This post at Seth Godin’s blog is getting a lot of attention today: Buying an Education or Buying a Brand? A lot of Seth’s post resonated with me. In fact, it started so many wheels turning that I had a hard time deciding what I wanted to write about in this post.
But one fact stood out and it was this: student loan debt today is nearing 1 trillion dollars, five times where is stood ten years ago.
In ten years.
How much is too much to borrow for a college education?
I don’t know the answer to that question. It surely depends on a number of factors, such as:
- What do you plan to do with it? (A college education is certainly vital to a number of occupations. I don’t care to have my prescriptions filled by a pharmacist without one or drive across a bridge designed by an engineer without one.)
- How sure are you of your plan? (On my daughter’s college visits we were told time and time again how many times a typical college student changes majors. Estimates ranged up to 7 times. And what about the students that never finish college at all but still find themselves paying off the bill?)
- Do you understand what it means to have to pay back a five or six figure loan? (I would argue that most 18 year-olds have no concept of what that even means. Adult students at least have some life experience that might prepare them for that.)
But based on Seth’s 1 trillion dollar student loan figure, I’m going to argue we’re not asking ourselves enough questions like these and we’re (collectively) borrowing too much. And it concerns me for this reason:
It occurs to me that our society’s “a college education is good so it must be worth borrowing a lot of money for” mentality is similar to our former “owning a home is good so it must be worth borrowing a lot of money for” mentality. As a country, we (borrowers, lenders, and lawmakers) took that mentality and ran with it straight into a housing crisis.
Are Student Loans the Next Housing Crisis?
Consider the parallels:
- Both student loans and mortgages are considered “good debts” by many financial expert” because they are used to finance assets (a home, a college education).
- Some borrowers feel they have to borrow because they’re being “priced out of the market” (i.e. the cost of a college education is rising much faster than they can save for it, just as was housing appreciating faster in some parts of the country than buyers could save for).
- The government provides for tax deductions on the interest of both mortgages and qualified student loans.
All of these things caused us to lose perspective during the housing crisis and I believe they are again. Here is how the new equation looks:
College educations are good.
(Conventional wisdom says) that student loans are good debt.
Someone is willing to lend me money.
Our country’s student loan debt totals nearly 1 trillion dollars (and rising)
And I’ll throw in one other parallel for good measure:
- Both loan markets include agencies that aren’t quite government and aren’t quite private, and are significant players in (and thus affect) the overall markets (Freddie and Fannie in housing, Sallie in student loans).
I’m not sure what the relevance of that one is, but I feel certain it’s significant in some way.
So what are your thoughts? Does the rising student loan debt trouble you? Is it the next housing crisis or is my analogy flawed? Or is it late on a Friday and it’s entirely too much to think about?
Related posts: How to Send Your Child to College Without Student Loans