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Mortgaging your way to a college education
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:
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:
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:
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:
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:
It is important to note most of the student debt problems are hitting the younger generation:
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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<< if I had to get an education again....>
I'd become a California lifeguard making $200k pa and retire at 50 instad of 19 years of slavery in EE education trygin to eek out $100k:
In the latest example of government spending gone wild, The Orange County Register reported that some lifeguards in the nearly bankrupt state of California make over $200,000 per year.
http://www.ibtimes.com/articles/144037/20110511/lifeguard-california-200...
Online colleges, from what I've seen (Strayer/Keller/etc) are not cheap and Strayer (local one here) seems to operate as a loan pusher...all they want you to do is get that FASFA submitted...
The most valuable part of a college education (so I hear, I did not graduate from high school) is networking. With the online path, you are surrendering the most valuable part of your education.
It used to be that you GOT PAID to be educated, through the form of an apprenticeship. You would receive a small wage for the benefit of a free education on the job ("on the job" meaning you learned what is actually useful in the real world).
But minimum wage laws make it impossible for those without real job skills to be trained and get paid to do so. Instead, "for the protection of the low-income class" we force them to take on massive amounts of debt and then graduate, often without learning any of those real-world skills.
Apprenticeship: Get paid for education, and "graduate" with years of experience already under your belt, a good job reference, and no debt.
The modern way: Take on massive amounts of debt, learn nothing (except perhaps how to complete a sentence, which one should have learned in 3rd grade anyway), and graduate with debt, no money, and no real world experience, and with nobody to use as a reference except for a college professor, whose opinion the hiring manager at McDonalds doesn't want.
Also, nowadays people think they need to get hired by someone else. It used to be that you went into business for yourself because doing business wasn't made impossible by the costs of regulation/licenses/legal liability/taxation. Now, you are basically forced into the entry-level working class. Have we really done the youth in this country a favor by eliminating their chance to work for themselves and be in charge of their own futures? We just transfer them from the authority of their parents to the authority of schools, to the authority of corporations, then upon retirement to the authority of the social security administration and Medicare. Is that the best life can offer anymore?
You are too negative. It's a common theme, that it's too hard to start your own business. TOTAL BULLSHIT. I started my own business six years ago financed on a shoe string by my own savings and am now quite successful. The regulatory hurdles were minor, just some paperwork. The 15% sefl-employment tax is a pain, but not onerous and is worked into my fees.
They forgot there is a word called self-taught.
Those "self taught" surgeons really cut me up.
Words from the disgruntled non- educated.
Ruffcut
Once you leave medical school you basically start an apprenticeship program. You work for very little and you learn from the next guy up the ladder: see one do one teach one....
The learning is all done that way, it is the little piece of paper that goes with it that costs all the dough.
re: Those "self taught" surgeons really cut me up.
I bet they make a killing.
That happened to you after the self-taught pilot crashed your flight?
Yeah, it really needs to be prohibited to learn something on your own.
Just imagine how many self-taught parents are messing around... /sarc
You lost me at "Consumer Financial Protection Bureau"
The Consumer Financial Protection Bureau's involvement suggests to me that a bailout is coming. They first need justification that the consumers' "protection" is at stake, that these poor unknowing young souls were exploited and coerced into signing on the dotted line, and that the taxpayers should bail them out for the sake of our whole society which will most certainly collapse if we do not continue transferring wealth to fuel the consumer-driven debt growth cycle at any cost.
Sigh..you are probably right...some sort of unburdening, unyoking of the downtrodden college graduates who unwittingly were duped into something like a house or a car they couldn't afford. Will be some sort of amnesty program where they can become census takers and write off debt to get them voting by November...
"If you have student loan debt in excess of $50,000, you may be eligible for a first-time-homebuyer assistance program which can reduce the amount you owe by up to 100%! You may also be eligible to receive food assistance, subsidized electricity rates, or other aid if you are delinquent or in default. Please contact your local HUD housing office or welfare office to see if you qualify."