Are Student Loans The Next Big Bubble To Burst?

1) Why does the amount of student loan debt continue to rise?

2) Can students reasonably be expected to repay these loans in the future and what happens if they do not?

To answer the first question, it is critical to understand that the cost of higher education at four year colleges continues to rise, exceeding annual increases in inflation. While the costs of attaining a college degree (including tuition, other fees, room and board) vary significantly across public universities and private universities, the overall national trend has moved higher over the last couple of decades. According to the College Board, from 1988/1989 to 2018/2019, average tuition and fees tripled at public four-year institutions and more than doubled at public two-year and private nonprofit four-year institutions, after adjusting for inflation. Where do we stand now? Consider the following published 2018/2019 total fee averages based on data from the College Board:

table

Recognizing that these are just averages, there are some universities that may have much lower total fees and other that may have significantly higher fees. As it relates to the latter, Harvey Mudd College, followed closely by the University of Chicago, was the most expensive college in the U.S. for the 2018-2019 academic year, according to Statista, with an annual cost of $75,003, which equates to a total cost of $300,012 over four years.

Now factor in that the median household income in the United States, according to the latest data available from the Census ACS survey in 2017, is $60,336 and it is hard to imagine how most American families can afford a four year college education for one or more of their children. Grants, merit scholarships and athletic scholarships are helpful but are not awarded to all students and/or often are not enough to cover the total college costs. Student loans fill the affordability gap but certainly come at an expense to the student and potentially to the economy as a whole. As long as student loans continue to fill the affordability gap, it is hard to imagine colleges having the incentive to significantly lower their fees outside of remaining competitive with other colleges in a similar perceived category. Yet, college degrees are essential these days and often a basic requirement for being considered for most positions with reasonable salaries and benefit packages and colleges likely take this into consideration when setting their tuition levels. The two charts from J.P. Morgan Asset Management below will help to illustrate the importance of having a college degree in today’s job market.

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Hennion & Walsh Asset Management currently has allocations within its managed money program and Hennion & Walsh currently has allocations within certain SmartTrust® Unit Investment ...

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