The Student Loan Bubble is Starting To Burst • Hacker News Board

Re: The Student Loan Bubble is Starting To Burst

#131

Post by acchow » Tue, Sep 10, 2013, 12:49 AM UTC

muzz wrote: post #73

msandford wrote: post #41

Earlier quoted context omitted.

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...

Despite widespread knowledge of grade inflation and diploma devaluation, somehow a college degree is still used in discussions of employability.

If it's easy to graduate once you've been admitted, increasing the number of graduates isn't going to help alleviate the "shortage of college graduates" because the real shortage is in talent.

Re: The Student Loan Bubble is Starting To Burst

#132

Post by skylan_q » Tue, Sep 10, 2013, 12:49 AM UTC

alwaysdoit wrote: post #42

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…

>This excess demand and fixed supply means that colleges can raise prices. If colleges raise prices, won't this make it more attractive/affordable for new colleges to open, thus increasing supply?

If colleges raise prices, won't this make it more attractive/affordable for new colleges to open, thus increasing supply?

Yes. Hence "bubble".

The government did everything in its power to funnel money into housing back from 1999 through 2005. If someone was against this, they were against people having homes. This resulted in a housing boom.

Today, the government gives out giant loans to students who will never be able to repay them. If you are against this program, you are "against people getting an education".

Re: The Student Loan Bubble is Starting To Burst

#133

Post by skylan_q » Tue, Sep 10, 2013, 12:54 AM UTC

muzz wrote: post #53

johnrob wrote: post #13

Earlier quoted context omitted.

This article was from about 3 weeks ago: http://www.rollingstone.com/politics/news/ripping-off-young-... Short version: The government makes money off student loans, and there is no defaulting on them (unless you die of course). There are no incentives to keep tuition costs in check because the lenders (government) are happy to put more money into the asset class. We're getting to the point where the price of educati…

If the government is making money off student loans, then how are they a subsidy? If profitable, that would imply that commenters calling loans a subsidy are simply incorrect.

Students are getting loans from the government on terms that they wouldn't be getting from the bank. That creates more effective demand for schools which drives up the price of tuition.

If the banks did this and the student/graduate had to default, the bank would have to take a loss. The government isn't allowing default on the loans they themselves give the students, so they'll make sure they get their money back.

Re: The Student Loan Bubble is Starting To Burst

#134

Post by beambot » Tue, Sep 10, 2013, 12:57 AM UTC

This link explains the "bubble" completely: The Most (And Least) Lucrative College Majors, In 1 Graph [1]. Make this a mandatory ACT / SAT question so that people quit making poor value decisions: STEM >> arts and humanities in terms of median earning power.

[1] http://www.npr.org/blogs/money/2013/09/09/219372252/the-most...

Re: The Student Loan Bubble is Starting To Burst

#135

Post by muzz » Tue, Sep 10, 2013, 12:58 AM UTC

rayiner wrote: post #126

dnautics wrote: post #117

Earlier quoted context omitted.

> What we should be doing is allowing lenders to discriminate by major and school. Good school with a good degree? Lend. Good school with a shitty degree? Lend with extreme caution caution. Fake school with any sort of degree? Tell them to kindly fuck off. No disagreement here. I don't want to give the perception that I think "for-profit" higher education is problem-free. I do think they have severe problems, but put…

No, for-profits are a problem. They account for 10-13% of students, but 25% of student loans, and 50% of defaults. They have no academic standards, because they have no concern for academic reputation in the way traditional institutions do, and can seek to enroll the largest possible classes without worrying about keeping up GPA/SAT medians.

Agreed. Article in San Jose Mercury News just yesterday:

http://www.mercurynews.com/education/ci_24041125/profit-coll...

The good news:

"Last year California cut from its tuition aid program more than 130 private colleges with low graduation rates and too many student loan defaults. Some wonder if the federal government will follow the state's lead to hold colleges responsible for their performance.

Today, only 50 for-profit schools in California remain eligible for state-subsidized tuition; 115 do not"

Re: The Student Loan Bubble is Starting To Burst

#136

Post by skylan_q » Tue, Sep 10, 2013, 12:58 AM UTC

MattGrommes wrote: post #45

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…

I'm not arguing since you know way more about this than I do but I'm curious: I've thought of a lot of the problem with the college loan situation as exactly "speculation" since people are gambling that the job they get on the other side is going to let them pay off the giant loans easily. No, people don't buy and sell degrees but isn't there a lot of speculation type behavior going on?

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.

This is exactly what's going on. They're making the bet that they'll be in demand later and able to pay off their loans. Just like buying a house and being able to make money from it later. After all, everyone had a rationale as to why the price of their house would increase just like they do about the job market turning around for people with a degree/diploma in X.

Re: The Student Loan Bubble is Starting To Burst

#137

Post by dnautics » Tue, Sep 10, 2013, 1:00 AM UTC

acchow wrote: post #129

dnautics wrote: post #121

Earlier quoted context omitted.

it's actually 9 times the rate, if you do the math correctly.

(1/12)/(1/88) = 7.33

oops, I rounded 12 down to 10 when I did my math!

Re: The Student Loan Bubble is Starting To Burst

#138

Post by slurry » Tue, Sep 10, 2013, 1:01 AM UTC

everettForth wrote: post #33

PhasmaFelis wrote: post #28

I've got about $10,000 worth of student loans that I've been steadily paying off. What sort of effect might this have on me?

If your interest rates are not fixed, they are likely to go up next year. Sorry, if you were hoping for a handout.

The bums always lose, Lebowski.

Re: The Student Loan Bubble is Starting To Burst

#139

Post by saraid216 » Tue, Sep 10, 2013, 1:03 AM UTC

masmullin wrote: post #63

jobu wrote: post #40

Earlier quoted context omitted.

Always ask if the school is Regionally Accredited in the degree you intend to take: http://en.wikipedia.org/wiki/Regional_accreditation#Regional... If not, the credits are generally non-transferrable and many businesses will simply toss your resume.

How do you know that 'Regionally Accredited' is meaningful until you are educated? My high school guidance councillor certainly never talked about this. My college actually shouted "we're accredited" at the top of their lungs, but I didn't give a fart until I was half way through the degree, and one of my profs talked to me about why they worked so hard ensuring accreditation (for the same reasons you state) - at whi…

> My high school guidance councillor certainly never talked about this.

They should have. :( It's sort of important.

Re: The Student Loan Bubble is Starting To Burst

#140

Post by skylan_q » Tue, Sep 10, 2013, 1:05 AM UTC

muzz wrote: post #48

marknutter wrote: post #25

Earlier quoted context omitted.

I think calling it a "bubble" is a way to put it into immediately recognizable terms for people. And according to your definition of what a bubble is, it could be an apt description. From wikipedia: "It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future," which to me sounds a lot like the current student loan situation. The tuition cos…

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.

When there's a decrease in the loans going out, there's a decrease on the payments coming in at a future date.

When there's a decrease in the loans going out, there's a decrease in the demand for education services causing a reduction in the quantity available.

Repossession isn't a necessary condition for something to be in a bubble. Pulling demand forward and using laws/regulations/programs to funnel money into certain parts of the economy is what causes bubbles.