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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.

#31

Post by noodle »

patio11 wrote: post #20

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, the…

> It isn't going to be as bad as the housing market crash

then do you think that there will be a crash in this area, and if so, how bad do you think it will be?

i imagine it wouldn't sneak up on us like the housing crash because of the nature of the loans, but that it could lead to a longer, lingering problem kicked off by the housing crash.

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

#32

Post by mikekarnj »

pchristensen wrote: post #23
patio11 wrote: post #20

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, the…

Here's a vote for "interested".

I second the vote for the article. Would love to read it.

I think most people got mortgages because it was a sure thing investment that appreciates over time. That didn't hold true.

I'm arguing that a college education doesn't exactly equate to a higher salary these days.

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

#33

Post by byrneseyeview »

patio11 wrote: post #20

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, the…

Whoa, there! What discount rate are you using? For the median degree, I get an NPV less cost of $47K. Here are my assumptions:

* Discount rate of 6% (we're talking about an asset with a 40-year lifespan and zero terminal value).

* $25K in annual school costs.

* $25K in annual opportunity costs. (May be conservative for people who are college material but didn't get a degree.)

* Four years to complete the degree. Which is very aggressive.

* $23K earnings differential. (The current average.)

* Forty years of post-degree work.

In this model, you get to breakeven 26 years after you start school. So, to the current high-school senior: assuming the job market in 2036 looks pretty much like it does now, treat these projections as solid.

It gets worse. If you assume a more realistic graduation timeframe of six years, the value is -$18K after 40 years. Of course, you can keep working; you'll hit breakeven after 54 years (at age 72).

See sheet two for my assumptions:

https://spreadsheets.google.com/ccc?key=0AjzB7A88UMCBdGVrUUN...

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

#34

Post by mikekarnj »

nkassis wrote: post #21
Lendal wrote: post #6

This crisis won't be the same at all, because you can't discharge student loan debt. There is currently no reason for a lender to bother examining the loan because repayment is virtually guaranteed. Having the federal government take over the loans will only make the problem worse. Educational institutions are able to raise their prices precisely because they know that with a combination of federal and state grants a…

I agree that gov backed student loans are making the situation worse but removing them would be disastrous. Maybe and I can't prove this but maybe, if the gov was the sole lender, they could pressure universities into reducing tuition?

Scary thing is that the government will be the sole backer of educational loans. We all know how slow and antiquated they operate. I don't know if this is going to be a good or bad thing for the economy.

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

#35

Post by jbooth »

yummyfajitas wrote: post #24
jbooth wrote: post #5

Earlier quoted context omitted.

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.

At NYU (where I used to work), a CS major requires 12 courses in CS and 32 courses total. The degree costs just short of $93,000. Do you really believe that a liberal arts education is worth $62,000 tuition + 2 years of lost wages (roughly another $140,000)? Particularly when, to borrow a phrase from Good Will Hunting, that liberal arts education is available to anyone for about $4.25 in late fees at the public libra…

Well, the CS education is available without the late fees, computer science is probably the easiest subject to learn from the internet.

For one thing, NYU trades on their name as well as their education, that's a big chunk of the money you're talking about.

But the more poignant question to me is whether you're getting less out of the liberal arts classes than you are out of the CS classes. I'm not sure that's clear, you can learn engineering anywhere, but 80% of the people I've ever worked with can't write for crap.

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

#36

Post by jbooth »

Lendal wrote: post #12
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…

That's not how it works.

My brother had a credit card number stolen 3 times, so he cancelled the card. BANG! 750 to 690.

So he said, well, if I reopen the card, will that fix things?

"Oh, god, don't do that! That'll be an even bigger hit!"

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

#37

Post by CWuestefeld »

Lendal wrote: post #12
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…

You misunderstand. If the rules are changed so that fewer people will have to repay, then people will take advantage of that -- and fewer loans will be repayed. This means that the banks lose money. For them to stay in business (or at least to be able to maintain their capitalization -- investors will flee if they can't make profits), they've got to pass those default costs on to the customers. Thus, all of us will pay a higher interest rate to make up the shortfall.

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

#38

Post by CWuestefeld »

I got as far as

The pursuit of profit is a common theme in all of the documentaries I have listed, which is what ultimately led to the predicament we are in today.

That tells me that the author doesn't have the slightest understanding of economics. That being the case, there's no sense reading about his economic predictions.

UPDATE: I think I overstated that. What I really should say is...

The author appears to be of the class that believes that if something is done profitably, it must necessarily be bad. While it's true that many evil things are driven by greed, it's equally true that a pursuit of profits leads one to provide the goods and services that society values the most. Since the opening of the article seems to ignore the latter aspect, I don't expect that any economic analysis it might engage in will have any depth.

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

#39

Post by nkassis »

brown9-2 wrote: post #27
nkassis wrote: post #22

One thing no one talks about, why do all degrees virtually cost the same in most universities. Why would a engineer pay the same as a liberal arts student. The reason I saying this is maybe the cost should be proportional to the expected earnings?

Well, what is the university charging students for - the services that they produce to give you your education, or the expected value of your salary after graduation? In theory, universities are not for-profit. Is there something about an engineering school education that is inherently more expensive than a liberal arts education?

Yes in fact it cost more in equipment, facilities, salaries of professors to educate an engineering student compared to a mathematics student or English student.

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

#40

Post by loire280 »

dnsworks wrote: post #29
patio11 wrote: post #20

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, the…

"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.)" Degrees clearly are great revenue producing machines for the…

But as the parent stated later in his post, not only do college graduates earn more money, but the unemployment rate of college graduates is also far below the average unemployment rate.

In fact, it looks like the unemployment rate for college-educated workers is falling:

http://blogs.reuters.com/great-debate/2010/07/28/high-unempl...

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