Tuesday, September 13, 2011

College Bubble about to Burst

Who are the biggest spenders on education? Householders under age 25 and aged 45 to 54: college students and their parents. Those two age groups account for 56 percent of all household spending on college tuition, according to the Consumer Expenditure Survey.

These are the age groups that have experienced the largest declines in household income over the past decade, according to numbers released by the Census Bureau. Householders under age 25 saw their median household income fall by a stunning 20 percent between 2000 and 2010, after adjusting for inflation. Those aged 45 to 54 experienced a 14 percent decline--a loss of more than $10,000. No other age groups have been hurt as badly by the Great Recession as these.

The downward spiral in the incomes of college students and their parents explains why nonrevolving consumer credit (a figure that includes student loans) is growing at an annual rate of 11.2 percent, according to the Federal Reserve. It also explains why the percentage of student loans in default reached 8.8 percent as of September 2010--up from 7 percent a year earlier, according to the U.S. Department of Education.

The college market is a bubble about to burst. What will colleges look like after the implosion?

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