Monday, October 1, 2012

Gap between college tuition and consumer income is at record levels

Analysts point out that higher education costs in the US have significantly outpaced inflation. Another way to look at the issue however is to compare college costs with disposable income. The gap between the two has widened to historical highs.



This is another market distortion created by the US government (similar to the housing market) by providing an almost unlimited amount of credit and pricing it below market. It allowed schools to raise tuition without the demand constraint that would normally exist in a market. As a result the US consumer student loan burden is now higher than either auto or credit card debt (see discussion). And now we are also seeing a rise in delinquencies (see post).



This is not going to end well, particularly for the second and third tier private schools, especially if the government credit spigot is suddenly turned off.


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