Small silhouette of Doug Wolkon WELCOME TO PLURANOMICS, THE ECONOMICS OF MANY.

Educated Inflation

This post is a response to A weird day on Wall Street on John Gapper's Business Blog at Financial Times.

With Sallie Mae in trouble, does that mean that less student loans at low interest rates may be available in the future? After all, they are the largest student lenders with $127 billion of debt outstanding (according to Wiki). Or can we expect the Wizard of Oz to step in and fix the lending rate since the loans are “federally guaranteed”.

How many “guarantees” does our federal government have out there anyway? Does it even matter? Do you think the price of college tuition in the U.S. will be forced down proportionately to the likely increase in future lending costs? I hope so for my kid’s sake. Or maybe we will have to pay cash for college tuition. What do you think the price of tuition would be then?

The question is, “How are the Universities going to make up the difference to pay for the expensive education they are selling?” My father-in-law did it with home equity like so many others but that doesn’t seem to be an option right now.

The reality is that lenders like Sallie Mae have allowed Univerities to charge students $40,000 of annual tuition for their “must have at any price” 4-year education. Sounds a lot like a “must have at any price” 3-bedroom home with top of the line kitchen and bathrooms in the middle of the Arizona Dessert or Florida Swamp for $350,000 – No Money Down.

Posted on Financial Times – John Grapper’s Blog 9/20/07

 


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