As we read every day, and have for the past four years, these are the toughest economic times we will see in our generation. What are we passing onto our children? With more and more adults unemployed, under-employed or newly employed but with savings depleted as a result of weathering the storm, we are passing on a huge debt burden to our next generation.
There was a time when planning for college by saving and investing for the future was the norm. It took a few crashes, or in my case Bernie Ebbers and Joe Nachio to wipe out hard earned investments. Then it was the hope of home equity. As housing prices soared, it seemed like a little comfort was had knowing that the value could help fund a better future for our children. That was short lived. Is the "debt to fund education" the next tsunami lurking on the horizon? We think so.
Credit card debt in the US is roughly 3/4 of a trillion dollars. Debt from student loans is $1 trillion. The high cost of college tuition and high interest rates from private lenders (even 8% from the US Government) all lead to the building bubble. Prices keep going up, wages for college grads, if you can get a job, keep going down.
For the 2009–10 academic year, annual prices for undergraduate tuition, room, and board were estimated to be $12,804 at public institutions and $32,184 at private institutions. Between 1999–2000 and 2009–10, prices for undergraduate tuition, room, and board at public institutions rose 37 percent, and prices at private institutions rose 25 percent, after adjustment for inflation. (SOURCE:U.S. Department of Education, National Center for Education Statistics. (2011). Digest of Education Statistics, 2010 (NCES 2011-015).
Estimate is that this bomb will explode at the beginning of 2013. Unemployment will remain above 8% and those who entered college at the beginning of this crisis will find themselves unemployed, or under-employed, and strapped with a mountain of debt that no student will be able to pay off. No discipline will be immune.
This phenomenon, compounded by guilt ridden parents using retirement savings to shoulder the burden, is a formula for disaster. Who are they going to get help from? Sua Sponte.
Bradford C. Bruner for Sua Sponte Wealth Management
There was a time when planning for college by saving and investing for the future was the norm. It took a few crashes, or in my case Bernie Ebbers and Joe Nachio to wipe out hard earned investments. Then it was the hope of home equity. As housing prices soared, it seemed like a little comfort was had knowing that the value could help fund a better future for our children. That was short lived. Is the "debt to fund education" the next tsunami lurking on the horizon? We think so.
Credit card debt in the US is roughly 3/4 of a trillion dollars. Debt from student loans is $1 trillion. The high cost of college tuition and high interest rates from private lenders (even 8% from the US Government) all lead to the building bubble. Prices keep going up, wages for college grads, if you can get a job, keep going down.
For the 2009–10 academic year, annual prices for undergraduate tuition, room, and board were estimated to be $12,804 at public institutions and $32,184 at private institutions. Between 1999–2000 and 2009–10, prices for undergraduate tuition, room, and board at public institutions rose 37 percent, and prices at private institutions rose 25 percent, after adjustment for inflation. (SOURCE:U.S. Department of Education, National Center for Education Statistics. (2011). Digest of Education Statistics, 2010 (NCES 2011-015).
Estimate is that this bomb will explode at the beginning of 2013. Unemployment will remain above 8% and those who entered college at the beginning of this crisis will find themselves unemployed, or under-employed, and strapped with a mountain of debt that no student will be able to pay off. No discipline will be immune.
This phenomenon, compounded by guilt ridden parents using retirement savings to shoulder the burden, is a formula for disaster. Who are they going to get help from? Sua Sponte.
Bradford C. Bruner for Sua Sponte Wealth Management
