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Tuesday, August 28, 2007

OpEd: What the housing crisis means for higher education

In the past fifteen years, as parents of college bound students watched their kids head off to college, they kept their mortgage banker's telephone number handy. WHY? That's simple. A huge majority of the source of funding for college tuition was parents using the equity in their homes for tuition. Simple cash out transactions. Ditto for folks buying cars. Americans used their mortgages like credit cards. With home equity lines etc, ...lines of credit with various names on them.

Financial advisors of 20 years ago would have cited the golden rule of never leveraging a retirement asset for college expenses and would have vigorously objected to impairing the security of a home by additional debt. Those old rules were simply trashed and laughed at.

With the price of college education rising, and the price of median home plunging, and the foreclosures rampant across America, and credit for even good, or great borrowers unavailable.....it does not take a rocket scientist to see that a day of reckoning is here.

Speaking of the "reckoning" word, in 1986, my wife bought me the book "The Reckoning" by David Halberstam---the story about the rise of Japanese auto business and the fall of the American auto industry. It has been a slow moving reckoning in the auto business. I just hope the reckoning in education is as slow. It just does not seem slow. If you plot your home equity on a graph and plot the rise of college expenses right next to it, it is pretty clear.

Stay tuned.

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