Canadian Finance Blog

Posted: 12 Jan 2012 02:00 AM PST

This is the third and final instalment of our Thursday bubble series. The first part looked at Canadian housing, while the second looked at gold. This one is a little more, shall we say, contrarian in nature.

These days, I don’t know anyone who will discourage a young person from going to college. (Except me. Plug alert!) Haven’t you heard the studies? You know, the ones that say that college graduates make more than their lesser educated brethren? Or the ones that argue the difference can be as much as a million dollars over a lifetime? If you’re not going off to get some sort of higher education, you’re missing out.

Piggy Bank College Fund

I won’t discourage anyone from attending post secondary if they want to. Higher education is a noble goal, and often one that will directly result in higher wages, since we live in an increasingly specialized world. Often, companies won’t even look at a prospective employee if that person doesn’t have the relevant university degree. A college degree is becoming the minimum barrier to entry in a lot of fields.

Keep in mind though, there are alternatives, especially for those poor students out there. Trade school generally takes a fraction of the time a full university degree does. You can start at the bottom rung of a big company with the assurance that you’ll eventually move up the ladder. You can even take a few years off to hone your ability to study. The possibilities are endless.

But we’re not here to talk about the pros and cons about getting a degree. We’re here to talk about the crippling debt levels.

Massive Debt

The percentage of high school graduates who go on to take college courses is at a record high. And, partially as a result of all this demand, debt has also reached record highs. It’s not uncommon for 22 year old kids to finish their university programs with $30,000 to $50,000 in debt, and that’s just from (comparatively) cheap Canadian schools. Students from ultra-expensive private schools often graduate with 6 figures in debt.

And then, we have the for-profit schools in the United States. (Also in Canada. But there’s not nearly as many of them.) These money making institutions often push strictly online courses, since housing students in virtual classrooms is considerably cheaper than real ones. These schools allow you to study at your own pace, a great solution for someone who wants to work and get a degree at the same time.

There’s just a couple problems. Firstly, they’re expensive. To counter that, students do what they’ve done for decades – take out loans. These schools make it easy, often holding the student’s hand throughout the whole loan application process and encouraging them to take out as much as they can. Hey, it’s good business to make sure your customer doesn’t run out of money halfway through purchasing your product.

There’s just one problem. Dropout rates at these types of colleges are huge. There are many reasons for this. It’s tough to work and go to school at the same time. If you’ve ever seen the ads promoting these schools, they’re often directed at people who don’t have a whole lot of education to begin with, or people who have been out of school for years. These people aren’t typically the best students. These people often end up with nothing more than a shattered dream and high student loans.

College debt is getting to the point where people can’t afford to take on the level of debt required to get the education.

Worthless Degrees

And then we have people who are taking on all this debt to get a degree that has very little potential to be leveraged into anything more than pouring coffee. Usually these degrees are in the arts, but there are exceptions. Or, so many people are getting into a field that they’re creating an oversupply of workers, kind of like the tech industry circa about 2003.

Which brings me to an interesting theory. As economic conditions worsen, young people can’t find jobs. So instead of joining the workforce, they go to school. Some will enrol in an undergrad program, while others will continue their education and take their masters. At some point, all these people will enter the workforce. And, since education is an investment of time as well as money, often these graduates will enter a decent job market. But, the job market improves for everyone, not just college graduates.

With college participation rates sitting at record highs, is this the peak for education? Or, will society continue to specialize to the point where everyone has to get some sort of degree? The comment section is all yours.

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Is College In A Bubble? originally appeared on Canadian Finance Blog on January 12, 2012.