ECON430-Topic #2: Growth of Credit and Household Formation

We have recently discussed how debt and credit play an important role in economic growth. When debt and credit decline, it is often due to a slowdown in economic activity. More recently a rapid increase in debt might also represent a dangerous indicator that growth is faltering.

According to recently released Census information, the number of young adults cohabitating with their parents is now at the highest recorded rate (30.3% nationwide and 27.7% in Virginia) since the early 1980s. One of the implications of the slowdown in household formation is that young men and women who graduate from high school or college are not leaving home as rapidly as they once were. These men and women may be more likely to do this if they have excessive debt from school or are unable to access credit markets to purchase homes, cars, or other things that would be associated with “starting one’s life on their own.” Currently, “the average Class of 2014 graduate with student-loan debt has around $33,000 to pay back” which coincides with rising tuitions at both public and private universities, and reduced funding from states who are facing their own budget deficits (JMU). Not only is the inflation-adjusted debt load per student rising, the number of students leaving college with debt is rising as well. This rising aggregate student debt helps explain some of the rise in parental cohabitation, but much of the reason lies elsewhere.

While aggregate debt is rising rapidly to 11.8 trillion, it is still below the levels that it hit at the previous peak of $12.7 in 2008. Thus, debt has a cyclical feature, as rising debt is usually associated with rising delinquencies, as increased debt burdens lead to more people being unable to pay their bills on time. It is notable that we are seeing rising delinquencies in various types of debt including student and car loan related data.

Questions you might consider:

  • The main question you should be thinking about here relates to how this rising debt load might impact the economy’s ability to weather future recessions or what impact it might have on growth if the majority of college students not only have debt, but face increasing amounts even after adjusting for inflation. Does this debt limit government career potential or finance and law?
  • Do rising debt levels force people to put off starting their own families? How might this affect the future population if college educated adults cannot afford to have children.
  • Also note, that recessions happen to coincide with times when people lose their jobs and might need to rely on credit to get by. However, this is also a time when people lose their access to credit.

Think about how to weave your thoughts here around factual data or academic research. Do not simply recite the numbers posted here, but dig into these stories a bit more.

 

debt_dispincome_ratio

15 thoughts on “ECON430-Topic #2: Growth of Credit and Household Formation”

  1. In 2013 just under 70% of graduates left college with $28,400 in average debt. Also in that year it is estimated that it will take $245,240 ($304,480 with expected inflation) to raise a middle-income child till 18. In 2013 the average graduate first year salary is $45,327, but rose 7.5% in 2014 to $48,707. Women are having kids later and later, compared to 1990 there was 13% of teenage pregnancy in 2008 (the most recent data available) it fell to 10%. Pregnancy in women over age 35 rose from 9% to 14% from 1990 to 2008. Of these mothers 54% in 2008 had college degrees, rising from 41% in 1990.
    Although the years don’t exactly equate there is clearly a trend in this data. College delinquent debt is rising, mothers are birthing later, but also college degree first year salaries are rising and inflation is currently under control. So even with a 4.66% interest (average student loan interest), the average future value of this debt in 10 years, with no payments is $45,217. So a parent would need to save $45,217 (student loan debt) and $304,480 (to be prepared and not need to save further for a child) totaling $349,697. So without any promotion the average parent would make $589,251 by age 35. To be prepared by age 35, with 2 parents saving and paying off loans would need to save 30.8% per year. Easily feasible when considering the young adult cohabitating is 30.3%, this is not counting the salary of the 18 years with the child and promotions in a 10 year period is also likely. So there is not much room for the argument that college loans will weigh so heavy on graduates, that they will not be able to afford children. Although it isn’t the case for all, graduates might need to wait a little longer (till age 30-35) to comfortably afford children.

    http://www.usnews.com/news/articles/2014/11/13/average-student-loan-debt-hits-30-000
    http://www.huffingtonpost.com/2014/08/18/cost-of-raising-a-child_n_5688179.html
    https://www.naceweb.org/s09032014/starting-salaries-for-2014-graduates.aspx
    http://www.pewsocialtrends.org/2010/05/06/the-new-demography-of-american-motherhood/
    https://studentaid.ed.gov/types/loans/interest-rates

  2. With increasing student debt loads, the average debt owner will be increasingly unable to pay their debt off, or even pay the interest on the money borrowed. Unable to pay could result in them defaulting on the loans and thus destroying their credit rating, and putting a stop to the idea of any future borrowing. Avoiding this would be in the best interest for all parties involved, resulting in the struggle to refinance and create a new set of conditions from the lender. If this is not possible, there could be a mass bankruptcy problem for all graduates, whether they are living at home or not. This does however; create incentive to put off buying houses and starting families.

    Due to the increasing debt loads, the financial burden of forming a family, buying a house, or simply purchasing a car of your own will amplify greatly, if it is still even in the realm of possibility. This results in the rise of parental cohabitation and greatly delays “all of the things their (graduate’s) parents and grand parents did (2).” This delay affects the age that these graduates would be having kids, but this will not stop the rapid populations growth. Statista (3) found that in 2010 the overwhelming majority of childbirths occurred in low-income households (25k and below with majority in the under 10k bracket), suggesting that population growth will continue to rise, and possibly at a faster rate if an increasing number of people find themselves in the lowest income brackets. However, the growth rate of college bound children may be decreasing if current graduate reproduction ages continue to be pushed back due to the wait caused by the increasing student debt loads or bankruptcy of the current student loan borrowers.

    Sources:
    1. http://www.investopedia.com/articles/economics/08/recession-affecting-business.asp
    2. http://www.forbes.com/sites/chasewithorn/2014/07/30/how-todays-student-loan-debt-is-failing-future-generations/
    3. http://www.statista.com/statistics/241530/birth-rate-by-family-income-in-the-us/

  3. There are a plethora of jobs in the Untied States that require you to obtain a security clearance. Anytime an individual needs access to confidential information relating to the United States government is required to have a clearance (1). There are jobs within companies where an employer may not be directly related to the government, however may still need access to government information. A great example of these kinds of jobs are public sector consultants within companies such as Deloitte, Grant Thornton, Booz Allen, et cetera.

    These clearances are given to those who pass a background investigation (1). Financial Consideration is one of the many considerations for a security clearance, denoted by Guideline F (2). In that section there are conditions that would raise “a security concern or disqualification” that are not limited to inability or unwillingness to pay debts, indebtedness, history of not repaying debts, et cetera (2). If individuals (or in context of the blog post, students) are piling on debts from attending college, they are by default indebted. While this is not the only criterion for receiving a clearance, it could reduce an individual’s chance of taking on a job with clearance requirements.

    (1)http://www.state.gov/m/ds/clearances/c10978.htm
    (2)http://www.state.gov/m/ds/clearances/60321.htm

  4. Student loan debt factor into parental co-residence much more than economic conditions (1). Lisa Dettling and Joanne Hsu conducted a study, which found that the effects of debt on average were about twice as large as the effects on economic conditions(1). Moreover, these loans can cause long-term financial damage to college graduates. We see the effects post-graduation when graduates are unable to get credit, causing them to take on even further debt… the cycle continues.

    To get an idea of the kind of debt these students graduate with, look at the figures. On average, students can expect to spend a national estimate of approximately $22,000 per year on undergraduate education (3). At four years, that racks up a grand total of $88,000. If that same loan is financed at 5.75 %, the total cost of the loan will be $147,000. Deferred payment plans are used most commonly, with a payback period of roughly 15-18 years.

    As a result of the increasing debt that graduates are taking on, their financial woes certainly prevent them from starting families shortly after graduation, as they are faced with the stresses of debt (specifically possibly 15-18 years) and the inability to pay their bills timely. While it may seem like a smart decision to not bring a child into the world if you cannot cover your own financial needs, this could potentially cause a drop in population growth, which may eventually lead to unoccupied jobs with not enough workers to fill those positions. This is certainly a very long term possibility, but the number of graduates waiting to start families and have children may make this a reality in the future employment market.

    1: http://blogs.wsj.com/economics/2014/10/29/young-adults-are-living-with-their-parents-but-not-as-much-as-or-why-you-think/
    2: http://www.bestvalueschools.com/faq/how-long-does-it-take-to-pay-off-college-loans/
    3: http://blogs.wsj.com/numbers/congatulations-to-class-of-2014-the-most-indebted-ever-1368/
    4: http://www.census.gov/censusexplorer/censusexplorer-youngadults.html

  5. Traditionally, educated and highly skilled workers have been important consumers by using their disposable income and access to credit to generate economic activity in housing markets. However, crippling debt has caused a drop-off in consumption in these markets by student borrowers. While student loans have increased to nearly 37% of the total debt load for adults age 20-29, mortgages have fallen from 63% of total debt for 20-to-29 year olds in 2005 to less than 43% in 2014 [1]. The reduction in mortgages is evident in the fact that household debt service payments as a percent of disposable personal income have fallen 24.7% from 2007 to 2014 [2]. High student debt restricts the amount student borrowers can spend on mortgage payments and also limits their ability to access credit due to high debt-to-income ratios and concern over delinquencies. The increase in student debt is resulting in the decrease of other forms of consumer debt, such as credit cards or car loans, which is preventing economic activity from occurring. From 2008 to 2012, capita student loan debt for student borrowers rose by $9,677 while their per capita nonstudent loan debt declined by $15,364 [3]. The restriction student debt imposes on consumption and investment in vital economic markets may ultimately result in slower economic growth.

    1. http://www.usatoday.com/story/money/personalfinance/2014/10/25/student-loan-debt/17773131/.
    2. http://research.stlouisfed.org/fred2/series/TDSP#
    3. http://libertystreeteconomics.newyorkfed.org/2013/04/young-student-loan-borrowers-retreat-from-housing-and-auto-markets.html#.VOx69vnF_tQ

  6. There is reason to agree that debts, especially in the form of student loans, are delaying marriage, mortgages, and children. [1] Of over 200 respondents, 15% said they delayed marriage and 29% have put off taking on mortgages. [2] This clearly raises concerns when it comes to the current and future state of an economy…but what should be the main fear? Future recessions? Future human capital loss? Economic growth stagnation?

    Taking a macroeconomic perspective on the issue, if in fact the increasing debt levels forces the college educated to refrain from having children, high debts could therefore stunt human capital accumulation in future generations. It has been proven that there is an inverse relationship between deficits and human capital growth therefore providing support for the negative impact of debts on the financial outcomes of educated adults [3]. One of the many externalities of education and educated individuals is that they have the capacity to and the highest probability of raising children who will also become highly educated, therefore contributing to an economies human capital component. If there are less educated adults having children this would reduce the amount of positive externalities that would otherwise contribute to social benefits of a society. The investment in human capital through education and training is also a large factor in increasing economic growth. The hesitation of many college graduates to take on further financial burdens has created an obstruction to economic growth through a lack of consumer demand [4]. Economic growth can be negatively affected by rising debt levels, however may not be the first and most important consequence.
    [1] http://www.wsj.com/articles/SB10001424052702304818404577350030559887086
    [2] http://money.cnn.com/2013/05/09/pf/college/student-loan-debt/
    [3] http://www.ub.edu/ubeconomics/wp-content/uploads/2013/10/102.pdf
    [4] http://californiabudgetbites.org/2014/05/29/increased-student-loan-debt-creates-ripple-effects-that-could-hinder-economic-growth/

  7. Deciding to have a family is a big undertaking. For college graduates, marriage typically comes before children. So when answering the question “does student debt have an effect on when people have children” we should also consider another: does student loan debt delay finding a spouse?
    From 1967 to 2013 the number of young married couples aged 18-34 living together has fallen from 60% to 27% (1). Related to this proportion, the average age of first marriage has increased by the same number of years in the last decade than it did between 1960 and 1990:
    Average Age 1960: 20 for women, 22 for men
    Average Age 1990: 23 for women, 26 for men
    Average Age 2013: 27 for women, 29 for men (2).
    Additionally, between 1993 and 2013, there has been a 50% increase in the number of students taking out loans, moving from below 50% to just above 70%. During the same period, the average amount of debt (adjusted for inflation) has increased from $15,000 to $35,000 (3).
    According to the University of Virginia’s National Marriage project, only one demographic stands to gain finically from delaying marriage: female college graduates (2). This study also found that only 12% of unmarried mothers are college graduates, and that by age 30, the average female graduate earns about $18,000 more than a female without a college degree.
    If that $18,000 were used solely to pay back student loan debt, the average female graduate would need 2-3 years to pay back the principal on her loans, and another year to pay back interest. The data presented above implies that college-educated women are delaying getting married because the opportunity cost is too great, especially when they’re facing down student loans. By foregoing marriage and living with their parents or roommates, they are free to use the extra income earned from having a college degree as they please (such as paying off debt rather than putting a deposit on a house). And since college-graduated females are mush less likely to have a child before marriage, it is possible that higher levels of student debt could lead to a delay in having children.

    http://blogs.wsj.com/economics/2014/10/29/young-adults-are-living-with-their-parents-but-not-as-much-as-or-why-you-think/
    http://www.theatlantic.com/sexes/archive/2013/03/getting-married-later-is-great-for-college-educated-women/274040/
    http://blogs.wsj.com/numbers/congatulations-to-class-of-2014-the-most-indebted-ever-1368/

  8. As evidenced in research by Oreopoulos, Wachter, and Heisz, individuals attempting to start a career in a recession often accept lower paying jobs at smaller firms and experience losses of “about 9% of annual earnings in the initial stage” (first 5 years) of one’s career (1). Although these ‘losses’ diminish over time, these economists estimate that beginning a career during a recession negatively impacts annual earnings for the first 10 years after one’s career begins. For those who graduated in the recent recession, these problems were compounded by increasing tuition rates and subsequent increasing average amount of student loans held by students (2). In fact, “tution and fees have risen 538% since 1985”. All this is made worse by the fact that interest rates on undergraduate Stafford loans increased 3.86% to 4.66% as of July 1, 2014 (3). The heavy debt combined with inability to get a job high paying enough to afford loan payments and ‘big-ticket’ purchases (car, house, etc.) has led students to take advantage of the six month grace period for payments, income-driven repayment plans, or even take advantage of last resort loan forgiveness programs (4). The existence of these programs helps recent graduates hedge risk associate with unknowns after graduation which may include market conditions, degree desirability, etc. However, some assert that these programs encourage recent graduates to not pursue employment as actively given that they reduce the cost associated with not gaining employment (4). Similarly, the fact that many recent graduates can return home if unable to be independent also serves as a crutch (5). No doubt, economic conditions have not been favorable for recent graduates; but policymakers must be sure that incentives to actively search for full employment aren’t undermined.

    (1) http://www.nber.org/digest/nov06/w12159.html
    (2) http://www.forbes.com/sites/chasewithorn/2014/07/30/how-todays-student-loan-debt-is-failing-future-generations/
    (3) http://www.usnews.com/education/blogs/student-loan-ranger/2014/07/02/4-changes-coming-to-student-loan-interest-rates-rules
    (4) http://www.cnbc.com/id/101809706
    (5) http://www.nytimes.com/2014/06/22/magazine/its-official-the-boomerang-kids-wont-leave.html

  9. Although student loan delinquencies in the United States have been increasing at an alarming rate, this may not be as bad as it first seems [1].

    First, the rising delinquency on student loans is not indicative of the larger trend of delinquency. Delinquency rates on most other loans have been steadily decreasing since their peak in around 2009 [2].

    Second, as delinquency rate increases, private lenders might compensate by either offering less money, rates that are more likely to be paid or compensate by raising rates on those who can afford it. Therefore, in the long term delinquencies on private debt might solve itself.
    However, about 80% of student loans are public [3]. Admittedly, public delinquency rates are less likely to be fixed by market forces. However, because public loans are technically owned by taxpayers, we might view student loan delinquencies as a wealth transfer from those who are unable to pay loans to those who can, although mass delinquencies on public loans certainly smells of moral hazard. Further, while high delinquency rates are not indicative of a strong economy, these delinquencies might free up people who would otherwise struggle to pay loans to consume or invest in the private sector.

    The $1 trillion U.S. student loan debt is nothing to laugh at and delinquency on these loans is serious as well but might not be as bad as it first seems.

    [1]: http://www.bloomberg.com/news/articles/2015-02-17/student-loan-delinquencies-rise-in-u-s-as-education-debt-swells
    [2]: http://research.stlouisfed.org/fred2/graph/?id=DRSFRMACBS,DRBLACBS,DRCCLACBS,DRCLACBS,DRALACBN,
    [3]: http://projectonstudentdebt.org/files/pub//Debt_Facts_and_Sources.pdf

  10. According to American Student Assistance, ASA, 43 percent of respondents stated that their levels of student debt were the cause of their decision to wait to start a family (1). Graduates have prioritized paying off their student loans ahead of starting a family. It is increasingly costly for college educated women to get married, before thirty years old, and have a family. College educated women who decide to wait until after they are thirty years old, to get married, benefit financially from an annual income premium of $18,152 (2).
    “The share of 25-year-old Americans with student debt increased to 43 percent in 2012 from 25 percent in 2003, while the average loan balance rose 91 percent, to $20,326 from $10,649, New York Fed data show (3).” The increased debt held by students would not pose a potential issue if the loans were paid back efficiently but missed debt payments are at record high numbers, and rates. Student debt considered outstanding was over $1 trillion in 2013 and 11.8 percent of loans were considered delinquent at that point in 2013 (3). Record high numbers of student debt, such as these, have the potential of a contagion effect in that these Americans, with high student debt, cannot make large purchases, like houses or cars, which can slow down the economy (3). Living at home is the smarter financial decision for these college graduates because of their student debt. Men and women, ages 25-34, are living at home at increasing rates as men, living at home, increased from 13.5% to 16.9% and women increased from 8.1% to 10.4% (4). These increasing rates point towards economic recovery occurring at a slower rate because of the decrease in large purchases from this age cohort.

    1) http://www.huffingtonpost.com/2013/09/24/student-debt-impact_n_3983321.html
    2) http://nationalmarriageproject.org/wp-content/uploads/2013/03/KnotYet-FinalForWeb.pdf
    3) http://www.bloomberg.com/bw/articles/2014-01-16/student-loans-the-next-big-threat-to-the-u-dot-s-dot-economy
    4) http://www.usatoday.com/story/money/personalfinance/2013/06/30/student-loan-debt-economic-effects/2388189/

  11. High levels of debt and a recession affect peoples’ and businesses’ ability to pay off their debts. This hurts the companies they are supposed to pay, because it reduces their revenues and causes them to pay off their bills more slowly, late, or in smaller increments than their original credit agreement. Delinquent payments will eventually reduce the valuation of the company and could affect that company’s credit rating. If debt reckoning occurs it means their debt ratio is increasing and they could eventually file for bankruptcy. That is the fear of having too much debt during a recession. (1)
    Debt is a necessary “evil,” because it allows people to pay for houses, education, cars, and other large expenses they wouldn’t be able to pay at one time. The most recent recession altered 70% of prospective college students’ plans from the 2009 class.(2) It could have been something small like choosing to work as a freshman or something larger like attending a community college vs. a 4 year college. Only 28% of the 1,030 households interviewed said the recession hadn’t caused them to change their plans. The reason for altering their plans is the fear of going into further debt during a recession and this makes them less likely to pursue higher education in finance or law.

    http://www.investopedia.com/articles/economics/08/recession-affecting-business.asp
    http://www.usnews.com/education/blogs/on-education/2009/04/08/how-the-recession-is-changing-students-college-plans

  12. The percentage of college graduates moving back in with their parents is the highest it has been in a while. While as much as 30% of this trend can be explained by the increased debt of college graduates, there are a lot of other factors that can explain it (1). Many college graduates have essentially been forced to move back home because of their crippling debt, but there are many that choose to live at home who can afford to live on their own(2). Many are doing this as it is a great way to save up some income(3), and moving back home has lost the stigma of “being a failure”(4). While many others have already mentioned the loss in the economy due to these recent graduates not starting their own homes, this probably isn’t a permanent cause for worry. A few economists are expectant of a large increase in the demand for homes soon as there is a current “pent up demand” for homes because these young adults are “itching to get out”(5). “Once we get a little bit of job growth, or even expectations of better job market, those households are going to start breaking apart pretty fast,” said Mr. Zandi, of Moody’s Analytics(5).

    (1)http://www.pewsocialtrends.org/files/2012/03/PewSocialTrends-2012-BoomerangGeneration.pdf
    (2) http://www.nytimes.com/2014/06/22/magazine/its-official-the-boomerang-kids-wont-leave.html?_r=0
    (3)http://blog.penelopetrunk.com/2005/05/15/moving-back-home-with-your-parents-is-a-good-career-move/
    (4) http://www.igrad.com/articles/gen-y-living-with-parents-in-your-twenties
    (5)http://www.nytimes.com/2011/11/17/business/economy/as-graduates-move-back-home-economy-feels-the-pain.html

  13. Starting out in the real world after graduating college is hard for young adults. They can get a job, but then what? “The average Class of 2014 student loan debt has around $33,000 to pay back.”(1) Trying to build credit with a huge amount of debt is not an easy task. A recent college graduate had a job paying $45,000, leased a new Volkswagen, had no student debt and still could not get approved for a credit card.(2) Unlike high school grads or college dropouts that accumulate little to no debt and can begin surviving on their own earlier, college grads are forced to return home and begin paying off their loans before they can accumulate credit.
    I don’t think this will affect future population though. 34.1 percent of high school graduates don’t go to school and begin working immediately.(3) Of those 65.9 percent that go to colleges or universities 44 percent dropout before they graduate and accumulate all of that debt.(4) Those that enter the workforce earlier than their college grad peers start making good money for their age. This allows them to buy cars and houses, build their credit and start families earlier in their lives. I think the people who enter the workforce immediately or after a couple semesters at colleges and universities will offset the college graduates that come out of school with massive amounts of debt.

    (1) http://blogs.wsj.com/numbers/congatulations-to-class-of-2014-the-most-indebted-ever-1368/
    (2) http://www.creditcards.com/credit-card-news/recent-college-graduate-denied-credit-card-1374.php
    (3) http://www.bls.gov/news.release/hsgec.nr0.htm
    (4) http://thinkprogress.org/education/2012/03/28/453632/half-college-students-drop-out/

  14. Being burdened with student loan debt, and still experiencing sluggish economic growth (until very recently), many college graduates are returning home and staying there. There has been a constant stream in the media ranting about “Millenials” being lazy, self-centered, and mooching off of their parents. Millenials are facing a massive student debt burden, as tuition costs are rising, but even more-so, more students are attending college. A 2014 study shows that 89% of 2002 high school graduates attended some college, and about 79% percent of the graduates surveyed have some form of debt (1). Now looking at the recent economic environment, Millenials were experiencing a 17% unemployment rate at one point (which has since decreased to 7.8%) (2). Can you really blame these recent graduates for moving back home to attempt crawl back into financial stability with thousands of dollars of debt incurred to get a degree?

    The fact that Millenials are moving back home and now known as the “boomerang” generation should not be alarming. We grew up witnessing dark economic times caused by excess amounts of debt and incredibly loose credit. On top of that, most Millenials are terrified of the weight of purchasing a home, and the fantasy of the “American Dream” is lost on this generation. So naturally, this generation is wary of taking on any more debt or getting in any more of a pinch financially (3). 63% of Millenials do not have a credit card, arising from the fear of burdening themselves with even more debt (4). What’s surprising, is how good Millenials have been at saving money, with a reported 47% of the generation on some form of savings plan (5).

    Just because Millenials aren’t starting new homes right away is not detrimental to the economy. As Janet Yellen said on Tuesday, this is just a different generation, and will create a slightly different economic cycle than what we saw with baby boomers (6). Once we move further away from the financial crisis, the credit cycle will normalize, this generation will have more jobs, better paying jobs, become more comfortable buying houses, and start stimulating the economic growth that we’ve been waiting for.
    (1) http://nces.ed.gov/pubs2014/2014363.pdf
    (2) http://younginvincibles.org/tag/millennial-unemployment/
    (3) http://www.silive.com/news/index.ssf/2014/06/millennials_cant_get_their_hea.html
    (4) http://www.forbes.com/sites/kateashford/2014/09/09/millennials-reject-credit-cards/
    (5) http://finance.yahoo.com/news/irresponsible-millennials-saving-more-almost-215100167.html
    (6) http://www.cnn.com/2015/02/24/politics/janet-yellen-capitol-hill-preview/

  15. The current college tuition situation is often compared to the subprime mortgage crisis. The Consumer Financial Protection Bureau made this comparison themselves, calling the similarities “uncanny” [1].

    I have to admit there are some striking similarities. In the housing bubble leading up to 2008, Fannie Mae and Freddie Mac guaranteed credit to almost anyone, under Bush’s vision of affordable housing. Easy credit drove up prices, and once credit stopped flowing housing prices plummeted. In the student debt market, 80% of loans are public [2]. Many are guaranteed by Sallie Mae, another quasi-government corporation creating easy money. 11% of student loans are more than 90 days late, higher than the 9% peak mortgage delinquency rates in 2008 [1]. If liquidity on student loans were to dry up, colleges might be forced to lower tuition prices. But as it stands liquidity exists. The US government made a $66 billion profit from student loans from 2007 to 2012, so wouldn’t likely have a reason to cut loan funding anytime soon [3].

    Meanwhile, tuition and fees have risen 400% since 1985, adjusting for inflation [4]. Research done by the Hamilton Project, a think-tank, found that after inflation in this same time period, the lifetime value-added of a college degree increased from $260,000 to $450,000, a 173% increase [1]. So the price-to-value ratio has still more than doubled in a 30 year period, and in my opinion could use a correction.

    [1] http://www.washingtonexaminer.com/1.1-trillion-student-loan-bubble-not-so-fast/article/2557004
    [2] http://projectonstudentdebt.org/files/pub//Debt_Facts_and_Sources.pdf
    [3] http://www.usatoday.com/story/money/personalfinance/2014/10/25/student-loan-debt/17773131/
    [4] http://www.forbes.com/sites/chasewithorn/2014/07/30/how-todays-student-loan-debt-is-failing-future-generations/

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