The student loan debate in Congress is bringing to the forefront the student loan crisis plaguing our nation, as well as the financial instability of academic institutions in the United States.

Relative to the student loan crisis, the New York Federal Reserve concluded in its 2012 report that the obligations for student loans total approximately $1 trillion, or approximately $25,000 per graduate. 

The report notes that there are over 15 million borrowers under the age of 30, while the total number of borrowers is almost 39,000,000.  The delinquency rates on the loans range between 10% to 20% for the various age categories.

Surprisingly, the report indicates that there are 2.2 million borrowers over the age of 60, with an average balance due of $19,000.  The delinquency rate for these borrowers is approximately 12%.

Concurrent with the higher student loan balances, college enrollment rates for students have declined 2.3% in 2013 compared to 2012.  This decline is the first downward trend in enrollment in decades.

There are many factors which have contributed to the decline in college enrollment.  Major factors include rapidly increasing tuitions, higher unemployment rates for recent graduates, and the debilitating effects of student loan repayments on students and their parents.

The 21^st century is the first time in our nation's history in which the parents have had student loan debts and obligations and now have children considering entering college.  The experiences of these parents as well as the debt obligations themselves have discouraged their children from incurring too much debt.

Additionally, tuition increases for the period 2001 to 2011 have averaged 42% for public institutions and 31% for private institutions.  Such increases have significantly outpaced increases in income for the families supporting students as well as for the students themselves.  The net result is that the affordability index for college, meaning the ability to pay relative to income and funds available for education, is widening and making colleges relatively more expensive than they were decades ago.

Concurrently, Moody's in 2013 gave a negative financial outlook for all universities.  Recent studies have indicated that over 50% of all colleges and universities are projected to close, merge, or shut down in the next 50 years. 

The consolidation, failure, and decline have already started, and the pace will accelerate.

The causes of the insolvency for universities include:

• Continued escalation in college tuitions and fees compared to the overall rate of inflation.
• Limited growth in incomes of parents and students in recent years and continued high levels of unemployment of graduates.
• Extensive outstanding student loan debt already amounting to $1 trillion.
• Development of alternative education systems such as remote classes and internet systems.
• Growing debt of colleges and universities.
• Extraordinarily high fixed costs of colleges and universities, making the education system very susceptible to losses from reduced enrollment.
• Growing trend to "discount" tuition at major universities. This is very similar to the problem that faced hospitals with "contractual allowances."

The sum of all these factors will cause a collapse of the education systems as we know it. 

Obviously, schools that are well-funded and well-endowed will be little affected by this change.

However, marginally profitable schools, or schools with high debt loads which depend upon taxpayer support, will find survival difficult at best.

The economic realignment of education will occur due to the factors above, such that the following will most likely take place in the next five to ten years.

First, to stem declining enrollment, tuition will decrease.  Schools will struggle to maintain enrollment and in order to cover their fixed cost will be forced to reduce tuitions to encourage students and enrollment.

Second, faculty tenure and burgeoning cost of academic instruction will come under question and will be changed.  While existing tenured faculty will probably not be affected, the probability of getting tenure for other professors will be significantly more difficult, except at well-funded academic institutions.  Pay will likely decline as well.

Third, entire educational institutions will begin to file bankruptcy.  There has already been a major bankruptcy of a university in Atlanta, Georgia.  Other institutions that are not well-funded will meet the same fate.

Fourth, it is very obvious that academia will be forced to justify its cost relative to the value garnered from the education.  This will be one of the first times in history that the value of education relative to the cost will come under scrutiny.

The education bubble has burst!  It appears that it is only the university and government that do not understand the magnitude of the problem.

Parents and students alike are demanding accountability and results.  Once the system has been critically scrutinized by educators, students, taxpayers, and parents, improvements and cost reductions will finally be achieved.  The result will be a much stronger academic environment once the "cleansing" process has been completed.

Col. Frank Ryan, CPA, USMCR (Ret.) served in Iraq and briefly in Afghanistan.  He specializes in corporate restructuring and lectures on ethics for the state CPA societies.  He has served on numerous boards of publicly traded and non-profit organizations.  He can be reached at FRYAN1951@aol.com and on Twitter at @fryan1951.