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The Student Loan Bubble is Starting To Burst

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Re: The Student Loan Bubble is Starting To Burst

#71

Post by mnglkhn2 »

everettForth wrote: post #17

No, it's not. Not even close, and this is really terrible reporting. It's unfortunate that so many young people are carrying large amounts of student loan debt, but there is no sign of a "bubble" bursting any time soon. I don't even understand how the notion of a "student loan bubble" makes sense, since people don't "speculate" on college like they speculate on real estate. There are so many things wrong with the ide…

What it means is that people seem not be as interested/willing as before in taking out a student loan. From this point of view, yes, it is not a growth market any longer, as the Chase representative stated. The question is: what will the universities do in face of lowering demand: keep tuition prices same or higher? Lowering them?

Re: The Student Loan Bubble is Starting To Burst

#72

Post by pessimizer »

dnautics wrote: post #56
muzz wrote: post #48

Earlier quoted context omitted.

Not sure you apply that definition at all. Education is not an asset-- it can't be transferred ie sold like a house can. Along the same lines, there is no incentive or ability to buy an extra degree in Vegas, Phoenix, or Miami, just because prices are going up there.

who says assets have to be transferrable. Is life insurance not an asset, even though, obviously, it's not transferrable?

Life insurance is transferable. Frequently lost in divorce settlements. Think of it as a Life-Default Swap.

Re: The Student Loan Bubble is Starting To Burst

#73

Post by muzz »

msandford wrote: post #41
kilroy123 wrote: post #34

Earlier quoted context omitted.

A large part of the problem is all the shitty for profit schools. They get students to take out large government backed loans, then are defaulting, since they can't actually get a job. I knew several people I grew up with who went to these schools. They took out huge loans, 10k plus, and they never landed any kind of job with their "certificates" / degrees. [1] Half of all defaults are from these kind of schools. [1]…

I couldn't agree more! Another unintended consequence is that people who previously wouldn't have been able to get loans at all due to default risk can get money. But they don't have the credentials to get into a fancy school. This means there is a lot of excess demand and it makes it possible for these for-profit schools to even exist (they probably wouldn't otherwise). Since the job market doesn't necessarily need…

McKinsey says there will be a huge shortage of college graduates:

http://www.mckinsey.com/insights/economic_studies/talent_ten...

Re: The Student Loan Bubble is Starting To Burst

#74

Post by msandford »

slg wrote: post #51
msandford wrote: post #16

It's really too bad that the laws surrounding student loans make them artificially cheap. You can't get rid of college debt through bankruptcy so you're basically saddled for life. Normally the interest you pay is the combination of three things: 1. The (inherent) time value of money 2. Expenses the lender incurs to keep up with the debt 3. The average default risk of those taking the loans Student loans only price i…

Playing devil's advocate, isn't it fair to remove the ability to discharge student loan debt and in term the default risk due to the fact that there is no collateral? Unlike a car loan or a mortgage, a bank can't repossess your education.

Yeah that's a really good point. I'm not sure it really matters, though. The law allowed you to shed college loan debt through bankruptcy up until 1976/1978 and people went to college for at least 100 years prior to that law.

Furthermore a cheap college degree might be so inexpensive that the hit to your credit isn't worth the expense dodged. Banks can loan on cars worth as little as $5k even though their cost to repossess and auction it might approach the cost of the car. For small debts the shame factor can't be underestimated.

From this what can we conclude? Prior to the change in the law college had to be fairly cheap so that banks could make uncollateralized loans for people to go. Because students could only afford so much, colleges had to figure out how to deliver an education for that amount. If a college wanted to charge more, it had to pull risk out of the loan to the student so that a bank would issue it.

Re: The Student Loan Bubble is Starting To Burst

#75

Post by tokenadult »

The pervasive third-party payment in higher education results in many distortions in incentives. Consultants to colleges advise setting high list prices, and offering "merit scholarships" that simply roll back the apparent price of the college to near its actual value as a revenue-maximizing strategy.[1] Very few parents shop for colleges with the free online resource from Education Trust, the College Results website,[2] which allows comparison of what various colleges actually spend per student on instruction. On the whole, most people assume colleges are more similar than they actually are, and that list price is a reliable guide to which colleges are somewhat better (as a value proposition for the student). Neither assumption is correct.

[1] http://www.maguireassoc.com/services-challenges/optimize-net...

[2] http://collegeresults.org/search1b.aspx?institutionid=166027 (See the "Finance and Faculty" tab on the page comparing similar colleges for any college you are curious about.)

Re: The Student Loan Bubble is Starting To Burst

#76

Post by muzz »

drcode wrote: post #39
loganfrederick wrote: post #36

Earlier quoted context omitted.

As someone with student loans, I wish this wasn't the case for the previous generation. But at the same time, it's hard to blame current 23 year olds for decisions their parents and communities make about their kids' future finances when they're 16. The majority of fault lies in the previous generation of parents, who both failed to vote out politicians supporting these policies and who pushed their kids into enslavi…

Agree 100%. I didn't mean to say the blame rests fully with the current generation, I'm just saying government policies going forward are just going to increase the moral hazard even more.

What "government policies" are you talking about?

Re: The Student Loan Bubble is Starting To Burst

#77

Post by RougeFemme »

slg wrote: post #51
msandford wrote: post #16

It's really too bad that the laws surrounding student loans make them artificially cheap. You can't get rid of college debt through bankruptcy so you're basically saddled for life. Normally the interest you pay is the combination of three things: 1. The (inherent) time value of money 2. Expenses the lender incurs to keep up with the debt 3. The average default risk of those taking the loans Student loans only price i…

Playing devil's advocate, isn't it fair to remove the ability to discharge student loan debt and in term the default risk due to the fact that there is no collateral? Unlike a car loan or a mortgage, a bank can't repossess your education.

A lot of credit card debt has no collateral either, but that can be discharged in bankruptcy; why not student loans? And I suppose credit card companies could try to re-possess the goods purchased with credit cards (obviously not the services), but they don't. (And it makes sense not to; not worth it financially).

FWIW, I have no student loan debt so I'm relatively neutral on this.

Re: The Student Loan Bubble is Starting To Burst

#78

Post by randyrand »

slg wrote: post #51
msandford wrote: post #16

It's really too bad that the laws surrounding student loans make them artificially cheap. You can't get rid of college debt through bankruptcy so you're basically saddled for life. Normally the interest you pay is the combination of three things: 1. The (inherent) time value of money 2. Expenses the lender incurs to keep up with the debt 3. The average default risk of those taking the loans Student loans only price i…

Playing devil's advocate, isn't it fair to remove the ability to discharge student loan debt and in term the default risk due to the fact that there is no collateral? Unlike a car loan or a mortgage, a bank can't repossess your education.

not only that but students usually have negative wealth upon graduation. Declaring bankruptcy is way more attractive than it is supposed to be at that stage.

Re: The Student Loan Bubble is Starting To Burst

#80

Post by RougeFemme »

sliverstorm wrote: post #58
nether wrote: post #55

Earlier quoted context omitted.

Not really when other types of unsecured debt are wiped out by bankruptcy. Your credit card debt can be erased by chapter 7 bankruptcy even if you used it to fund an awesome vacation that no one can take back.

Yes, but a credit card requires credit. Student loans are specifically crafted to be obtainable by people with no income and no credit.

I know the credit cards companies have cut back on this, but. . .credit cards for students don't require credit. . .and are specifically crafted to be obtainable by students with no income or credit. Students with income and/or credit can get better deals with "non-student" credit cards.
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