The Student Loan Bubble In 19 Simple Charts

Tyler Durden's picture

A picture paints a thousand words but in the case of the world of college education (and its surrounding income, unemployment, debt burden, and pricing implications), we decided 19 charts was the simplest way to explain the path to debt servitude that an increasing share of the US population is taking - despite record delinquencies, falling real incomes for graduates, stagnant graduate employment, and rising college costs. As BofAML notes, the cost of higher education has continued to climb, fueled by debt and government aid. Over the past twenty years, tuition growth exceeded the average rate of inflation by nearly 3% annually, while both grant aid and Federal loans per full-time undergraduate exceeded by about 5% annually. This trend is not sustainable, in our view. The challenging labor market, which has left the youth population underemployed and underpaid, has put the spotlight on the burden of student debt. We expect a correction in the price of tuition and reduction in debt. There will likely be lasting effects on the economy from the high cost of education and large debt burden. Graduating during a recession leads to permanently lower earnings growth, making it that much harder to service the debt burden.

 

Enrollment in college has never been higher...

 

Which appears to have spurred a post-Lehman jump in Federal Aid and Loans...

 

And sure enough - Student debt has taken over the 'debt' lead from credit card and auto debt...

 

And as with every credit-fueled bubble - this has inflated the price of the good or service...

 

But has NOT benefited the 'student' in reality as real income of college grads has fallen just as fast as high school grads since 2007...

 

...though over a longer period - an extended academic career has paid off (so more college and more debt is better?)...

 

of course, corporations have been quick to recognize the money flow and degree granting institutions have risen dramatically...

 

and the money flows to best ranked schools - which incentivizes raising fees in a 'Prisoner's dilemma' world... (dominant strategy is to raise tuition - as indicated by the green arrows)

 

So while firms are doing well, the 'product' they are selling is not helping as employment remains low for 20-24 year olds...

 

and young adults are increasingly leaving the workforce in a hurry...

 

or taking part-time jobs...

 

leaving the burden back on the parents...

 

but the jobs that are expected to grow are the low-paying jobs...

 

But what will change after the election - especially for the for-profit education companies...

 

As the government provides an increasing share of the massive student loan market...

 

leaving the student burdened with government loans...

 

as even the lowest income grads are getting assistance in record amounts via Pell Grants...

 

but delinquencies are rising...

 

at record rates...

 

There will likely be lasting effects on the economy from the high cost of education and large debt burden. About 68% of students in private four-year schools have taken on debt, 60% in public four-year and nearly 85% in for-profit four-year. The average debt for an undergraduate upon graduation is $25,000; more than half of the average starting salary. Underutilization in the labor market and high student debt has delayed life decisions such as household formation and discouraged new credit creation. Graduating during a recession leads to permanently lower earnings growth, making it that much harder to service the debt burden.

 

Source: BofAML

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The Reich's picture

18 charts to much. That simple is it.

DavosSherman's picture

Chart 19 is the only chart I need to see.

SyntheticFriday's picture

So... chart 6 is labeled wrong, right?

clagr's picture

Can you imagine what the unemployment rate would be if all these 'new-old' students were out there looking for work instead of off the unemployed rolls?

Brilliant on Obamo's spin planners

clagr's picture

talk bout buying votes with taxpayer's money

gloogle's picture

This god-damned crap is really pissing me off.  How in the hell are kids and their parents supposed to pay off all of this crushing debt?  Someone needs to rot in hell for this....

dolph9's picture

Young people of America, are you starting to understand?

Your parents partied and now want to discharge their debts onto you.  Meanwhile, they offshored jobs to China and invited millions of illegals Mexicans to depress wages here.  They started wars in the Middle East so your brains could get blown out for the benefit of a few connected Jewish bankers and oil corporations.

And when their grand plans failed, they took trillions of your future money and handed it to the banks.

Not only that, but they think they're going to live forever, and collect retirement income forever.

And if you ever mention any of this?  "Let them eat iPads."

 

Now, I don't really know what the response to all of this should be.  But I know it does deserve some response or another.

 

Larry Dallas's picture

I see a terrific opportunity for the government to declare war and put these unemployed minions overseas in battlefields.

War is a very lucrative business for the government and all related entities. It has been and will be for several generations.

 

ZaphodBeeblebrox's picture

Plz refresh me (I was in high school and perhaps not fully aware or remembering) what was going on in 1985 that the FPs (for profit schools) made a showing, that is noted in the first chart? Was that the real estate crash/S&L crisis (TX see-through buildings) driving people into school and presenting the opportunity for the FP schools to make a buck?

AmeliaV's picture

If a college charges $20,000 for a four-year degree and a student cannot afford such an enormous sum of money then that institution loses a student.  Therefore, more and more students would not go to college and this would lead to these facilities to lower their tuition rates. A poorer education and costs have skyrocketed because of inflation and they don’t have jobs.  There’s nothing more dramatic failing than that program requiring additional instant payday advances.