Academic

A COMING HIGHER EDUCATION BUBBLE? Even before the financial crisis intensified the upward pressur?

By Glenn Reynolds

A COMING HIGHER EDUCATION BUBBLE?

Even before the financial crisis intensified the upward pressure on college costs, the price of a degree was soaring. Since 1980, the average cost of tuition and room and board has grown by a staggering 121 percent while median household income has risen a mere 18 percent, according to federal data. But the credit boom earlier this decade provided some relief for families.

Wall Street financiers packaged student loans into securities and sold them off to investors, who could trade them just like stocks. That, in turn, provided more money for lending, helping to make student loans cheaper and more available. Even people with poor credit histories could easily get a loan.

But during the last academic year, private student loan volume fell by half as financial firms became wary of lending to students, who generally do not have long credit histories. Officials from Sallie Mae, the industry leader in student lending, said they expect another significant decline this year.

Nor have families been able to keep borrowing against the value of their homes, which seemed for years to appreciate with no end in sight. Second mortgages have been shrinking along with real estate values. Money made available by banks to homeowners through home-equity lines of credit has fallen by 25 percent, to $538 billion, since the end of 2007, according to federal data.

About a decade ago, financial planners began to tout the benefits of 529 plans, which invest families’ savings in the stock and bond markets with the aim of keeping pace with the growth in college expenses. Even before the crisis, these plans couldn’t keep up. Then, in 2008, the average 529 plan lost 20 percent of its value.

So you’ve got an industry with skyrocketing prices, fueled by easy credit taken out by those who didn’t fully realize how much it was costing them. Now the credit’s harder to get, and people are much more aware of the downside of debt anyway. What’s next?

Full post as published by Instapundit.com on December 31, 2009 (boomark / email).