Excerpt from: http://online.wsj.com/article/SB125511860883676713…

“We saw an extension of credit to a much deeper socioeconomic level, and they got access to the same credit instruments as middle-class and mainstream Americans,” says Ronald Mann, a Columbia University law professor. Now, “it will be harder for families at the bottom of the income ladder to get credit cards,” he says.

The financial crisis has forced lenders to be especially cautious with the riskiest borrowers, a category that low-income families often fall into because their debt tends to be higher relative to income and assets. The ratio of credit-card debt to income is 50% higher for the lowest two-fifths of Americans by income than for the top two-fifths, Federal Reserve data show.

Although the tone of the article tends to focus on young people and their consumer behaviors, there is also a glimpse at a much more troubling problem.

Treasury Secretary Timothy Geithner, testifying before Congress in July, said: “We now know that millions of Americans were…unable to evaluate the risks associated with borrowing to support the purchase of a home, a car or an education.”

Student Loan Bubble is curious to hear more about Geithner’s perspective on the inability of Americans to evaluate risk, and if this can be remedied by better information, better financial education, different regulation, or perhaps something else entirely.

Education is an excellent vehicle for elevating one’s socioeconomic status, but The WSJ has identified a major issue for those in greatest need of elevation: disproportionate debt levels, coupled with the previously unheard of suggestion that education might be a risky investment.

Related posts:

1. Credit cards are a fatally attractive gimmick for managing student loan debt The student loan bubble is a unique debt situation that spans multiple generations, with the younger doing its best to...

Student Loan Bubble recently discussed one major problem with this figure: new college graduates will only earn $7000 more per year than their high school peers, while shouldering significantly more debt than high school-educated workers. Additionally, high school grads will have at least four years worth of income before college grads even enter the workforce. The take home message from the first Student Loan Bubble article is that recent grads are facing a very real risk that they won’t be able to manage their student loan debt with such a meager income increase, at least during the first few years.

The first article provoked some interesting feedback such as the question, “what happens later in life?” In this article, Student Loan Bubble presents two graphs of lifetime earnings, which were calculated based on median income data from the US Census. The census provides data in 10-year aggregates, so Student Loan Bubble assumed a yearly pay raise that would make yearly earnings consistent with the census aggregates. After determining yearly income, Student Loan Bubble determined the cumulative income between the ages of 21 and 64.

The first graph presents yearly median incomes of High School and College graduates. You can click for a higher resolution version. Notice that the gap is not major while workers are young, and that by age 35, everyone has nearly achieved their maximum earning potential. It is difficult to perceive, but high school workers actually notice a slight pay decline between age 55 and 64.

Next, Student Loan Bubble presents cumulative earnings, and these results might surprise you. By the time workers are 64, college grads will have earned $1,991,574 while high school grads will have earned $1,258,998. These are median figures, which means that 50% of workers will earn less than these amounts. The difference in median lifetime earning is $732,576, which is less than 75% of the fabled $1,000,000.

Consider, too, that it not unusual to pay $120,000 to attend a private university for 4 years, and the earning difference drops to approximately $600,000. Once interest expenses are included in this figure, and accounting for the very real risk of penalties for late payments, the earning difference will be reduced even further. It should be reiterated again that these are all median data, which are a robust measure that is not affected by high-earning outliers.

It is plainly evident from these graphs that college graduates can expect to earn more with their degree, but the exact amount of this earning difference deserves to be scrutinized. The next step is to examine the upper and lower quartiles to see how the relationship looks. Student Loan Bubble predicts that the earnings gap for the 25th percentile will be somewhat lower than the median difference, and that the 75th percentile will show a much larger income difference.

It is the conclusion of Student Loan Bubble that the $1,000,000 lifetime earning difference truly is a myth that is not supported by the median income data. In the case that this myth has been used to justify excessive student debt liabilities, it is possible that some students will be seriously disappointed by their lifetime earning potential.

Supplement: A CSV file is available to download here, for anyone who wishes to give these data a closer look.
student-loan-bubble-lifetime-median-income.csv

Related posts:

1. The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads. In a recent article for Forbes Magazine, Kathy Kristof writes about "The Great College Hoax," which debunks the premise that...

What, then, about those who used debt to create real value? What about the companies that leveraged their debt and invested wisely? What about the individuals who used debt to pay for education? This line of reasoning is loaded, because it takes as a presupposition that “Education is Valuable.” With the caveat that some people might argue over the true value of education, Student Loan Bubble will take it as a given that college usually does increase an individual’s capacity to be a productive member of society.

At what point did we collectively decide that our public funds would be used to reward failed businesses? When did we decide we would use public money to send people to school, only to leave them with crippling debt repayments? As Student Loan Bubble has previously speculated, it is entirely possible that the public financing of education has driven tuition prices up at a rate much faster than inflation.

As a nation, are we entirely satisfied to punish the most productive members of our society with debt that is impossible to discharge, when it was probably a public policy error that inflated tuition prices in the first place?

Certainly, this line of reasoning is not without consequence. This is the perfect storm that would trigger the Student Loan Bubble, which would create a new “dark ages” for US colleges and universities who rely on inflated tuition, and would bankrupt even more lending companies. Those securities that are backed by student loan debt would suddenly become “toxic assets” in exactly the same manner as housing mortgages. Government purchase of those newly-toxic assets would, in fact, be a bailout for the student lending industry.

At this point, Student Loan Bubble is not willing to articulate a formal position on the topic, but there are extremely compelling arguments to be made for both sides of the issue. Consider the following article from banks.com…

Excerpt from: http://www.banks.com/blogs/mortgages/2009/03/13/wo…

In a way, it makes sense. How many of us graduated from school with student loan debt? What would we be able to buy if we didn’t have it? How much more would we be able to borrow if we weren’t making student loan payments? The stated goals of our leaders, since the issue of financial crisis reared its head, have all been connected with getting us to spend more money. So why not make it possible?

Student loan forgiveness would be costly, though. The government would have to buy all the loans from the folks it subsidizes to offer low cost student loans, and then forgive the loans. It could work, though, as part of the effort to cut out the “middle man” when it comes to student loans. If the government began making the loans directly to students, rather than paying others to do so, the government could make money on it. And it might go toward reducing the horrendous deficit we’re in.

Related posts:

1. Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...
2. Sallie Mae: the privatization of student loan profits A 2006 report by Leslie Stahl of 60 minutes investigates Sallie Mae, the program set up by Congress in 1972...
3. What causes tuition to rise? It's funny how a question might take five words to ask, and require chapters to answer. Here's one such question:...

Student Loan Bubble sees a much more serious statistical error in this reasoning: recent graduates earn less at the beginning of their careers, and average (also called “mean”) earnings are a distorted representation of actual earnings. A few individuals (so-called outliers) who earn much more than the rest will distort the mean, while the median will be resistant to this problem. Wikipedia provides the following explanation of median versus mean:

The median is primarily used for skewed distributions, which it represents differently than the arithmetic mean. Consider the multiset { 1, 2, 2, 2, 3, 9 }. The median is 2 in this case, as is the mode, and it might be seen as a better indication of central tendency than the arithmetic mean of 3.166.

Calculation of medians is a popular technique in summary statistics and summarizing statistical data, since it is simple to understand and easy to calculate, while also giving a measure that is more robust in the presence of outlier values than is the mean.

The following table, entitled “Earnings By Occupation and Education,” presents median yearly earnings for individuals aged 21-24, broken down by educational attainment. Click on the image for the full-size version. The original census data are available from http://www.census.gov/hhes/www/income/earnings/call1usboth.html

Students cannot expect to earn an “average” amount of money; in this case, the median is a much more accurate picture of reality. Among recent graduates, the median income discrepancy between college and high school grads is a mere $7,415, which is accompanied by tens of thousands in student debt repayment. Later in life, a college degree is “worth more,” but student debt repayment usually begins when the student is 21 or 22 years old; student lenders are not content to wait until the debtor earns a higher annual income.

It is the conclusion of Student Loan Bubble that the median income statistic deserves more attention, and that lifetime earnings are a misrepresentation of what recent graduates can expect to earn. Between college and high school graduates, loan debt uniquely affects the former, who do not earn dramatically more than the latter. College graduates in their early 20s are at unique risk of not earning enough to repay their student debts. The risk inherent in managing student loans as a young professional may not be offset by future earning potential.

Excerpt from: http://www.forbes.com/forbes/2009/0202/060.html

Census figures show that college grads earn an average of $57,500 a year, which is 82% more than the $31,600 high school alumni make. Multiply the $25,900 difference by the 40 years the average person works and, sure enough, it comes to a tad over $1 million.

But anybody who has gotten a passing grade in statistics knows what’s wrong with this line of argument. A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college. To cite the extreme and obvious example: Bill Gates is rich because he knows how to run a business, not because he matriculated at Harvard. Finishing his degree wouldn’t have increased his income.

All the while students have been lulled into thinking of the extra $1 million that will be theirs, they have been forced to disgorge an ever larger fraction of it in pursuit of the degree. While the premium that college grads earn over high schoolers has remained relatively constant over the past five years, the cost of acquiring a degree has risen at twice the rate of inflation, dramatically undermining any value a sheepskin adds.

Offsetting that million-dollar income discrepancy is the $46,700 four-year cost of tuition, fees, books, room and board at a public school and $99,900 at a private one–even after financial aid, scholarships and grants. Add all this to the equation and college grads don’t pull even with high school grads in lifetime income until age 33 on average, the College Board says. Even that doesn’t include the $125,000 in pay students forgo over four years.

Related posts:

1. The Lifetime Earnings Myth Part II: College Grads only earn $732576 more than High School Grads If you are fortunate enough to be in college right now, or if you ever went to college, then you...

Dear Chairman Frank and Chairman Miller:

As representatives of students, consumers, colleges, administrators, and counselors, we want to take this opportunity to thank you for your efforts to include consumer protections and accountability under the Troubled Asset Relief Program (TARP) through H.R.384, the TARP Reform and Accountability Act of 2009.

We are writing about an urgent matter related to the planned roll-out of the TARP sub-program, the Term Asset-Backed Securities Loan Facility (TALF), in February. As you know, we are concerned about the planned allocation of TALF funds to private student loan providers. Private student loans are more risky and expensive than federal loans because of high variable interest rates and few consumer protections, and private loan lenders already enjoy special bankruptcy treatment under federal law. For these reasons, financial aid experts agree that private loans should only be a last resort for students. Additionally, we estimate that just eight percent of undergraduates use private student loans, and many of those borrowers have not exhausted their federal loan options.

To ensure that taxpayer dollars in the TALF program serve students and consumers as well as lenders, we ask you to urge the Secretary of Treasury to make the receipt of TALF funds for private student loan financing conditional upon adequate consumer protections and better data collection. Specific conditions that we believe are important for the Secretary implement include:

1. Loan modification and/or work-out requirements, such as reductions in principal and economic hardship deferrals, for current and future private student loans;
2. Discharges in cases of borrower death or severe disability, for current and future private student loans;
3. Limits on interest rates, origination and other fees for future loans;
4. Mandatory loan certification and inclusion of the FTC holder notice for future loans; and
5. Detailed data reporting on individual future loans replicating the reporting required for Family Federal Education Loans (FFEL) pursuant to section 1092b(a) of 20 U.S.C..

A bailout for the providers of usurious private student loans will not solve the college affordability crisis caused by the failing economy, and will actually be detrimental to many students and consumers. However, if a form of rescue is provided for private student loans, it would be unconscionable to do so without also providing better consumer protections. Implementing these protections will help ensure that private lenders do not unfairly benefit from the bailout at the expense of past, present, and future students and their families.

We realize that there are many pressing issues requiring your attention during these difficult economic times, but respectfully request that you consider this issue a priority given the fast-approaching commencement of TALF fund disbursement.

Sincerely,

American Association of Collegiate Registrars and Admissions Officers
American Association of Community Colleges
American Association of State Colleges and Universities
American Association of University Women (AAUW)
Americans for Fairness in Lending
Campus Progress
Consumers Union
Dēmos: A Network for Ideas & Action
The Greenlining Institute
National Association for the Advancement of Colored People (NAACP)
National Association of Student Financial Aid Administrators
National Center for Public Policy and Higher Education
National Consumer Law Center (on behalf of our low-income clients)
National Consumers League
The Project on Student Debt (an initiative of the Institute for College Access & Success)
National Association for College Admission Counseling
The Sargent Shriver National Center on Poverty Law
U.S. Public Interest Research Groups
United States Students Association

Related posts:

1. Default: the Student Loan Documentary After watching the trailer for Default: the Student Loan Documentary, I eagerly anticipate the general release of this film, which...
2. Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...
3. How will the student loan bubble affect colleges? An inevitable consequence of the changing landscape in student loans is that colleges and universities have a mixed outlook, because...

1. inflation – year after year, our currency is devalued as the monetary base is expanded, thereby reducing the purchasing power of our currency. This is reflected in the cost of all goods, although tuition appears to increase at a certain multiple of the rate of inflation.
2. prestige – colleges seek to increase their prestige, as this is a critical factor that differentiates colleges from one another, and colleges may justifiably expend more money on prestige-related expenses (faculty hires, luxury construction, etc).
3. student achievement – the quality of students is related to who submits applications, whose applications are accepted, and which students decide to attend. In attracting the highest quality students, colleges might offer tuition breaks to certain students, which they would offset by charging all students a generally higher tuition.
4. resource provisioning – related to all of the previous factors, it is critical for colleges to provide resources to students to increase prestige and student achievement, but the amount expended on resources will be subject to inflation.
5. available student credit – the capacity of students to “afford higher tuition” is related to the amount of credit that is available for students to borrow. This credit is subject to legislative pressures, and less influenced by traditional financing metrics (e.g. collateral, credit history).
6. education legislation – the ability of lenders to take risks on financially unproven debtors (i.e. 17- and 18-year old students) is related to incentive programs that must be artificially inexpensive for lenders, which is not possible through free-market forces and must be driven by extra-market intervention through legislation.

Likely, there are other factors to include in this model, but this is a start.

The core question involves “what causes what.” Do colleges charge more because they must do so to grow their prestige, or can they grow prestige because students are able to pay more? Does it cost more to pay for school because schools provide more resources, because those resources cost more, or is this fundamentally unrelated? The number of different models that can be formed using the factors listed above only grows as more factors are identified. For now, Student Loan Bubble will look at existing work to see what others have identified, but this is a theme that Student Loan Bubble will revisit from time to time.

In the following New York Times piece, Glater describes certain consequences of the year-over-year increase in tuition, and some of the forces that drive it. It’s not a “grand unified theory of tuition” but many of the previously listed factors are reflected in this article. I was particularly interested to learn that lending at public schools is inversely related to state funding of those schools, such that students have historically made up the funding deficit through loans. State citizens will be exposed to the cost of public school funding through the taxes they pay, and reducing this form of exposure increases the costs that are shouldered by individuals. I also thought it was interesting that certain forms of low-income grants have decreased in recent years, and I am curious to know more about that causes for that.

Read on, and if you can think of other factors that influence tuition prices, please post a reply to this article.

Excerpt from: http://www.nytimes.com/2007/10/23/education/23tuit…

“The average price of college is continuing to rise more rapidly than the consumer price index, more rapidly than prices in the economy,” Sandy Baum, a co-author of the report who is a senior policy analyst for the College Board and a professor at Skidmore College, told reporters at a news conference yesterday.

Ms. Baum added that the prices “are probably higher than most of us want.”

Those price increases reflect increases in the sticker price that colleges advertise, though, Ms. Baum said, the average student does not pay that full amount. At public universities, the average student gets about $3,600 in grants and tax benefits, lowering the actual cost to around $2,600. At private institutions, aid totals about $9,300, bringing the cost to $14,400.

But even the net price, after taking into account grants and other forms of aid, is rising more quickly than prices of other goods and than family incomes. In recent years, consumer prices have risen less than 3 percent a year, while net tuition at public colleges has risen by 8.8 percent and at private ones, 6.7 percent.

The changes in tuition at public institutions closely track changes in financing they receive from state governments and other public sources, the report found. When state and local support for public colleges declined over the last seven years, tuition and fees rose more quickly, and as state support has grown of late, the pace of increases fell, it said.

“We hope that state governments – which really set tuition prices at most public colleges and universities – will do their part to reinvest in higher education,” David Ward, president of the American Council on Education, said in a statement released by the College Board.

Private loans, those not guaranteed by the federal government, continued to be the fastest-growing form of borrowing, totaling more than $17 billion in the 2006-7 academic year. In the same period, students and their families borrowed $59.6 billion in federally guaranteed loans.

Related posts:

1. Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...
2. Is student loan forgiveness the answer? Many sectors of the economy, from banking to insurance to manufacturing, have all received extremely sizable public assistance in order...
3. Regarding H.R.384: Consumer Protections for Student Borrowers On January 26, 2009 a coalition including The Project on Student Debt sent the following letter to Congressman Barney Frank,...

For its lending and collection businesses, SLM Corporation enjoys unprecedented legal advantages that are not shared by any other class of financing, including many unique techniques for retrieving repayment from students who have defaulted. As a result, the repayment rate for student loans is currently 95%, which is significantly higher than in the past, and is higher than other industries. Stahl interviews several experts to figure out how SLM Corporation came to be, and uncovers a fascinating story of amazing profits and questionable expenses.

RTFA: http://www.cbsnews.com/stories/2006/05/05/60minute…

“It may be called ‘private’ by the people in the system. But it’s not private at all,” says Michael Dannenberg, who analyzes student loan policy at the New America Foundation, a non-partisan think tank.

“What do you call it?” Stahl asks.

“Frankly, it’s a socialist-like system,” he says. “It’s not as if this private entity is assuming any risks. No, no, no. The law makes sure that this so-called private entity has virtually no risk.”

On top of that, Sallie Mae also owns some of the biggest collection agencies in the country. Once a student borrower goes into default, the government pays Sallie Mae all the principle and compounded interest that have accrued.

The loan then passes into the collection phase. If Sallie Mae is the collector, it gets to keep up to 25 percent of whatever is recovered. In 2005, nearly a fifth of its revenue came from its collection business.

“Sallie Mae makes money if you pay back on time. And Sallie Mae makes money if you don’t pay back on time,” says Elizabeth Warren, a professor of bankruptcy law at Harvard Law School.

Warren says it’s a mistake to allow Sallie Mae to be both a lender and a collector.

“It shouldn’t be the case that Sallie Mae gets to play every hand at the poker table while the government is the one that keeps anteing up the money,” Warren tells Stahl. “But let’s be clear. That by itself isn’t enough. We have to decide collectively as a country: do we want to encourage the young people who are trying to get college diplomas? And if the answer to that is yes, the way to encourage them is not to double and triple the amount that they owe when they get into financial troubles.”

By law, private lenders must offer payment options, but that usually means the loans just balloon. So even though 95 percent do pay up over time, many are burdened with heavy debt. In a statement, Sallie Mae told 60 Minutes it makes far more money from those who pay on time, than from those who default

Related posts:

1. Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...
2. Is student loan forgiveness the answer? Many sectors of the economy, from banking to insurance to manufacturing, have all received extremely sizable public assistance in order...

Vedder and Gillen draw a parallel to the housing bubble by observing the similar financing practices that drove both bubbles. From the Student Loan Bubble perspective, the inverse observation is that the prospects for future growth in career income justified the risk of taking on student loans. This wager on future earnings downplayed the threat that young professionals might not be able to repay their debts, unless they truly earned more money through their career.

Both descriptions converge on the similarities to the housing bubble, but the conclusion is ultimately unsettling. Whereas over-extended home debtors are able to default on their mortgages, students have no home-like asset that can be repossessed by the bank. Vedder and Gillen suggest a somewhat bizarre strategy, whereby colleges purchase equity in students’ future earnings, financed by the college endowment. The suggestion is either deeply unsettling, or simply another way of saying that students will go into debt for the eduction, making repayments to the school instead of a bank. In all, it makes for an interesting read.

Excerpt from: http://www.insidehighered.com/views/2008/05/02/ved…

The 61 percent increase in inflation-adjusted federal loans over the last decade leaves virtually all their students capable of paying more in tuition. The schools can either raise tuition, using the additional money to help build a better (more prestigious) college , or could leave tuition unchanged in an inflation-adjusted sense. The decision they made is obvious from U.S. Department of Education data. Over the last 10 years, after adjusting for inflation, tuition is up 48% at public schools and 24% at private schools.

Giving schools more money to build better institutions may not seem like a bad idea, but keep in mind that their goal is to increase prestige. This means that they will not necessarily use the money to improve the education their students receive. For example, Inside Higher Ed recently reported that less than half of employees at America’s institutions of higher education are faculty, information reinforced by a new study released this week. Today’s universities are congested with vast bureaucracies that stifle innovation and waste resources. Princeton University recently constructed a fancy dorm that cost $70,000 more per bed than the median home price. This unnecessary largess should show that what increases prestige may have very little effect on the education of students. Moreover, much of the extra money for schools ultimately comes from the students, who have seen the average debt upon graduation steadily increase to over $20,000 last year.

The analogy to the housing bubble is nearly perfect. Low interest rates arising from expansionary Federal Reserve policies led to rising housing demand, rising home prices, and excessive lending to individuals with dubious credit worthiness. Similar things have happened with student loans. The federal government has provided subsidized, low interest credit, often to students whose prospects for graduating from college are marginal and whose credit histories are non-existent. Student loan defaults are rising along with tuition fees. Already, some private lenders are exiting the market and federal officials are starting to become increasingly worried about the availability of student loans. The government-induced housing bubble is paralleled by what could be thought of as a tuition-loan bubble.

Related posts:

1. What causes tuition to rise? It's funny how a question might take five words to ask, and require chapters to answer. Here's one such question:...
2. How will the student loan bubble affect colleges? An inevitable consequence of the changing landscape in student loans is that colleges and universities have a mixed outlook, because...
3. Is student loan forgiveness the answer? Many sectors of the economy, from banking to insurance to manufacturing, have all received extremely sizable public assistance in order...

The practice of leveraging credit cards against student debt is a recipe for disaster, because it isn’t the interest rate of credit cards that makes this behavior attractive, it is the debt repayment terms that make the more expensive option attractive. Students are unable to default on their educational loan debt, but they may have more options for dealing with poorly managed credit card debt.

Excerpt from: http://online.wsj.com/article/SB122756709839854439…

Recent graduates traditionally live on a shoestring, but they were often protected by a financial safety net: their parents. Now, as 401(k) balances erode and home values plunge, many families are coping with other financial problems and are less able to help the children.

Mandy Kakavas graduated in 2007 with $25,000 in student loans and $3,000 in credit card debt. Her mother raided her 401(k) to help her daughter pay for a degree in mass communications from the University of California, Berkeley, and can no longer help her financially.

“I look at the headlines about the bad economy, and I feel like I’ve already been there for a while,” she says.

Although Ms. Kakavas has cut corners on dining out and taken a second job to earn extra cash, she says she often uses her credit cards to pay her student-loan bills. In January, a new batch of student loans that were deferred will land.

“It’s going to catch up to me,” she says. “It’s hard to see financially where you’re going to be 20 years from now when you don’t know how you’re going to make payments next month.”

Some are taking out loans to cover the loans. Lindsay Fletcher of Wilmington, N.C., has $50,000 in student loans. To make ends meet for the next couple of months, she has taken out a $2,500 personal loan at a 13.9% interest rate to help pay off her credit cards and student loans, which come out of forbearance — deferment due to financial hardship — in November.

“There’s been a lot of tearful calls to Mom,” Ms. Fletcher says. “And I know that if she could help me, she would. But I don’t want her to have to. That’s why I went to college.” Unlike mortgages and credit cards, student loans are not forgiven in bankruptcy proceedings.

Related posts:

1. Student Loan Debt and Low Income Families The Wall Street Journal recently reviewed the ways low income families are impacted by the US credit crunch. In addition...

Excerpt from: http://www.forbes.com/2008/10/22/college-debt-loan…

College tuition has increased by more than three times the rate of inflation for the last 20 years, despite U.S. wages flat-lining since 2000. The average tuition at a private four-year institution grew 6.6% year-over-year in 2007 to $23,712, according to the College Board. This is pricey in itself, but when you add in all the luxe living expenses, the total bill touches $50,000 a year at the high end.

To the chagrin of financial advisers, students are increasingly turning to higher interest private loans to meet the burgeoning college bill. Private loans made up 24% of total education loans in 2006-07, up from 6% a decade ago. In 2008, students secured $20 billion in private loans–amounting to roughly a fifth of total undergraduate borrowings for the year. Taxpayers pony up, too, chipping in an average $4,000 per student through government loans and grants to private institutions, which usually come up with $3,720 in aid (often in the form of discounted tuitions) as well.

It’s a scenario familiar to anyone who watched the housing bubble blow. “We are at a trend line that cannot be sustained,” says Matt Snowling, an analyst at Friedman, Billings and Ramsey, who covers the student loan industry. “Tuition must go down, or there will be limited demand at high-priced private schools.”

Related posts:

1. Long-term student loan inflation provided money to students, indirectly to colleges A central component of the Student Loan Bubble thesis is the effect of over-abundant federally subsidized debt, which increased students'...
2. The lifetime earning myth: go to college, make $1 million extra. The reality: recent college grads annually earn $7,415 more than high school grads. In a recent article for Forbes Magazine, Kathy Kristof writes about "The Great College Hoax," which debunks the premise that...
3. What causes tuition to rise? It's funny how a question might take five words to ask, and require chapters to answer. Here's one such question:...