Niagara Gazette

Columns

May 20, 2013

CONFER: When will the college bubble burst?

Niagara Gazette — Editor's note: This is part one of a two-part series which will conclude next week.

The bursting of the housing bubble was the unquestioned cause of the Great Recession. After years of unprecedented growth in the housing market that saw home ownership and home values rise dramatically, the collective bad decisions of homebuyers, banks, and government finally caught up to the economy at large.

The supply of easy money that led to the ersatz prosperity — financial institutions foolishly gave, and government foolishly backed, mortgages for almost everyone, whether or not they were actually worthy candidates – proved to be the bane of the same. It didn’t take the new homeowners — or owners of an investment property — long to figure out that easy money really wasn’t so easy; their exorbitant mortgage payments weren’t sustainable, especially if the slightest hiccup appeared in their personal finances – such as the small scale recession fueled by high gas prices that pre-dated the heart of the Great Recession. With their family budgets hit hard, they had to choose between paying for their mortgages or their survivability (food, utilities, and transportation). That choice not being so difficult, they defaulted on their loans. Housing prices plummeted and the financial sector suffered immensely.

Our economy still hasn’t recovered a half-decade later and likely won’t before the decade closes. If the ship is ever righted to the heights that we remember, it won’t be long before another bubble is ready to burst; on the horizon is one that has numerous characteristics eerily similar to the housing market’s — It’s none other than the college bubble.

Easy access to money defines the modern college experience. Such is to be expected when you consider the federal government has been one of the largest lenders in the college loan market. From 1965 to 2010, it issued subsidies to lending institutions to fund their student loans while assuming all the risk.

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