium.

Most student really don't know what they want to do, it would be much more cost effective to learn a skill such as a machinist/electrician, ect and then obtain a degree on line.

My wife is a assistant dean of a highly regarded business school and we have some really good discussions, I with Mises , her with Keyesian philosophy! We have been married for 39 years, but still do not agree on these issues! Maybe that why we take seperate vacations!!!
My first post on this site, just a follower usually!

Fri, 07/27/2012 - 19:36 | 2658297 Binko
Binko's picture

Good thinking. Millions of students should learn practical trades like machinist or electrician. And then do what? Work in the factories that have moved overseas? Line up in the thousands for each low-paying non-union job that is actually available?

My brother manages an automotive repair shop that does a lot of work for fleets of tow-trucks and the like. The mechanics working on the vehicles make $13 to $15 an hour even though they are certified, trained and experienced. The owner is a multi-millionare but he only has to pay skilled workers a subsistence wage because there is an endless stream of other guys waiting to take the jobs.

You and your wife sound like a couple of typical academics arguing for 39 years about basic economic theory but completely clueless when it comes to putting average people to work.

Fri, 07/27/2012 - 16:47 | 2658042 Gromit
Gromit's picture

Welcome Stud Duck.

Are you sure that's why you take separate vacations?

 

Fri, 07/27/2012 - 15:29 | 2657855 AldousHuxley
AldousHuxley's picture

they don't teach shit.

students teach themselves.

foreign grad students grade papers and give feedback.

 

these days schools have marketing departments just like corporates because they need to lie to sell their over priced services.

 

but the real issue is STUDENT DEBT prevents smart people who understand corruption from RIOTING.

STUDENT DEBT is elite's way to avoid Vietnam protests.

 

DEBT = LOSS OF FREEDOM = BONDAGE

 

Knowledge is supposed to be POWER, but now it is power for the government and banks.

 

Time to burn some universities down. start with skulls and bones buliding.

 

Fri, 07/27/2012 - 14:40 | 2657718 AustriAnnie
AustriAnnie's picture

When I look at the pie graph of student loan debt by age category I can't help but be amazed how many are in the older age groups, and how many of those in the 40-49 and 50-59 categories ALSO have kids in the younger categories. 

We are seeing parents who would normally have money to help their kids through school, but who instead are still having problems paying off their own student loan debt at a time when they should be saving for retirement instead.

Furthermore, these parents are going to be the safety net for their kids (whether they co-signed or not).  Then they will have 1) their own student loan debt 2) depleted retirement funds or non-existent funds due to never saving in the first place, 3) kids moving back home and depending on them for financial assistance, and 4) kids who will never be able to provide support for them in their old age at the very time when social security ponzi is collapsing.

But the housing market has bottomed, so we're all good......

Fri, 07/27/2012 - 15:20 | 2657837 Shameful
Shameful's picture

There is another way to look at it, older peopel going back to school.  Paradoxically this is a great idea!  Take on as much debt as humannly possible, go to school and live it up, and then die!

Fri, 07/27/2012 - 15:31 | 2657859 AustriAnnie
AustriAnnie's picture

Good point.

Though I'm not sure they are using the cash to live it up.  To buy groceries and pay the mortgage, for healthcare, etc, more likely....

Fri, 07/27/2012 - 14:21 | 2657609 PSEUDOLOGOI
PSEUDOLOGOI's picture

modern slavery

Fri, 07/27/2012 - 14:07 | 2657532 Lohn Jocke
Lohn Jocke's picture

Print more minorities.

Fri, 07/27/2012 - 16:39 | 2658019 JohnKozac
JohnKozac's picture

"Should I use my student loan money for my zero-down $683,000 mortgage, or buy another iPad--one for my left hand," my neighbor asks.

Fri, 07/27/2012 - 16:51 | 2658049 Unbezahlbar
Unbezahlbar's picture

John, forget the mortage...buy the iPad...in fact, better yet, use a credit card for the iPad and then forget the cc also. Pocket the money and buy a Starbucks Double Frappe Mochachino Carmel with whipped cream and spinkles....w/ diet milk of course!!

Fri, 07/27/2012 - 17:13 | 2658087 iDealMeat
iDealMeat's picture

Yeah, yeah..  and don't forget to take a few pictures and update your FB page with your location. So we can all "like" the awesomeness of your life.

 

Fri, 07/27/2012 - 16:37 | 2658016 Ruffcut
Ruffcut's picture

That's what is going to happen. Those with any money left will be the minority from being printed out of exisitence.

Fri, 07/27/2012 - 14:06 | 2657524 KidHorn
KidHorn's picture

If I were to do my education over again. I would attend an on-line college. No way would I pile on $50k of debt.

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