What to Do About the Student Loan Bubble

Here is a chart detailing money supply growth in Canada.

M2 Canada

The process of creating new money out of thin air is called inflation. This decreases the purchasing power of money, resulting in higher prices, However, this effect is not proportional within the economy. Prices to tend to rise faster in those sectors of the economy which are influenced by government spending.

This is the case for the cost of post-secondary education in Canada. Tuition costs continue to sky-rocket because of the availability of government student loans to finance post-secondary education.

Source: Statistics Canada

Source: Statistics Canada

This entire process is a racket. It benefits politicians who dole out student loans in exchange for votes from unsuspecting students and their families. Educational institutions, particularly brick and mortar ones, also benefit from higher tuition fees. It is the students, who accumulate debts that must eventually be repaid, who are left holding the bag.

As costs rise, the value of a post-secondary degree is diminished. A crisis is brewing wherein many students are learning that their future job prospects will not deliver a satisfactory return on their investment of time and borrowed money. These students did not understand basic economics. Neither did their parents. Both failed to count the costs.

This process of malinvestment is similar to that which occurred in the U.S. housing meltdown. In the end, countless homeowners were left with upside down government-guaranteed mortgages on houses that were often worth a fraction of the price paid. In both cases, default shifts the financial burden onto taxpayers.

Do your best to avoid student debt. There are still ways to successfully do this. While you’re at it, ignore these fools.

(HT EconomicPolicyJournal.com)

  • I went to college and majored in English. I’ve been debating going back but would need a student loan. Your comparison to the housing amrket crash has been thinking twice.

    Great article as usual!

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  • About Gregory Cummings

    Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.

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