Maybe There Is No College Loan Debt Bubble

We’ve previously noted that some suspect student loans will be the next financial bubble to pop.  Not so says Mark Kantrowitz, publisher of Fastweb.com and FinAid.org in a recent issue of the Journal of the New England Board of Higher Education:Bubble

For there to be a bubble, you have to have a disconnect between the price and value of an asset, fueled by an oversupply of liquidity, i.e., easy access to credit. When that easy access is withdrawn, the bubble bursts and the price of the asset drops back to the intrinsic value of the asset.

Higher education is different than the real estate market. You can’t flip an education the way you can flip a house. There isn’t really much of a disconnect between the average price of a higher education and the intrinsic value. One method of valuing an education, at least financially, is in the income that it enables. Currently, the average income of a college graduate is sufficient to repay the average debt of a college graduate. Individual students may vary from the averages. Some may borrow more to go to a more expensive college and earn less. But on average most students who graduate from college with a bachelor’s degree are able to repay that debt. The average debt at graduation for bachelor’s degree recipients is around $27,000 and the average income is $35,000 to $45,000. . . .

An interesting take on the issue.  The full interview with Mr. Kantrowitz is found here as part of the Journal’s “New Directions for Higher Education” series.

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