Don't look now but there's another giant bubble out there. It's so big it rivals subprime. I'm talking about the student loan bubble. Recently, the outstanding volume of student loans passed $1 trillion. What's more bothersome is that the average individual amount owed by new college graduates has passed $25,000. With college costs zooming upwards faster than inflation, this is rapidly becoming another subprime mortgage-like sinkhole. Just like subprime, the problem is that people of modest means are being suckered by high-pressure salesmen into taking on too much debt. The difference is that since student loans are government guaranteed and can't be released in bankruptcy, the burdens will be paid by the unfortunate ex-students and the U.S. taxpayer. The standard justification for soaring higher education costs is a simple one. The United States needs to maintain an educational lead in order for its wage levels to remain above those of its competitors. I'm talking largely about emerging markets, which have been helped enormously by modern communications, making global sourcing much easier than it was. There are two problems with this view. First, the more esteemed colleges take great pride in not providing vocational training, and graduate large numbers of students with degrees that don't obviously qualify them for anything. In what way is the U.S. being made more competitive by graduating students in (insert your favorite useless college major here)? Second, even as the demand for a college education is increasing, the efficiency of providing it is declining. Both the Ivy League and state university systems increase tuition rates far more rapidly than overall inflation.
