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Are Student Loans an Impending Bubble? Is Higher Education a Scam?

Posted by Larry Doyle on April 26, 2011 9:00 AM |

What did we experience in the sub-prime housing debacle?

1. Shoddy underwriting standards for borrowers.
2. A massively flawed system promoted and perpetuated by the Wall Street securitization business.
3. Borrowers overleveraged leading to skyrocketing rates of foreclosures and defaults.
4. A mentality that housing finance could promote a real social benefit and a profitable enterprise.
5. A government backstop and ultimate bailout for investors.
6. An ultimate fiasco for our society as a whole.

Have we learned our lessons from the sub-prime housing nightmare? Could we possibly be going down the same path in another segment of our economy? Yesterday a reader inquired if I had addressed the potential impending fiasco in student loans. This morning I discussed the cost of higher education with my better half. Will our economy be able to generate both the jobs and income levels for students to manage their increasing levels of indebtedness?

The reader piqued my interest and with props to our friends at eWallstreeter, I came across a recently released fabulous expose on the state of student lending in higher education in a publication, n +1, entitled Bad Education. (This review is a little lengthy but for those with a passing interest in this topic this article encompasses a tremendous wealth of detailed ‘sense on cents’. I am compelled to run it in its entirety. I encourage you to save and revisit this piece if need be. You will be glad you did. n+ 1 deserves major credit for writing such a fabulous piece.)

I am a huge proponent of the need for quality education in our nation. That said, as this expose reveals there are MANY serious problems, conflicts of interest, and assorted other issues in higher education today. A racket, you might ask? Yes, in a manner of speaking, there are certainly elements of a racket within higher education today. Let’s navigate.

The Project On Student Debt estimates that the average college senior in 2009 graduated with $24,000 in outstanding loans. Last August, student loans surpassed credit cards as the nation’s largest single largest source of debt, edging ever closer to $1 trillion. Yet for all the moralizing about American consumer debt by both parties, no one dares call higher education a bad investment. The nearly axiomatic good of a university degree in American society has allowed a higher education bubble to expand to the point of bursting.

Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation. To put that number in perspective, housing prices, the bubble that nearly burst the US economy, then the global one, increased only fifty points above the Consumer Price Index during those years. But while college applicants’ faith in the value of higher education has only increased, employers’ has declined. According to Richard Rothstein at The Economic Policy Institute, wages for college-educated workers outside of the inflated finance industry have stagnated or diminished. Unemployment has hit recent graduates especially hard, nearly doubling in the post-2007 recession. The result is that the most indebted generation in history is without the dependable jobs it needs to escape debt.

What kind of incentives motivate lenders to continue awarding six-figure sums to teenagers facing both the worst youth unemployment rate in decades and an increasingly competitive global workforce?

During the expansion of the housing bubble, lenders felt protected because they could repackage risky loans as mortgage-backed securities, which sold briskly to a pious market that believed housing prices could only increase. By combining slices of regionally diverse loans and theoretically spreading the risk of default, lenders were able to convince independent rating agencies that the resulting financial products were safe bets. They weren’t. But since this wouldn’t be America if you couldn’t monetize your children’s futures, the education sector still has its equivalent: the Student Loan Asset-Backed Security (or, as they’re known in the industry, SLABS).

SLABS were invented by then-semi-public Sallie Mae in the early ’90s, and their trading grew as part of the larger asset-backed security wave that peaked in 2007. In 1990, there were $75.6 million of these securities in circulation; at their apex, the total stood at $2.67 trillion. The number of SLABS traded on the market grew from $200,000  in 1991 to near $250 billion by the fourth quarter of 2010. But while trading in securities backed by credit cards, auto loans, and home equity is down 50 percent or more across the board, SLABS have not suffered the same sort of drop.SLABS are still considered safe investments—the kind financial advisors market to pension funds and the elderly.

With the secondary market in such good shape, primary lenders have been eager to help students with out-of-control costs. In addition to the knowledge that they can move these loans off their balance sheets quickly, they have had another reason not to worry: federal guarantees. Under the just-ended Federal Family Education Loan Program (FFELP), the US Treasury backed private loans to college students. This meant that even if the secondary market collapsed and there were an anomalous wave of defaults, the federal government had already built a lender bailout into the law. And if that weren’t enough, in May 2008 President Bush signed the Ensuring Continued Access to Student Loans Act, which authorized the Department of Education to purchase FFELP loans outright if secondary demand dipped. In 2010, as a cost-offset attached to health reform legislation, President Obama ended the FFELP, but not before it had grown to a $60 billion-a-year operation.

Even with the Treasury no longer acting as co-signer on private loans, the flow of SLABS won’t end any time soon. What analysts at Barclay’s Capital wrote of the securities in 2006 still rings true: “For this sector, we expect sustainable growth in new issuance volume as the growth in education costs continues to outpace increases in family incomes, grants, and federal loans.” The loans and costs are caught in the kind of dangerous loop that occurs when lending becomes both profitable and seemingly risk-free: high and increasing college costs mean students need to take out more loans, more loans mean more securities lenders can package and sell, more selling means lenders can offer more loans with the capital they raise, which means colleges can continue to raise costs. The result is over $800 billion in outstanding student debt, over 30 percent of it securitized, and the federal government directly or indirectly on the hook for almost all of it.

If this sounds familiar, it probably should, and the parallels with the pre-crisis housing market don’t end there. The most predatory and cynical subprime lending has its analogue in for-profit colleges. Inequalities in US primary and secondary education previously meant that a large slice of the working class never got a chance to take on the large debts associated with four-year degree programs. For-profits like The University of Phoenix or Kaplan are the market’s answer to this opportunity.

While the debt numbers for four-year programs look risky, for-profits two-year schools have apocalyptic figures: 96 percent of their students take on debt and within fifteen years 40 percent are in default. A Government Accountability Office sting operation in which agents posed as applicants found all fifteen approached institutions engaged in deceptive practices and four in straight-up fraud. For-profits were found to have paid their admissions officers on commission, falsely claimed accreditation, underrepresented costs, and encouraged applicants to lie on federal financial aid forms. Far from the bargain they portray themselves to be on daytime television, for-profit degree programs were found to be more expensive than the nonprofit alternatives nearly every time. These degrees are a tough sell, but for-profits sell tough. They spend an unseemly amount of money on advertising, a fact that probably hasn’t escaped the reader’s notice.

But despite the attention the for-profit sector has attracted (including congressional hearings), as in the housing crisis it’s hard to see where the bad apples stop and the barrel begins. For-profits have quickly tied themselves to traditional powers in education, politics, and media. Just a few examples: Richard C. Blum, University of California regent (and husband of California Sen. Dianne Feinstein), is also through his investment firm the majority stakeholder in two of the largest for-profit colleges. The Washington Post Co. owns Kaplan Higher Education, forcing the company’s flagship paper to print a steady stream of embarrassing parenthetical disclosures in articles on the subject of for-profits. Industry leader University of Phoenix has even developed an extensive partnership with GOOD magazine, sponsoring an education editor. Thanks to these connections, billions more in advertising, and nearly $9 million in combined lobbying and campaign contributions in 2010 alone, for-profits have become the fastest growing sector in American higher education.

If the comparative model is valid, then the lessons of the housing crash nag: What happens when the kids can’t pay? The federal government only uses data on students who default within the first two years of repayment, but its numbers have the default rate increasing every year since 2005. Analyst accounts have only 40 percent of the total outstanding debt in active repayment, the majority being either in deferment or default. Next year, the Department of Education will calculate default rates based on numbers three years after the beginning of repayment rather than two. The projected results are staggering: recorded defaults for the class of 2008 will nearly double, from 7 to 13.8 percent. With fewer and fewer students having the income necessary to pay back loans (except through the use of more consumer debt), a massive default looks closer to inevitable.

Unlike during the housing crisis, the government’s response to a national wave of defaults that could pop the higher-ed bubble is already written into law. In the event of foreclosure on a government-backed loan, the holder submits a request to what’s called a state guaranty agency, which then submits a claim to the feds. The federal disbursement rate is tied to the guaranty agency’s fiscal year default rate: for loans issued after October 1998, if the rate exceeds 5 percent, the disbursement drops to 85 percent of principal and interest accrued; if the rate exceeds 9 percent, the disbursement falls to 75 percent. But the guaranty agency rates are computed in such a way that they do not reflect the rate of default as students experience it; of all the guaranty agencies applying for federal reimbursement last year, none hit the 5 percent trigger rate.

With all of these protections in place, SLABS are a better investment than most housing-backed securities ever were. The advantage of a preemptive bailout is that it can make itself unnecessary: if investors know they’re insulated from risk, there’s less reason for them to get skittish if the securities dip, and a much lower chance of a speculative collapse. The worst-case scenario seems to involve the federal government paying for students to go to college, and aside from the enrichment of the parasitic private lenders and speculators, this might not look too bad if you believe in big government, free education, or even Keynesian fiscal stimulus. But until now, we have only examined one side of the exchange. When students agree to take out a loan, the fairness of the deal is premised on the value for the student of their borrowed dollars. If an 18-year-old takes out $200,000 in loans, he or she better be not only getting the full value, but investing it well too.

Higher education seems an unlikely site for this kind of speculative bubble. While housing prices are based on what competing buyers are willing to pay, postsecondary education’s price is supposedly linked to its costs (with the exception of the for-profits). But the rapid growth in tuition is mystifying in value terms; no one could argue convincingly the quality of instruction or the market value of a degree has increased ten-fold in the past four decades (though this hasn’t stopped some from trying). So why would universities raise tuition so high so quickly? “Because they can” answers this question for home-sellers out to get the biggest return on their investments, or for-profits out to grab as much Pell Grant money as possible, but it seems an awfully cynical answer when it comes to nonprofit education.

First, where the money hasn’t gone: instruction. As Marc Bousquet, a leading researcher into the changing structures of higher education, wrote in How The University Works (2008):

If you’re enrolled in four college classes right now, you have a pretty good chance that one of the four will be taught by someone who has earned a doctorate and whose teaching, scholarship, and service to the profession has undergone the intensive peer scrutiny associated with the tenure system. In your other three classes, however, you are likely to be taught by someone who has started a degree but not finished it; was hired by a manager, not professional peers; may never publish in the field she is teaching; got into the pool of persons being considered for the job because she was willing to work for wages around the official poverty line (often under the delusion that she could ‘work her way into’ a tenurable position); and does not plan to be working at your institution three years from now.

This is not an improvement; fewer than forty years ago, when the explosive growth in tuition began, these proportions were reversed. Highly represented among the new precarious teachers are graduate students; with so much available debt, universities can force graduate student workers to scrape by on sub-minimum-wage, making them a great source of cheap instructional labor. Fewer tenure-track jobs mean that recent PhDs, overwhelmed with debt,  have no choice but to accept insecure adjunct positions with wages kept down by the new crop of graduate student-workers. Rather than producing a better-trained, more professional teaching corps, increased tuition and debt have enabled the opposite.

If overfed teachers aren’t the causes or beneficiaries of increased tuition (as they’ve been depicted of late), then perhaps it’s worth looking up the food chain. As faculty jobs have become increasingly contingent and precarious, administration has become anything but. Formerly, administrators were more or less teachers with added responsibilities; nowadays, they function more like standard corporate managers—and they’re paid like them too. Once a few entrepreneurial schools made this switch, market pressures compelled the rest to follow the high-revenue model, which leads directly to high salaries for in-demand administrators. Even at nonprofit schools, top-level administrators and financial managers pull down six- and seven-figure salaries, more on par with their industry counterparts than with their fellow faculty members. And while the proportion of tenure-track teaching faculty has dwindled, the number of managers has skyrocketed in both relative and absolute terms. If current trends continue, the Department of Education estimates that by 2014 there will be more administrators than instructors at American four-year nonprofit colleges. A bigger administration also consumes a larger portion of available funds, so it’s unsurprising that budget shares for instruction and student services have dipped over the past fifteen years.

When you hire corporate managers, you get managed like a corporation, and the race for tuition dollars and grants from government and private partnerships has become the driving objective of the contemporary university administration. The goal for large state universities and elite private colleges alike has ceased to be (if it ever was) building well-educated citizens, now they hardly even bother to prepare students to assume their places among the ruling class. Instead we have, in Bousquet’s words, “the entrepreneurial urges, vanity, and hobbyhorses of administrators: Digitize the curriculum! Build the best pool/golf course/stadium in the state! Bring more souls to God! Win the all-conference championship!” These expensive projects are all part of another cycle: corporate universities must be competitive in recruiting students who may become rich alumni, so they have to spend on attractive extras, which means they need more revenue, so they need more students paying higher tuition. For-profits aren’t the only ones consumed with selling product. And if a humanities program can’t demonstrate its economic utility to its institution (which can’t afford to haul “dead weight”) and students (who understand the need for marketable degrees), then it faces cuts, the neoliberal management technique par excellence. Students apparently have received the message loud and clear, as business has quickly become the nation’s most popular major.

When President Obama spoke in the State of the Union of the need to send more Americans to college, it was in the context of economic competition with China, phrased as if we ought to produce graduates like steel. As the near-ubiquitous unpaid internship for credit (in which students pay tuition in order to work for free) replaces class time, the bourgeois trade school supplants the academy. Parents understandably worried about their children make sure they never forget about the importance of an attractive résumé. It was easier for students to believe a college education was priceless when it wasn’t bought and sold from every angle.

If tuition has increased astronomically and the portion of money spent on instruction and student services has fallen, if the (at very least comparative) market value of a degree has dipped and most students can no longer afford to enjoy college as a period of intellectual adventure, then at least one more thing is clear: higher education, for-profit or not, has increasingly become a scam.

We know the consequences of default for lenders, investors, and their backers at the Treasury, but what of the defaulters? Homeowners who found themselves with negative equity (owing more on their houses than the houses were worth) could always walk away. Students aren’t as lucky: graduates can’t ditch their degrees, even if they borrowed more money than their accredited labor power can command on the market. Americans overwhelmed with normal consumer debt (like credit card debt) have the option of bankruptcy, and although it’s an arduous and credit-score-killing process, not having ready access to thousands in pre-approved cash is not always such a bad thing.  But students don’t have that option either. Before 2005, students could use bankruptcy to escape education loans that weren’t provided directly by the federal government, but the facetiously named “Bankruptcy Abuse Prevention and Consumer Protection Act” extended non-dischargeability to all education loans, even credit cards used to pay school bills.

Today, student debt is a exceptionally punishing kind to have. Not only is it inescapable through bankruptcy, but student loans have no expiration date and collectors can garnish wages, social security payments, and even unemployment benefits. When a borrower defaults and the guaranty agency collects from the federal government, the agency gets a cut of whatever it’s able to recover from then on (even though they have already been compensated for the losses), giving agencies a financial incentive to dog former students to the grave.

When the housing bubble collapsed, the results (relatively good for most investors, bad for the government, worse for homeowners) were predictable but not foreordained. With the student-loan bubble, the resolution is much the same, and it’s decided in advance.

In addition to the billions colleges have spent on advertising, sports programs, campus aesthetics, and marketable luxuries, they’ve benefited from a public discourse that depicts higher education as an unmitigated social good. Since the Baby Boomers gave birth, the college degree has seemed a panacea for social ills, a metaphor for a special kind of deserved success. We still tell fairy tales about escapes from the ghetto to the classroom or the short path from graduation to lifelong satisfaction, not to mention America’s collective college success story: The G.I. Bill. But these narratives are not inspiring true-life models, they’re advertising copy, and they come complete with loan forms.

A lot to absorb but given that Uncle Sam has taken over the student loan enterprise, we should all be fully aware and informed of the issues involved in this impending quagmire.

Thoughts and comments always appreciated and encouraged.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • James

    Great read!!!

    With manufacturing jobs having moved overseas and our economy having become so much service based everybody believes they have to have a college degree. The price inflation in higher education is ridiculous. I have to believe we will see a number of institutions failing as students and families realize those fees do not make sense.

    State colleges should benefit. Marginal private schools …bye -bye…

  • Mike

    Higher education is definitely a big bubble. As a graduate of the class of 2009 I have friends with six-figure debt working at Starbucks. Higher Education is far too overpriced. Right now I work as a car salesman which doesn’t require a degree.

    Thankfully due to scholarships and being an RA my loans are completely manageable. Young people can not fathom the horror of 100k of debt, and they agree to these terms because college is ‘what you’re supposed to do!!”

    College followed by a guaranteed steady office job with benefits and promise for salary raises is DEAD. The American Dream is DEAD!!!! You want the American dream it’s up to you now. Be a good salesman or start your own business because there’s no other way to make real money.

  • fred


    It isn’t a bubble, it’s a disgrace.

    Why is the gov’t in the business of backstoping securitized products anyway? Shouldn’t they be busy regulating and enforcing regulation?

    Why isn’t the inherent risk diversification component of securitized products enough to entice investors?

    If investors aren’t willing to buy these securities without the backstop, doesn’t that speak volumes about the perceived cost-benefit of an education?

    No wonder profit margins of corporate America are so high, the cost of unemployment and education are being born by the public. What’s next, gov’t guarantees on securitized commodity inputs? Don’t laugh, does anyone really know what’s going on over at AIG?

    Historically, corporate sponsored “on the job” training and tuition reimbursement programs have been much more effective.

  • Steve

    Socialized financing of housing led to a disaster.

    Socialized financing of education will clearly be a disaster.

    Why are we to think that Uncle Sam might be able to manage healthcare?

    How about letting the private market work, provide proper incentives, and also robust regulation. It is called capitalism. Let it work.

  • SL

    I absolutely think that student loans are the next bubble. I’m about to finish graduate school with tens of thousands of dollars in loans, and many of my friends will have closer to $200,000 in loans. Having so much student loan debt will affect our lives for years and impact major life decisions, such as buying a house and having kids. I am worried about the impact that student loans are going to have on my generation as a whole.

    I created a forum at to provide a supportive community for people dealing with the stresses of having student loan debt. Please feel free to join the discussion.

  • Don


    I am not surprized by this but it is good to see such a comprehensive overview: and I just wanted to tell you how much I enjoy your work(if that is applicable to this one!).

    I appreciate the effort it takes to bring out this material.

    Thank you,

  • Matt

    Hey Larry, glad you touched on this with your blog. This issue is so rife with conflicts of interest it boggles the mind.

    FYI, read an interesting article here that deals with the two year scenarios:

    Not a normal Huffington Post reader, but this is spot on. I cannot believe how ugly this stuff is.

  • Matt
  • Mark

    Dear Mr. Doyle,

    I’m not the type to typically leave commentary on opinion pieces, but your article today comparing student loans to the housing bubble gave me goosebumps and made my stomach sink. Thank you for saying things the way they are; it was an incredibly well-written piece that pulled no punches and definitely hit a nerve for this young professional burdened with nearly $200k in student debt.

    I wish you had written this piece in 2003 before I had started undergrad, I would have had a much different mentality heading into school. I have an MA in Applied Economics & Finance from a top university and find myself working for a top tier consulting firm with an average salary working long hours yet forced to wait tables at a fancy restaurant 3-4 nights a week to pay off loans that are higher than my monthly rent. This whole experience has turned me into a more aggressive, results-oriented, and unfortunately bitter person. Hopefully future generations won’t have to deal with the same burden and proper regulatory mechanisms will be put into place – but I probably shouldn’t get my hopes up should I…

    Thanks again for the great read!

  • coe

    LD – you have touched another raw nerve with this piece..I’ll toss another log on the fire – having helped pay for three children to attend a premier private college, I would venture a strong opinion that the “product” didn’t come close to delivering the value proposition that was advertised..beyond the topics addressed in your piece, there should be a forensic accounting of what really happens at college – how many hours do students actually attend class? – astonishingly few! how can we “measure” what it is, exactly, that they learn? I would suggest the real answer is not all that much..what are the benefits derived with respect to job prospects? sadly, not nearly enough to go around..I am a huge believer in society’s responsibility to invest in education – but the more I learn, the more I believe the rubber hits the road at the elementary and high school levels – where there are more deeply rooted problems than we can shake a stick at..are there important benefits to a good college education – sure – it’s a place for students to mature, discover themselves in an atmosphere of tremendous freedoms, zone in on areas of interest, and mark time before facing the rigors of a new world that is less inviting to them than it was to students from our generation..I’m not suggesting all kids should pick up a trade or avoid college altogether, but it strikes me that this element of the American Dream is seriously flawed and will doom many to years of misery ..good work exposing this dynamic!

  • Scam?

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    You can’t make this stuff up!!

  • I agree largely with the conclusions of this piece, but the author misses a key difference between the student loan system, and the subprime home mortgage system:

    In fact, all of the lending side entities (collection companies lenders/collectors like Sallie Mae who perform both functions), guarantors MAKE money on defaulted loans…This is a preferred outcome for these entities, in fact…and this is well established, and not debatable.

    What the author REALLY needs to know, however, is that EVEN THE FEDERAL GOVERNMENT MAKES MONEY ON DEFAULTS, and at least for FFELP loans (the majority of student loans looking backwards) MAKE SIGNIFICANTLY MORE ON DEFAULTED LOANS THAN ON LOANS THAT DO NOT DEFAULT.

    This is a major, hugely important difference that any meaningful analysis must take into account from the start if the system is to be understood as it is.

    This is an inherently predatory system that is terminally corrupted by this unique feature that has resulted due to not only bankruptcy protections, but also statutes of limitations, coverage under state usury laws, exemption from truth in lending laws, and others. Combine this with draconian collection powers, and incredibly high fees allowed to be attached to defaulted debt, and the result is the unparalleled inflationary spiral we see.

    Please see for proof that this claim is indeed correct.

    People need to understand the true dynamics that underlie this problem. It is far more compelling than even the subprime situation…Greed underlies it, to be sure, but this additional feature exposes a system far more sinister, and demands urgent, bipartisan political action to fix the core problem is needed. Yesterday.

    Alan Collinge

  • Credit Cards for Graduates
    If you acquired a student credit card while in college, it’s time to graduate to a low-rate card.

    As reported by Liz Pulliam Weston in a recent article, the average college student now graduates with more than $20,000 of debt, while the average starting salary is $30,000. Credit card debt is a large chunk of that owed by college grads, as found by Sallie Mae. Sallie Mae reports that undergraduates are now carrying a record amount in credit card balances—$3,173 on average.

    “You’ll see huge savings by transferring your balance from a high-rate student credit card,” says Charles Tran, research director of the consumer credit card comparison site CreditDonkey.

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    Smart Money Moves to Make with Your Tax Refund
    With the average 2010 tax refund weighing in at $2,895, as reported by the Internal Revenue Service website, Americans are looking for the best way to utilize their tax refund money. While it may be tempting to spend your refund on a brand new flat screen TV or on a vacation, there are some other smart moves you can make to help put yourself and your family in a better financial standing.

    Pay down your credit card debt
    The Federal Reserve’s February 2011 report on consumer credit indicates that Americans have $794 billion revolving credit outstanding. The average American household credit card debt weighs in at over $14,700. With the average credit card assessed interest rate at 13.44%, as of February 2011, consumers will end up paying thousands of dollars in interest by the time they pay down this debt.

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    If you had $14,700 on a credit card with 13.44%APR and were making just the monthly minimum payment, it would take you 10 years pay off that debt and you would pay $4,199 in interest. However, if you transferred that balance to a credit card with a 10.9% APR and made an initial payment of $2,895 with your tax refund while then continuing to make the monthly payment, you would save $1,612 in interest and pay off the debt a year earlier.

    Open an IRA
    A study conducted by the Employee Benefit Research Institute in 2010 found that the average American has a retirement savings deficit of $47,732. This shortfall is looking at the amount a typical 36 to 62 year old has put away to cover their basic expenses they will face when retired.
    While your tax refund isn’t going to make up this difference, contributing that money toward your IRA is a step in the right direction. If you don’t already have an IRA, it only takes minutes to open an account.

    Make an extra mortgage payment
    Making one additional mortgage payment annual can literally save you tens of thousands of dollars over the life of your mortgage. And you may be pleased to learn that it will help you own your house outright in a shorter amount of time.
    For example, let’s assume that you have a mortgage with a 6.5%APR with a balance of $250,000 and have 25 years remaining on your mortgage. By simply paying an additional $2,500 annually, you will save $69,737.37 in interest and shave more than 5 years off the life of the loan.

    Contribute to 529 college savings plan
    If you have a child or grandchild, the earlier you start to put money aside for college, the better. This is because the cost of tuition continues to rise every year. According to the Bureau of Labor Statistics, the tuition component of the Consumer Price Index increased by an average of 8 percent per year from 1979 to 2001; this translates to college costs being nearly 3 to 4 times the current price by the time a child born today graduates.

    If the cost of tuition is making you sweat, contributing your tax refund to a 529 college savings plan is a smart move. Interest is tax free when the child uses the funds toward education related costs. And depending on the plan in your state, contributions typically have tax benefits for the contributor. Check with your tax professional to see how you personally can benefit from 529 contributions in your state.

    Invest in life insurance
    As reported by a USA Today article, the percentage of American households with life insurance is at a 50-year low. This was illustrated by a survey conducted by LIMRA, which found that only 44 percent of households have individual policies and 30 percent have no individual or employer-provided policy. The same article reports that approximately 11 million households with children under the age of 18 have no life insurance; this group is viewed as the one with the greatest need for coverage.

    If you find yourself among one of the millions uninsured Americans, now is a great time to purchase a policy, as premiums for term life insurance are actually lower than they were a decade ago. In fact, depending on your age and health, your refund could cover your entire annual payment toward a term life policy.

    How Cash Back Credit Cards Can Offer Great Savings on Your Dream Wedding
    The April to October Wedding Season is almost upon us. If you’re like the many Americans looking at their spending this year, you may want to find every conceivable way to save money. The average cost of a wedding falls between $18,500 and $30,083, according to

    Most surveys taken in 2010 find the true average cost resides at a whopping $27,000. To find ways to earn money as you spend it, you will need to look no further than a cash back credit card. Cash back credit cards provide the consumer with a cash back option or rebate when the card is used for purchases. Whether gas, food, lodging, or wedding related purchases, the cash back credit card is a way to earn money even as you spend on big ticket items.

    About CreditDonkey is a credit card comparison site. Consumers can compare credit cards by bank, benefits, rewards and other categories. CreditDonkey covers credit cards from all major credit card issuers and banks including American Express, Bank of America, Chase, Citi, Capital One, Discover and HSBC.

    The team is made up of savvy consumers and small business owners looking to get the most out of their credit cards.

    Founder Charles Tran is an entrepreneur and startup expert, most recently launching the innovative

    Expert Source Topics
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    • Phil

      Class of 2011, Most Indebted Ever

      Still, the growth in student debt marks a shift toward a form of obligation that can be a lot more onerous than credit cards or home loans. Student debt can carry interest rates as high as those on subprime mortgages, and it’s much harder to shed in the event of trouble. There’s no house to give back to the bank, and even bankruptcy rarely offers relief. As of December 2010, total student debt outstanding stood at $530 billion in the U.S., up 29% from December 2007. Other types of household debt shrank 8% over the same period. Given the state of the job market, many degree-holders will face a long slog to get debt-free: The Collegiate Employment Research Institute estimates that the average salary for holders of new bachelor degrees will be $36,866 this year, down from $46,500 in 2009.

      In the near term, the debt burden could weigh on both the housing market and the broader economy. College graduates struggling to pay off debts are more likely to put off major milestones such as leaving home, getting married and buying a house, at a time when the creation of new households in the U.S. remains well below its long-term average.

  • Student loans are a bubble. Education is important but at the costs is it worth it for everyone? Most likely not. More should start their own businesses or a trade after high school. I started Education Registry dot come which is a student loan/cost of education regsitry for weddings and special events. This is not a promotion, we likely will never make back what the site cost to create. The above is why I did it.

  • The scary part of this generation is they are comfortable with 100,200, even 300k of student loan debt. Couples routinely get married with 400k worth of debt than buy expensive houses with a huge mortgage. Even making 100k each a year is slavery with 1mil in debt. This is the new “upper middle class”. Working 100 hour weeks to pay their interest payments to Hedge Funds, Govt etc.

  • Wild

    Is higher Education a scam? You bet it is. They told us, and are now telling our kids, that the only way to get ahead in life, and to avoid ending up like mom and dad is to get a higher education. And to do that the vast majority of students need to take out their first bank loans ever. Most do not know what they are doing. All student loans should have “Buyer beware” stamped in 6 inch tall letters on the front of each loan package.

    Lack of proper oversight by government agencies, such as Dept of Education, and shuch has given us over 30 years of abuses by schools, financial institutions and the government itself. When faced with these facts, the government has NOT helped the student who was damaged or victimized by the process. Instead the government empowered itself with collections powers beyond any reasonable level of acceptance.

    Starting with the removal of bankruptcy protections, and the continued removal of all consumer protections on student loans, the government set itself up to be a finanical death ray to students who took the risk of betting on the future, and who lose the bet. They are ruined forever. And now we as a nation are about to pay the price for congress’s failures. The Student Loan bubble will burst, and it will make the Home Mortage fiasco look like childs play.

  • Karie

    I am one of these kids. At eighteen years old, I knew nothing about debt or loans. Now, ten years after college graduation, I am getting that education. In order to afford to attend a state school I had to acquire massive amounts of student loan debt to the tune of $30,000. While attending college I worked as many hours at many part-time jobs as was humanly possible and tried hard to borrow the least amount possible. After graduation I got a job in my field of study–music education. I teach middle school orchestra.

    Ten years later, only making $40,000 a year (before taxes) I am still struggling to pay off this massive debt all while the interest accumulates. Sure, I could simply choose not to pay it, but that would cost me my job. In order to teach middle school orchestra (or any subject for that matter) I have to be certified in my state (Texas). If I don’t pay my loans, every five years when my certificate comes up for renewal, the state of Texas will prevent it from being renewed. And in the months or years before that happens, my wages, possibly up to 25% of my take-home pay (that’s after taxes) in my state, will be garnished. If I get lucky and I don’t get caught, that’s okay, because eventually they will, even if it is ten or twenty years, or even longer as there is no statute of limitations when it comes to student loans. Bankruptcy is not an option either, as all bankruptcy protections have been removed from student loans.

    Sure, as a music teacher I might qualify for loan forgiveness, but that will not happen for at least twenty more years.

    So here I am, ten years after college, dealing with this enormous problem and basically living paycheck-to-paycheck. My student loan payments cost the same amount as a mortgage and I definitely cannot afford two mortgages. After the monthly rent, utilities and the student loan payment, there isn’t much left. Some day I will have to buy a newer car. Not a new car, because I wouldn’t be able to afford the payments on a new car.

    I feel completely stuck. I have sold myself and my life to the government in exchange for something I could never completely comprehend at eighteen years old.

    In my opinion student loans are a scam. Wild is correct. When this loan bubble bursts, it will definitely not be pretty.

  • Dave

    This topic is gaining more and more attention. Pew Research reports, Is College Worth it?

    A majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they and their families spend. An even larger majority—75%—says college is too expensive for most Americans to afford.

  • Eugene

    Recent college graduate taken for quite a ride by the higher ed system.
    I want to say that you’re right on with your comments about how colleges love to shroud their money sucking aims and utter inability to deliver decent instruction in evoking students to care about the so called just causes, bogus majors, campus improvements and disguising loans as financial aid.

    In addition to all this, colleges get billions, investors get ever richer,backed up by the government and free to walk away, while we, the borrowers, pay back the loans and taxes i.e. fiancing the whole thing, with fewer job expectations and no real, solid education, and no option to walk away?

    So much for giving Americans a shot at a bright future.

  • photon

    Like everything else that involves money, college is an investment. It’s not that hard to find data on employment and salary by major, and schools are up-front about the level of financial aid they’re willing to offer at the time of admission. Compare the expected salary to the expected debt, and there you go. The information isn’t exact, but it’s reliable enough.

    The fact is that people who graduated with these bogus majors were irresponsible. You know up front that a major in Communications, Chicano Studies, Marketing, etc. are not going to be lucrative – so why pay more than you can afford?

    For some reason, Americans now have a mentality that making a bad investment is somehow not our fault. We bought houses we could never afford, causing the subprime mortgage collapse, but that was *Wall Street’s* fault. We majored in something with 0 demand in the workplace, but that’s *College’s* fault for being too expensive. I bought a Ferrari last year and now can’t afford the car payments, but that’s the *dealership’s* fault for making the interest so large.

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