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The student loan crisis will dwarf the housing market crash.

mikekarnj.com

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Re: The student loan crisis will dwarf the housing market crash.

#11

Post by nkassis »

krschultz wrote: post #4

"3. College Loan Repayment Reform: If anyone files for bankruptcy, the student loan should go along with it." No, no, no, no. This penalizes the people who pay back their loans far too much. Who wouldn't just go into bankruptcy if they couldn't pay back the loan? Unlike other loans, the bank can't take your degree back. Interest rates will go up for everyone as it becomes a riskier loan. Suddenly people who had fully…

Aren't the rates set by the government? At the very least, there should be ways for some of it to be forgiven for specific reasons, health reason would be on top.

Also, there are some programs where people who work for the government can get loans forgiven after a set amount a years. Maybe a similar thing (through tax breaks) could be implemented to help employers pay student loans with the student.

But the best solution is by far reduction of tuition. I'm glad I went to school in Florida, tuition was very low for a state that isn't very egalitarian usually. Education is something I feel they are doing much better than others. I now live in Canada and I see American students come here because the out of country rates are cheaper than their in state rates. And I'm all for free markets and all but the reality is, education is far from a free market. Highly subsidized and yet they still charge crazy rates for tuition. Harvard is now cheaper than some states schools, that's ridiculous.

Re: The student loan crisis will dwarf the housing market crash.

#12

Post by Lendal »

krschultz wrote: post #4

"3. College Loan Repayment Reform: If anyone files for bankruptcy, the student loan should go along with it." No, no, no, no. This penalizes the people who pay back their loans far too much. Who wouldn't just go into bankruptcy if they couldn't pay back the loan? Unlike other loans, the bank can't take your degree back. Interest rates will go up for everyone as it becomes a riskier loan. Suddenly people who had fully…

Exactly the opposite is true. People who make their payments get low interest rates. People who don't, get higher rates. That's the way it works.

Think about cars. Car dealerships know almost anyone coming in the door can get approved, but only if they hold prices down at a reasonable level. Beyond that level, the banks won't loan the money because the loan isn't guaranteed to be paid back. There's no such mechanism in education, because loans can't be discharged and they're guaranteed by the government, so there's no reason for schools to sell their education for a reasonable price.

Re: The student loan crisis will dwarf the housing market crash.

#13

Post by ezl »

Seems false.

1. Housing market debt dwarfs higher education debt in notional value. >14 Trillion vs 830B.

2. Most mortgages are non-recourse, meaning you can walk away. Most education loans are not. So people can't just leave banks on the hook without much more severe penalties.

When a homeowner walks away from a 600k mortgage on a house only worth 500k in the market, he/she is implicitly trading credit for 100k in cash. For some people that trade becomes much bigger 900k loan on a now 500k house. A lot of people will trade credit for 400k.

If walking away from an education loan was easy(which it isn't), I'm selling my credit for the value of my loan outstanding. That number tends to be a lot smaller, and most college-grads don't find it worth losing your credit for it.

* edit for readability

Re: The student loan crisis will dwarf the housing market crash.

#14

Post by evgen »

frossie wrote: post #2

Interesting article. 2-year Universities: Who made up the rule that we have to attend college for 4 years? Tertiary education does take a hell of a long time in the US. In my field, and in my generation, most UK students got their PhDs around 24-25 years of age; for the US students it was more like 27-28. Yes, if that is a real effect that would definitely be a problem. I can think of two factors that may be affectin…

> in my generation, most UK students got their PhDs around 24-25 years of age; for the US students it was more like 27-28

The programs were not quite equivalent. US Ph.D. programs have traditionally included more courses and include a comprehensive examination in addition to a dissertation. A US Ph.D. candidate must demonstrate a broader understanding of the field and cannot just jump into thesis work upon starting their Ph.D. program.

Re: The student loan crisis will dwarf the housing market crash.

#15

Post by nkassis »

sliverstorm wrote: post #7
krschultz wrote: post #4

"3. College Loan Repayment Reform: If anyone files for bankruptcy, the student loan should go along with it." No, no, no, no. This penalizes the people who pay back their loans far too much. Who wouldn't just go into bankruptcy if they couldn't pay back the loan? Unlike other loans, the bank can't take your degree back. Interest rates will go up for everyone as it becomes a riskier loan. Suddenly people who had fully…

Exactly. The ONLY plan worth taking would be graduate high school with no assets, take out a big student loan and live off that, graduate college, and file for bankruptcy. Tada, 4 years of your life absolutely free, and a degree they can't take away to boot.

Bankruptcy isn't exactly fun. You won't be living the high life afterwards.

Re: The student loan crisis will dwarf the housing market crash.

#16

Post by spudlyo »

sliverstorm wrote: post #7
krschultz wrote: post #4

"3. College Loan Repayment Reform: If anyone files for bankruptcy, the student loan should go along with it." No, no, no, no. This penalizes the people who pay back their loans far too much. Who wouldn't just go into bankruptcy if they couldn't pay back the loan? Unlike other loans, the bank can't take your degree back. Interest rates will go up for everyone as it becomes a riskier loan. Suddenly people who had fully…

Exactly. The ONLY plan worth taking would be graduate high school with no assets, take out a big student loan and live off that, graduate college, and file for bankruptcy. Tada, 4 years of your life absolutely free, and a degree they can't take away to boot.

And 7 years later all evidence of this is gone from your credit history.

Re: The student loan crisis will dwarf the housing market crash.

#17

Post by kiba »

jbooth wrote: post #5
powrtoch wrote: post #3

Earlier quoted context omitted.

I graduated from a major US university, and was going to reply to the 2-year idea anyway. I think, while many students do take jobs, most of them are happy (for now) just to amass loans and bank on (increasingly difficult to secure) future employment. For some the vicious cycle you propose might be an actual improvement. What I'd like to see is major Universities taking some of the ideas used in technical colleges: g…

Well, you don't have to take dance appreciation or basket-weaving, but there is some value to liberal arts education in addition to vocational training.

This is a meme "I learn this, and you should learn it too!"

There are alway value to an education, in anything. The question is if it is really worth learning about?

Beside, people can learn to appreciate basket-weaving and dance appreciation in their own time. All they need to do is get rid of their TV and get a hobby. People don't need an overly expensive course to do that.

Re: The student loan crisis will dwarf the housing market crash.

#18

Post by imack »

sliverstorm wrote: post #7
krschultz wrote: post #4

"3. College Loan Repayment Reform: If anyone files for bankruptcy, the student loan should go along with it." No, no, no, no. This penalizes the people who pay back their loans far too much. Who wouldn't just go into bankruptcy if they couldn't pay back the loan? Unlike other loans, the bank can't take your degree back. Interest rates will go up for everyone as it becomes a riskier loan. Suddenly people who had fully…

Exactly. The ONLY plan worth taking would be graduate high school with no assets, take out a big student loan and live off that, graduate college, and file for bankruptcy. Tada, 4 years of your life absolutely free, and a degree they can't take away to boot.

I doubt the banks would give a loan to someone with no assets who could discharge the loan with little trouble 4 years later. In all likelihood, banks would require co-signing of loans with parents.

While this would definitely limit access to post secondary education, it might also have the benefit of causing people to a more honest evaluation of their education options.

Re: The student loan crisis will dwarf the housing market crash.

#19

Post by sliverstorm »

nkassis wrote: post #15
sliverstorm wrote: post #7

Earlier quoted context omitted.

Exactly. The ONLY plan worth taking would be graduate high school with no assets, take out a big student loan and live off that, graduate college, and file for bankruptcy. Tada, 4 years of your life absolutely free, and a degree they can't take away to boot.

Bankruptcy isn't exactly fun. You won't be living the high life afterwards.

You're in your early 20's fresh out of college. You wouldn't have been living the high life anyway.

Re: The student loan crisis will dwarf the housing market crash.

#20

Post by patio11 »

It isn't going to be as bad as the housing market crash, because degrees are revenue producing assets for the overwhelming majority of people and houses are costs for the overwhelming majority of people. Also, student loans do not have any mechanisms in them which are designed to induce payment shock, like ARM resets are. (I am only half sardonic there.)

If your loan repayments are $700 a month when you graduate, they will be $700 a month for the next ten years. There is no mechanism by which they'll suddenly jump to $3,000.

Even for degrees which you wouldn't expect great things from -- like, say, English -- the value of the degree exceeds the price by huge amounts. The NPV of a bachelor's degree in English is about a million bucks. You still come out ahead with virtually any college/loan combination possible, as long as you find a job with it, and unemployment among college graduates is still at ~4.5%.

There are a few degrees which are exceptionally bad decisions, but they are the exceptions rather than the rule. One example is culinary school, particularly the ones which will load you with the federal max of loans so that you can get a $12 an hour job as a line cook. There is one glaring sore thumb in the data for master's degrees, too.

If folks are interested, I'll blog about this in a few weeks. I did a project for a client looking at government data and a few other sources to try to get numbers on the worth of degrees by majors. The work is 99% over but, clients being clients, there are some more steps it has to go through before they want to launch it publicly.

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