The Ongoing Inflation Of The Higher Education Bubble

Tyler Durden's picture

We have been vociferous in our discussion of the looming student loan debt debacle (just as we have been over high frequency trading). With credit creation limited to just student (and auto) loans...

in 2013 just student and car loans alone represented 108% (that's right, more than all) of total household debt created.


We thought the following charts would clear up once and for all just how bad the government's heavy visibl ehand of 'help' has been for the average household in America with childrean aiming to pursue the American Dream...

Originally posted at Political Calculations blog,

How much has the average cost of attending college at four-year degree-granting institution in the U.S. risen since the 1969-1970 school year?

For an American student who enrolled in a four-year college in the fall of 1969, the average they paid for their tuition, required fees, room and board totaled $754, which when we adjust for inflation be be in terms of constant 2011 U.S. dollars, works out to be the near modern day equivalent of $4,619.

But a student enrolling in the same kind of institution in the fall of 2011 for the 2011-2012 school year would pay $13,608. Nearly three times as much.

Tuition and Required Fees (In-State for Public Institutions) for All Four-Year Degree-Granting Institutions, 1969-2012

To get a better sense of how affordable, or rather, unaffordable attending college has become, we next calculated the percentage that the average cost of tuition and fees for college would consume of the typical income earned by American households:

Ratio of Average Tuition and Required Fees for All Four-Year Degree-Granting Institutions to Median Household Income, 1969-2012

In the chart above, we see that after holding basically flat from 1969 through 1982 at a range between 8.6% and 9.0% of the median American household income, the ratio of the cost of attending college with respect to that income began rising rapidly, with the cost of college having reached 26.7% of the American median household income in 2011-2012.

We also see that there would appear to be certain periods where the cost of attending college rose considerably faster than median household incomes, which we've shaded in the chart above.

Let's next look at how the cost of attending college has grown against median household incomes from 1969 through 2012:

The Inflation of the Higher Education Bubble: Average College Tuition and Required Fees vs Median Household Income, 1969-2012

Here, we see that there have been three major inflation phases for the cost of college: the first running from 1990 to 1994, the second from 2000 to 2003 and the third from 2007 through at least 2012 (and likely, the present).

We should note that each of these periods coincide with periods of recession or extended underperformance for the U.S. economy. But what is perhaps more remarkable is that we do not observe the same pattern for earlier recessions, the major years for which we've also indicated on this third chart.

That's largely the role of increased government subsidies for higher education after 1989, in the form of grants and guarantees for student loans, which enabled colleges to continue jacking up their prices well above what a typical American household could afford to pay, because now Uncle Sam is increasingly stepping in to pay a growing share of the bill.


Of course, the rise of unaffordability has been juiced by the ready availability of credit to purchase said 'knowledge'... however, as we noted previously... student loans are NOT being used for education...

When one averages out the numbers, how many students are said to abuse their loans and use the proceeds to fund "other" uses? "About a quarter."

Research suggests a fair chunk of that is going to non-education expenses. In 2011-12, about a quarter of student borrowers took out loans that exceeded their tuition, after grants, by $2,500, according to research by Mark Kantrowitz, a higher-education analyst and publisher of the education site

And the one take home paragraph that summarizes this latest capital misallocation clusterfuck which has Fed bailout written all over it:

Mr. Selent, of Fort Lauderdale, knows he is getting himself deeper in a hole but prefers that to the alternative of making minimum wage. In his 20s, he earned a bachelor's degree in communications from a local for-profit school but couldn't find a job in the field after graduating and began falling behind on his student-loan bills. He is now taking courses for a degree in theater so he can become an actor.

What else is there to say?

Except that... that free money source comes with a weight problem... delinquencies are soaring...

What's worse, while the 90+ day student debt delinquency rate did post a tiny decline from 11.8% to 11.5% in Q4, on a total notional basis due to the increase in outstanding balances, as of this moment the amount of heavily delinquent student loans has just hit a fresh record high of $124.3 billion, up from $121.5 billion in the prior quarter.


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knukles's picture

Where else you gonna get a 4 year free ride saturated with Drugs, Sex and Rock & Roll?
Not mom's basement.
Well, except fonestar .... less the Drugs Sex and Rock & Roll

economics9698's picture

Confirmation the government fucks up everything it touches.

jbvtme's picture

the local re-ed camp is up %10 in the last four years...$58k per

Gringo Viejo's picture

True Story: A teacher spent 30 years teaching inner city schools in the LAUSD. On his last day he addressed his students:

"You are the future! And that is why....
I'm leaving the United States."

Supernova Born's picture

"Family" courts can order fathers to pay for college for adult children no matter what it costs.

No need to discount when the check is written or the father goes to jail.

NoDebt's picture

Let me give you a little context on that, courtesy of personal experience.  I am from a divorced family.  Mom and Dad split when I was 10.  Dad was ordered to pay for my college.  (And my brother's and sister's)

One of the most "real" conversations I ever had with my father was when he explained that he was required to pay for 4 years of my college.  Not until whenever I happened to graduate.  Just 4 years.  And just tuition.  Not "everything elese" that goes with it.  He said to choose wisely and asked me if I understood what he was saying.

I said yes.  And I graduated in 4 years, paying for my own room and board, books, incidental expenses, etc.  I ran my own landscaping company to pay for that.  I cut a LOT of grass.  I planted a LOT of plants.  I cleaned a LOT of gutters.  I wish I could have partied more, but those are the breaks.  Villanova was NOT a cheap school.  Neither was Embry Riddle Aeronautical University, where my brother became a pilot.  He worked his ass off, too, puttng cheap roofs on cheap houses.

Was any of this ideal?  No.  It was all fucked up, as life usually is.  I wouldn't recommend this path to anyone.  And this was 20+ years ago, when college was "affordable", in relative terms.

But what I discovered, and what has stuck with me is.... I do my best work with a gun to my head.

If you're waiting for somebody to bail your ass out, if you're waiting for this to be fair, you'll be waiting a long time.  I did what I had to do for the times.  DO NOT try the same thing today that I did 20+ years ago.  Find a different path.  Learn to be a welder or do HVAC work or something.  College is a racket and one that's got a lousy return if you need to go into significant debt to afford it.  

The world isn't what it used to be.  It barely made financial sense 20+ years ago.  It sure as shit doesn't make sense now.  I can't tell you the answer, because it's different today.  What I can tell you is that if you follow the traditional path and sink yourself in (non-expungable) debt, you're as good as dead.  STAY AWAY FROM DEBT.  It is SLAVERY.

kareninca's picture

Why did someone down-arrow this????????

NoDebt's picture

My down arrows are my most loyal readers.  Don't worry about it.  I don't.

RafterManFMJ's picture

Probably because they find the idea of a man being forced to pay for a 4 year education of his children to be disgusting and abhorrent.

I'm sure it wasn't aimed at NoDebt.

Fidel Sarcastro's picture

Down arrowed? I wondered the same. 

RafterManFMJ's picture


Flee with what you can carry; burn the rest to the ground.

wee-weed up's picture



You ain't seen nothing yet!

Just wait till Obozo forgives all student loans...

And then lets us taxpayers foot the bill!

"Stroke of the pen... Law of the land. Kinda cool!"

Caviar Emptor's picture

Nope. TPTB would consider that "an inflationary tax cut" . All that extra cash in the economy might inflate a bubble!

PT's picture

But, but, but ... the baby boomers were in the workforce (yes, okay, they're starting to retire now, but they also passed through their peak earning years), GenXers too.  Uni costs should have been the lowest relative to the working population.  How come prices went UP?


In order to go to uni, you must be smart enough to get in and yet dumb enough to sign a blank cheque and an open contract.  It also helps if you don't understand compound interest.  What gives first?

Uni:  No pay, everything is a loan and an expense out of your pocket.
Trade Apprenticeship:  Paid to learn, no loans, tools are a tax deduction.


Vampyroteuthis infernalis's picture

Just wait till Obozo forgives all student loans...

Those subsidized Stafford loans, guess what? We are going to pay for those defaults. Thank you gubimint!!!

Squid-puppets a-go-go's picture

yer this is the last of the debt that will ever be forgiven. Remember they passed a law couple a years back that you cant get out of student loan debt even if you declare bankruptcy

wee-weed up's picture

"Remember they passed a law couple a years back that you cant get out of student loan debt even if you declare bankruptcy"


Ha! When has a "passed law" ever stopped Obozo!

He don't need no steenkin' laws! He ignores them every day!

Billy Sol Estes's picture

Want to stomp on the bloated University system's dick?


1) Forgive all student loans.

2) Abolish all Federal school loan programs, pell grants, stafford loans.


Then Preppy-Pricker University will be making cost cutting measures left and right as their coccaine hook up runs dry.

I throw all almae mater mail straight to the trash. Senior year they mailed out letters asking for soon to be graduates to donate to the "Senior Class Gift" and to donate "whatever they could." I put a penny in the envelope and mailed it back to them.

PT's picture

I'm sure that the "investors" who provided the student loan money won't mind waiting for the bankrupts to earn the money to repay them ...

Actually, the loan document will probably be sitting inside the student / graduates' pension plan.

PT's picture

Gotta admit - it's only fair! ...

ChanceIs's picture




Sorry Big Guy.  You - and most - just don't get it.  I have written about this many times.  THERE IS NO SUCH THING AS A STUDENT LOAN BUBBLE.  There can only be bubbles in tradable assets, fir which a market is made.  There is no market for student loans.  (If you want to state that education costs are outrageously high and can't stay there, I would immediately agree.)

Colleges are paid for with printed Fed money.  You know....the Fed issues the credit for the student loans. That goes striaght into the economy and is immediately inflationary.  Its full effect is felt immediately.  The effect you reference is the money which won't be paid back in the future.  There is $1 trillion in student debt out there with a default rate of some 11%.  So that is $11 billion paid out annually to keep professors' salaries high and employ a bunch of college administrator fools making sure everything is equal at the college.  It is just a different form of stimulus - in this case to a bunch of liberal whack jobs who create voters for the Democrats.  (See what is going on at Dartmouth - students demanding unisex bathrooms and the like.  You tax dollars at work.)

So if the Fed through its "Quantitative Tightening" is providing $20 billion per month - $240 billion per year - less stimulus.  Nobody ever expects that back.  That money is flushed into bubbleicious stock prices - which can collapse.  What is the difference between that and students not paying back their loans.  Of course 50%, but the money is flushed anyway.  And if the Fed cuts it all back, then college defaults will be in the noise.

The whole issue here is gross misallocation of resources.  I gauarantee that if the Fed gives me - or any other ZeroHedge reader - $1 million, there really would be a multiplier in the economy.  For staters I would get the wymens studies majors out of the schools and into cutting my grass.  After a year, I might start teaching them how to fix my car.  Then they could go apprentice for a real auto repair shop.  Eventually they would become self sustaining.

libertus's picture

The whole higher ed system in the USA needs a drastic overhall. These guys have quite the interesting business model that lowers costs and creates incentive pay. Its all about the teachers. Check them out

BandGap's picture

10 years of college, 2.2 million in earnings so far. Only cost me 18K.

Quite a return for the US, and they didn't do dick. One year I paid 50K in federal income take, been roughly 15-30K for 20+ years. And what do I get for this?

Leave fonestar alone, he bleeds as much as any of us. Maybe more so lately.

Son of Loki's picture

<<Where else you gonna get a 4 year free ride saturated with Drugs, Sex and Rock & Roll?>>


Could be why every peasant [and non-peasant] in the civilized [and non-civilized] world is flooding across our bordes and via plane, car, boat and train to get to Merika to join the FSA.

fonzannoon's picture

Fwiw I ran into a guy a few weeks ago who was some sort of consultant to several Universities on their finances. We got into this whole discussion and he said the Universities already know where this is going. I had my 4yr old with me and he said "don't worry about college planning". When I asked him why he said that by the time my daughter is a senior in high school there will be an aptitude exam and whatever level my kid scores will be the level she enters "college". meaning she could start at the sophmore level etc. if she scores well enough.

90% of "College" will be done online. The next several years colleges will cannibalize each other until there are only a handful left that people would be willing to pay to attend. The university system will implode upon itself and many a college campus will be a ghost town as well as the surrounding area that existed solely due to the University. He said there is a huge migration happening to the south right now and the North will feel it the worst, abd first. Again, he said the university's that he consults for have already accepted this and are planning accordingly.

ebworthen's picture

The campuses would make good FEMA camps, but most are too nice; more likely Stormtrooper training camps.

RaceToTheBottom's picture

Stormtroopers training will be filled with residents of the FEMA camps.  That sort of Darwinian dynamic always results in the best/worst situation...

rtalcott's picture

It will all be online for most kids...their education will even be worse than it is now and the university's margin will be who 'wins?"

Skateboarder's picture

That's only ten years away fonz. We're talking about a radical shift from the current 'competitive' (lol) system - a paradigm change from the false acceptance of university degrees as competence certificates, to certification levels determined by aptitude tests.

It's hard to imagine, but so were a lot of things once, that have manifested into what is today.

nightshiftsucks's picture

So what will that do to the economy ? I can see the govt stepping in and making online courses illegal.

fonzannoon's picture

"So what will that do to the economy"

That was what I asked him. He punted the question. No way that can happen and everything else remain constant. Not a chance.

Greenskeeper_Carl's picture

Well, obviously the govt can't get out of the loan business, that would be 'draconian'. I see it taking a little longer than that for the average person, or the average parent finally stepping in and saying NO. Kids are indoctrinated every day in public schools that they have to go to college, that's the only way to have a future. And they are told this by public school teachers who probably owe 50k+ in loans themselves. It will be interesting to see how this plays out. Too many professors and administrators whose income depends on this scheme to allow this to go away quietly. The gov will probably continue this charade for many years, after all, "it's for the children"

fonzannoon's picture

By the time this thing is over the free shit army is going to be so big we will be unable to comprehend it.

Billy Sol Estes's picture

Billy Sol Estes' girlfriend is working on her Phd and has gone non stop from undergrad-grad-phd. She will have about $150k in student loans when she finishes. Her parents are dirt poor and are paying for her sisters hoarding hobby and shitting up the parents' house with her two kids and worthless un-wed baby daddy. Her other sister is a failure in life too. They have only helped her on some medical bills and gas money. Tuition and the rest were all through loans. When we first started dating I was a bit apprehensive to the amount of debt she would have at graduation but I slowly realized she was trying to jettison herself from the shit-hole life her 2 sisters lead where they leech off her parents.

She worked in restaraunts for 10 years, from high school to grad school, and taken out loan after loan every year. I met her at a lower end public school I went to for my masters that literally cannot turn away any student with a cash flow or loan eligibility. The whole masters program was a joke where thesis topics like "what is the probability of catching a foul ball at the Univ. baseball field" were constantly being rejected by graduate affairs.

I originally thought I would ask her to pay a hefty sum of money toward the loans to get them paid off in our lifetime, but at this point I want her to pay the bare minimum and just wait for the SHTF year or mass debt forgiveness. Laissez les bon temps rouler!


Caviar Emptor's picture

Nope. Govt will encourage the trend to downsize student loan bubble and make sure that kids are only trained in one skill. Dumb down the serfs

centerline's picture

I have been watching this space for years now.  Without a doubt it is heading into oblivion.  A complete mess.  Got to run right now - but remind me sometime and I will give a few details about how what the schools are telling people and what they are actually doing are completely opposite!  As usual - it's all about the cash!

Billy Sol Estes's picture

I can tell you in Texas all the universities get paid for the # of dimwits they churn out, regardless if they pass or not. Even present at the graduate level.

A is awesome

B is bad

C is for credit

D is for DIPLOMA!

and F is for Free Semester next year!

Greenskeeper_Carl's picture

Very interesting. I have a 6 month old, he is our first child, and I have been thinking about that. My family and my wife's family gave him money for the holidays and his baptism (she and her family are catholic, and consider that a big deal), and have been telling me I should start a savings account for him for college. I take that money and buy silver with it, and put it in my safe in a seperate stack since I refuse to let his purchasing power disappear over the next 18 years. My plan is to either let him use that towards college of he wants, or, when I think he is responsible enough, just give it to him as a start on his savings. I'm not paying 20k a year for him to waste 4 years of his life to earn a useless piece of paper. I did three years there, majoring in kegs and condoms, lost my lottery-funded scholarship (in GA) and enlisted in the coast guard rather than put myself into debt like that. That was almost 10 years ago.

Aussiekiwi's picture

LOL, friend of mine entering the US was queried about his aussie passport as it did not have long to run, the immigration officer was concerned he might try to stay, my friend fell around laughing, pointed out to the officer the free health care he has in aussie, the weather, the lifestyle, the cost of living the 140k plus he earns against the 50k he would earn in the states and asked him why he would possibly want to stay....the officer was not impressed....which made it even funnier. 

Not every non peasant in the civilised world wants to live in the US, some of us feel a little sorry for you.

First There Is A Mountain's picture

Yawn....haughty comments from some clueless Aussie are entertainment enough but I thought I'd toss some cold water on your little screed. You've just postponed your day of reckoning but when your immense RE Bubble pops and China goes into a tailspin, I doubt you'll be so smug. Aussies have been living WELL beyond their means for a good long time and like the US and Europe, you will soon start circling the drain. And given you are now very close to if not the fattest nation on earth, that -ahem- free health care sure is going to come in handy. Face it, you're a giant strip mine for China and little else and America is their dumping ground. Your pathetic trade deficit is a testament to that and the only reason it narrows is because you're maxing out your credit cards and cannot continue to consume so conspicuously. Otherwise, Australia is a nice place as I've had the pleasure of vacationing there several times. I don't feel sorry for Aussies except to say that the heretofore strange and entirely innacurate depiction of Australian women as blond hair/blue eye surf goddesses couldn't be further from the truth. On the contrary, they're some of the more homely women on earth except for maybe the swamp donkeys native to New Zealand. lol. I guess that's a double whammy, eh mate? 

FredFlintstone's picture

I was in NZ last summer for about a week on business and never did notice even one woman that made my head turn. Granted most of my time was on the south island, but even up in Auckland there was never a hot chick. I had a theory that they had to take whatever they could grab on the docks of England before leaving port.

First There Is A Mountain's picture

I was in Rio for Carnaval years ago and a British friend had arranged for us to stay with EIGHT KIWI women in a Copacabana rental house. Long story short, he knew one of them from other travels and so she invited us to stay with the group, mostly because they were scared shitless of Rio. I thought to myself, wow, pretty good odds for a couple of single guys. Surely one of them is relatively attractive. Boy was I in for a major letdown. Every single one of them closely resembled Shrek to some degree. They were fun enough as they could drink like no one's business but that was about it. And when in Brazil, why even bother with anyone other than the stunning local talent. Also traveled around with some cool Kiwi guys in Argentina - they were the first to admit that NZ was hopelessly devoid of attractive women. Said they went to the UK to make $$ and get laid. If you're going to the UK to get laid, things are worse than they seem. 

FredFlintstone's picture

"scared shitless of Rio"... not afraid of being raped I suppose.

kareninca's picture

All of the New Zealand men I have met have looked just like the Beagle Boys from the old Donald Duck cartoons; there must be a serious genetic bottleneck there.

And our (male) neighbor from Australia is very sweet, but he has the physique of Patrick Starfish, from the Spongebob cartoon.

I guess you can't have a bunch of homely women in a region, without the men being homely too.

RafterManFMJ's picture

As a man who breeds the Amish in Lancaster, PA for some serious side income (and I promise you, I don't come cheap) what could I expect in payment to improve the Kiwi blood line?

Currently I make as much as 200 dollars per session or am often offered my weight in chickens.

Exponere Mendaces's picture


See you're living up to your "Zippy the Pinhead" avatar. That's the problem with prior generations, they're so smugly sure they've played it all right, they can't help but be a bunch of gloating douchebags.

knukles's picture

"Are we having fun yet?"
  -Zippy the Pinhead, Bartletts Familiar Quotations

Eireann go Brach's picture

How much will it cost to attend college in Kenya, so I can become the next president of Amerika?