Tuesday, 13 March 2012

Student Debt Time Bomb

The Washington Post recently warned of a potential debt time bomb in the form of student loans, which they say have skyrocket from $100bn to $800bn in 4 years! This figure represents more than the US consumer's total credit card debt!

With student fees increasing from £3,000 to £6,000 (£9,000 for some uni's), I thought it prudent to wonder if the UK has the same problem.

What you will be happy to hear is that our student debt pile is worth just £30bn ($48bn), not even close to our brothers across the pond. The more astute readers would immediately realise that two absolute numbers cannot be compared until we put them in context.

Against GDP, US student debt pile (SDP) stands at 5%, while the UK SDP is at 2.5%. If we look at the number of domestic students in each country, the UK has 1.2m while the US has 14.6m. Normalising for US Students, the UK would have $580bn of debt.

So far it seems that the UK do not have as big a debt burden than the US. However factoring in the average cost of university (£6k to £20k per annum for US and UK's £3k) we can see a different story entirely. If the average cost for US students is roughly 4x more than UK while the US has 10x as many students, we would expect the debt burden in the US to be 40x the UK's. This clearly is untrue as the ratio is roughly 20x. A possible reason for this may be that a lower percentage of US students tend to use the student debt facilities in the first place (the average UK debt of $15k is a lot more palatable than US's $90k student debt).

What does all this mean? The Washington Post continues by telling us the amount of bankruptcy proceedings resulting from student debt has risen 80% a year as parents undersign their children's student loan with their assets. They use the story of a war vet whose house is endanger of foreclosure as his daughter has not managed to find a permanent job since graduating.

*Courtesy of the Daily Telegraph

The questions I want to ask in this article are somewhat different. Firstly do we even have a problem? and second, will the increase in tuition create a debt time bomb down the line?

Is the debt load a problem *Govt loans only*

At this point it is prudent to split US students into two groups. According to statistics, around 50% of college goers attend a university with charging £6k per year. These are lower attainment universities and I would assume the average household earnings is lower. Conversely 25% go to £20k per year premium universities such as Yale or Harvard. In this group I will again assume that the amount of college goers that use loans is rather limited and so I will ignore this group altogether.

So with that in mind, upon graduation, US students typically have $25k debt (£18k) compared to the UK's £14k (this has more than doubled over 10 years). This goes hand in hand with the fact that they are expected to earn more (£33k vs £25k).  The final piece of the puzzle is the interest rates payable on these loans. I will leave savings rates out simply because this generation tends not to be accurately portrayed in these analyses.

For the Brits, the APR on your debt is 1.5% while americans have to accept 3.5% rates, so annual interest for your average UK student is £210 and £540 for his American compatriot (0.84% of Gross earnings vs 1.6% respectively.)

On the face of it, despite UK being the clear winner, it does not seem that America has it that bad. Well the problem that America has is not in the affordability of debt but rather the availability of solid graduate jobs. The FT puts youth unemployment in the USA at about 17% whereas for the UK it is 21% and so even if the interest rate fees are cheap, how can a student pay them when he has no job!

The short sighted man

In my humble opinion, one of the problems with human beings is that we are myopic in nature, ie we tend to attach way too much weight to the short term and hold less regard for any longer term developments. It seems that we are just in the lows of the business cycle and while I agree this low is potential more aggressive than the 'average low', it is certainly possible for recovery to occur. With this in mind, I do not believe that the current state of youth unemployment will cause the ballooning student debt pile to be a problem. Furthermore as these are govt credit mechanisms, it is perfectly feasibly for interest rate charges to be halted if the situation were to become increasingly dire.

Unfortunately, those who were privately financed to go through university have a more uncertain outcome, as the financial institutions that distribute this debt have to maximize profit, rather than social welfare.

Will the Increase in Fees Cause a Problem Down the Road?

The increase in fees will move student tuition from c.£3k to c£6k (and in some cases £9k, but those who pay the 9k will be members of the elite and probably wouldn't take a student loan anyway). Using numbers from the above, we can assume debt will increase to £25k (significantly more than the US). or £375 interest per month, which is still easily affordable.

Concluding this adventure into student loans, I think that the size of them is of little concern. What is concerning is the drive towards higher education. 50% of UK children now enroll in higher education and the problem is that this causes a dangerously one sided economy (which has already happened) and expectations of an increase in living standards when anyone knows that as the supply (of skilled labour grows) while the number of jobs remains constant, the average wage will decrease. If this were to be the case, the current crop of graduates would see a falling marginal benefit to university education. If we don't want an even bigger problem in 10 years, subsidize industries to take on youngsters while encouraging more applied learning channels.


  1. WOW just what I was looking for. Came here by searching for orange california
    My web site :: hardcore sex

  2. I am really enjoying the theme/design of your blog.
    Do you ever run into any browser compatibility issues?
    A handful of my blog audience have complained about my site not operating correctly in Explorer
    but looks great in Chrome. Do you have any advice to help fix this issue?
    Take a look at my web page : daily-wet-tshirt.com

  3. Hi colleagues, fastidious piece of writing and fastidious arguments commented at this place,
    I am truly enjoying by these.
    My page > Teen porn - Sex - Free Porn Pussy

  4. Right now it looks like Expression Engine is the preferred blogging platform out there right now.
    (from what I've read) Is that what you are using on your blog?
    Here is my site : freeporn

  5. I think everything said was actually very reasonable. However,
    what about this? what if you were to write a killer post
    title? I am not suggesting your information is not good, however
    what if you added something that makes people desire more?
    I mean "Student Debt Time Bomb" is a little plain. You could look at Yahoo's front page and see how they create news headlines to get people interested. You might add a related video or a picture or two to get people interested about what you've written.
    Just my opinion, it would make your posts a little bit more interesting.
    Also visit my web page ... Free Teen Porn

  6. This text is worth everyone's attention. How can I find out more?
    My web page > www.teenpornpost.com

  7. These are actually great ideas in about
    blogging. You have touched some fastidious factors here.
    Any way keep up wrinting.
    My webpage - hookah Orlando

  8. Malaysia & Singapore & brunei finest internet blogshop for wholesale & supply korean accessories,
    earrings, earstuds, choker, rings, hair, bracelet & trinket add-ons.
    Offer 35 % wholesale price cut. Ship Worldwide
    Feel free to visit my blog post :: programas de memória

  9. Malaysia & Singapore & brunei greatest online blogshop for wholesale & quantity korean accessories, earrings, earstuds, pendant, rings, bracelet,
    hair & bracelet accessories. Promotion 35 % wholesale price cut. Ship Worldwide
    my site - music marketing

  10. This paragraph is really a pleasant one it helps new the web
    users, who are wishing for blogging.
    My blog - Oregon mortgage aid

  11. Every weekend i used to pay a quick visit this web site, as i wish for enjoyment, since this this site conations truly
    fastidious funny stuff too.
    my website: cheap iPhone 5 for sale online

  12. Greetings I am so happy I found your blog page, I really found you by mistake, while I was browsing on
    Aol for something else, Regardless I am here now and would just like to say kudos for a fantastic post
    and a all round exciting blog (I also love the theme/design), I don’t
    have time to read it all at the moment but I have bookmarked it and also included
    your RSS feeds, so when I have time I will be back to read more, Please do
    keep up the great jo.
    Here is my web blog : Poker

  13. What a gooԁ poѕt and ceгtаinly helped cleaг my mind a little

    My homepage dirtyoilsands.org

  14. My spouse and I stumbled over here coming
    from a different web address and thought I might check things out.

    I like what I see so now i am following you. Look forward to looking into your
    web page yet again.

    Here is my webpage - love quotes
    my web site - life quotes

  15. Great wау of obseгving thingѕ - I аm а bit morе
    of a mоnοchrome guy, myself

    mу web-ѕite; softwareshelf.blogspot.com.es
    Also see my web page > supercollider.jp

  16. I'm glad that Google brought your site up for my search - it helped

    my website: rose quartz necklace

  17. Good ωay of viewing thіngs - I am a bit more оf
    a monochrome indіviԁual, myѕеlf

    Fееl frеe tо visit my blog ρost :: silver jewellery in the Uk

  18. I hope уоu ωill not mind me visiting and sауing
    thаnks to you for your artіclе -
    it tгuly helped

    mу pаge ... ribbon necklace

  19. Seаrching іn Google brought up your site - I'm happy it did, thank you.

    Here is my web site - starfish toe ring
    Also see my web site > silver toe rings

  20. Grеat way οf seeіng things - I'm a little more of a black and white person, myself

    Feel free to visit my website - evenstar necklace

  21. I am glad thаt Gοogle bгought yοur site up for my searсh - it helped

    Have a look at my webѕite prettypandamakeup.blogspot.com

  22. Nіce artіcle but I am not sure that I agree.

    Hοwever, folks conѕiԁer me difficult аt thе
    best of timeѕ! Cheeгs.

    my wеb site - http://Ceconsult.hu/wiki/index.php?title=Szerkesztő:GitaHRT

  23. The players would begin as members of the SCA,
    going to Phoenix for the Estrella War. I won't spoil your surprises and give away any more details. You Divide everyone at the party into two groups, or tribes.

    Also visit my homepage internet banking

  24. DJ spins out on Saturday nights. Below are listed a few popular
    pubs where one can chill in Mumbai. 28.

    my web site: pub quiz austin texas

  25. Fashion Games of Teen Girls Interested Are Fun These challenges are at times shared
    amongst buddies. For adults, a virtual makeover of
    hair and makeup may be the equivalent of a little one hood game, with an improved style sensibility that tends to make the knowledge each entertaining and
    inspirational. Spice things up by including these Halloween-themes recipes:.

    Also visit my page - data file recovery

  26. In that case, this kind of question should not be taken from any show telecasted in specific country.
    * Team answer sheets - Basically a grid lined A4 type sheet with answer write in numbered boxes and a
    line on top for the team name. The food is decent and the drink specials on
    Tuesdays include $2.

    Also visit my page :: pub quiz team names

  27. Upon returning to the starting line, the first player must
    pass the sugar cube to the next teammate in line and
    so on. A murder mystery game is a fun way to pass the time during the twenties theme party.
    Now, one of my co-workers was applying to the Secret Service and I
    knew that I was down as a reference for her.

    Also visit my weblog - American airlines

  28. A result of the immense size and strength that these animals can grow to means pets should be leash trained from a young age.

    In the event you employ strategies that may
    be employed in agreement together with your dog's normal urge and instincts, you'll be
    able to improve its character and provide restrictions that
    can maintain your dog satisfied. 435-896-1737 Annabella,
    Utah Trainers: Chris and Julie Holt.

    Also visit my web blog ... triple crown dog training academy

  29. In that case, this kind of question should not be taken from any show telecasted in specific country.
    Popular prizes include sports tickets, cash
    and vouchers for drinks, food - and dollars off of tabs.
    The decline of the East side blues scene was disheartening,
    but, it also gave rise to the need for a fresh start, which came in the form of the next blues-only venue, Antone's, founded by the late Clifford Antone, during the summer of 1975.

    Also visit my webpage :: pub quiz and answers

  30. Fashion Games of Teen Girls Interested Are Fun These challenges are at times shared
    amongst buddies. I won't spoil your surprises and give away any more details. Now, one of my co-workers was applying to the Secret Service and I knew that I was down as a reference for her.

    Also visit my web-site newark hotels

  31. In looking for the proper collar for the pets,
    things that you need to consider are safety, the training process as
    well as your convenience. The truth is this isn't aversion education. Research states that more dog trainers and owners are deciding on the dog training collar.

    Feel free to surf to my homepage; dog training advice forum

  32. The players would begin as members of the SCA, going to Phoenix for the Estrella War.

    You make different challenges like scavenger hunts, food challenges, mazes and races.

    Play games all night long in keeping with the twenties theme such as
    various card games and crossword puzzles.

    Here is my weblog - medical insurance

  33. So you are looking to rid your girl of these unwanted stalkers when you
    are drawn to Willow Creek's Black Mirror Castle. For adults, a virtual makeover of hair and makeup may be the equivalent of a little one hood game, with an improved style sensibility that tends to make the knowledge each entertaining and inspirational. Now, one of my co-workers was applying to the Secret Service and I knew that I was down as a reference for her.

    Feel free to visit my blog post - atlantic city hotels

  34. I think this is one of the most vital info for me. And i am glad reading
    your article. But should remark on few general things, The website style is perfect,
    the articles is really excellent : D. Good job, cheers

    Here is my page :: sex movies

  35. Hi! I could have sωorn І've visited this web site before but after looking at many of the posts I realized it's new to me.
    Regaгԁlеss, I'm certainly happy I stumbled upon it and I'll be book-marκing іt and
    chеckіng back оften!

    Heгe is mу blog pοѕt pure green coffee extract

  36. Do you mind if I quote a few of your articles as long as I provide credit and sources back to your website?
    My website is in the exact same area of interest as yours and my users would certainly benefit
    from a lot of the information you present here. Please let me know
    if this ok with you. Cheers!

    Feel free to surf to my homepage; dabagirls.com

  37. Ι needed tο thank you for this eхсellеnt
    reаd!! I certaіnly enјοyed еverу bit of it.
    І've got you saved as a favorite to look at new stuff you post…

    my website :: home based business reviews

  38. Dogs, birds, or cats alongside a rhinestone
    eye were common place. These embellishments are made to add more beauty, refinement
    and complexity to the dress. It's really a mistake to douse oneself in heavy scents during summer season months. Checks, as in Gingham, are being benefited from on blouses with skirts. http://www.psychiatry10.org/moodle/user/view.php?id=26608&course=3