The double-digit increases in college tuition over the last decade has pushed students to the edge. The only way for most students to attend was with the availability of major student loans. Students became dependant on a combination of federal loans with low subsidized interest rates and private loans issued through government programs to protect banks from defaults.
But, now that the economy is suffering a major financial meltdown, those cheap loans are disappearing. Last week, Bank of America announced that it was shutting down its $85 billion student lending program. The reason is because the government lending standards have become too low to profit from and the banks need the cash to cover other losses.
Reference Article: Bank of America to stop issuing "private" student loans
According to Michael Robertson, Tina Donaldson, who have used the US Census Bureau to calculate these numbers, the average difference between a college graduate and High school graduate is $586,000 over a life time.
Lifetime Median Earning
40 Year Total
High school graduate
While the average cost of college is about $120,000
Cost Of Attendance
Average Years To Completion
If you run a spreadsheet with these numbers including the interest for the college loans, it takes 10-12 years just to break even with a college degree and 25 years to overcome the high school graduate in total income received. Keep in mind these are average numbers, not everyone’s career will follow these numbers.
Reference Article: The Biggest Gamble of Your Life (Is College Worth it?)
As the lending options for students’ dwindle, the interest rates will increase – adding to the number of years it takes to return the investment of a college education. An increase in interest rates will likely push the average number of years to get a return on your investment to exceed 30 years - far too long.
College Prices to Drop
As more and more students are priced out of college, something will have to give – and it’s probably going to be college prices. College prices will have to drop drastically over the next decade to continue to attract students, as college budgets will be cut to absorb the difference.
Technical Colleges to Grow
A better educational investment will be the 2-year Technical Colleges. The return on investment can be achieved in 12-15 years vs. 25-30 years and a higher percent of the graduates begin working upon graduation because most of the programs are based on current market needs vs. a general degree. Students will be piling into technical colleges over the next decade, creating opportunities for teachers and construction of new facilities. This is one industry that will see growth during the recession. Maybe they will even need to rent space from the local 4-year colleges.