Gap Between Income and College Tuition Hits Record Levels

By Walter Kurtz, Sober Look

Analysts point out that higher education costs in the US have significantly outpaced inflation. Another way to look at the issue however, is to compare college costs with disposable income. The gap between the two has widened to historical highs.

This is another market distortion created by the US government (similar to the housing market) by providing an almost unlimited amount of credit and pricing it below market. It allowed schools to raise tuition without the demand constraint that would normally exist in a market. As a result the US consumer student loan burden is now higher than either auto or credit card debt (see discussion). And now we are also seeing a rise in delinquencies (see post).

This is not going to end well, particularly for the second and third tier private schools, especially if the government credit spigot is suddenly turned off.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Sober Look

Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.

More Posts - Website


  1. Student debt(s) should be allowed to be written off in a bankruptcy. This would make both lenders and borrowers much more cautious to lend/borrow money for tuition.

  2. Why? If the main lender is US government (Stafford loans) then the lender does not really care that much.

  3. That’s an interesting point. I definitely think that student debt should be allowed to be written off (I’m a BIG fan of the lender taking a risk), however you bring up an interesting point. What’s the incentive for the government to make good loans? I also LIKE the idea of the government making the loans directly rather than a useless private intermediary… but perhaps an intermediary wouldn’t be so useless after all… what if we privatized it, but forced the lender to hang onto the loans (to make them feel the pain if they make bad ones). Or if the government still does it, perhaps it’s best done by the states (which can’t print their own money). Or at least a government agency which is supposed to be “self sufficient” and if it’s having problems (like the Post Office) it’s dragged before congress and harangued on a regular basis. I’d love to hear people’s thoughts on this.

  4. This seems like a market ready for disruption. I think Peter Thiel is on to something when he calls it a bubble. Expect to start seeing more 18 year olds going to ruby on rails boot camps.

    Consumers putting themselves in major debt to pay for something they assume will be worth it? Hmm…sounds like housing 5-10 years ago.

  5. ‘Analysts point out that higher education costs in the US have significantly outpaced inflation’
    No, that’s wrong. You can’t take college costs out of the inflation formulas. Higher education costs are *part* of rising inflation.

  6. Govererment subsidizing of college loans, and the rampant increases in college tuition are directly related. Colleges, knowing that students have access to guaranteed loans, have taken advantage of the situation and jacked up their tuitions to scoop up every available dollar of student aid. And of course, all this government largess hasn’t actually gone towards education…increased buearacracy, higher salaries for everyone, more recreational activitioes to pay for the “collge experience”….I find it hard to believe that the costs of desks, chairs, and chalkboards have gone up all that quickly (the tools needed for a math degree, for example).

    The best way to bring tuition down…???? Get the government out of it ! Then when the universities see their applications drop by 90% or better, you’ll see tuition rates to come down as well.

  7. “This is another market distortion created by the US government (similar to the housing market) by providing an almost unlimited amount of credit and pricing it below market.”

    Nonsense. Unregulated banks inflated the housing bubble. But that was caused by the deregulation craze begun by my alma mater, U Chicago. That’s where we should go with our pitchforks and torches.

  8. As for college costs – schools are behaving like profit-maximizing corporations. They are allowed to price discriminate so that they can maximize the capture of the consumer surplus. Again it’s lack of regulation that is the problem.

    The real problem is that you get rich by having the right connections, so everyone ponies up the money so they can rub shoulders with the wealthy during college.

  9. I think student loans get a bad rep. My loans allowed me to go to school and concentrate on my craft without concern of having to run myself dry with some dead end jobs…i was actually thankful for my loans. Granted i did go to a reasonable state school and majored in an engineering discipline. Students need to be careful, for profit and private schools are complete scams…particularly law schools.