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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

#41

Post by msandford »

kilroy123 wrote: post #34
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…

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 double the number of college grads it means that competition for the jobs that do need filling is fiercer. And that means that people who need to pay back loans for school don't necessarily have the ability to. A race to the bottom in terms of accepting a lower paying job ensues, and people are left with very little agency.

Sometimes it seems like the better-intentioned a social justice law is the worse it'll end up being years down the road.

Re: The Student Loan Bubble is Starting To Burst

#42

Post by alwaysdoit »

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?

Re: The Student Loan Bubble is Starting To Burst

#43

Post by muzz »

prostoalex wrote: post #12

Pretty good overview and opinion of the status quo and historical retrospective here: http://online.wsj.com/article/SB1000142412788732416520457902... ? "Politicians subsidize the purchase of a good or service, prices inevitably rise in response to this pumped-up demand, and then the pols blame the provider of the good or service for responding to the incentives the politicians created. Think housing finance and medic…

Adding "$1 trillion in student loans to the federal balance sheet over a decade" is a result of direct lending, ie cutting out the middleman. It is also saving the taxpayer money to the tune of $70B over ten years.

Re: The Student Loan Bubble is Starting To Burst

#44

Post by muzz »

drcode wrote: post #29
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…

> People can't walk away from student loan debt, like they can walk away from real estate debt. I hate to be the bearer of bad news, everettForth, but this isn't going to be true much longer. (Something has to give, and this is what's going to give, I predict.)

Your speculation goes not make you "the bearer of bad news'

Re: The Student Loan Bubble is Starting To Burst

#45

Post by MattGrommes »

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?

Re: The Student Loan Bubble is Starting To Burst

#46

Post by alistairSH »

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?

Yes, which is why we have the large number of new for-profit institutions. Many of these new for-profits deliver degrees that aren't the paper used to print them because delivery a quality education isn't easy.

Re: The Student Loan Bubble is Starting To Burst

#47

Post by Zigurd »

oscilloscope wrote: post #7
abstractbill wrote: post #6

Earlier quoted context omitted.

This one is going to be messy. As someone who really hasn't thought about it very much, I'd love for someone to expand on this. What's the expected fallout? In the housing bubble, many people lost the places where they lived. But it's not like someone can "take back" your education if you default on the loan, so what happens instead?

The development of adult life is stunted. It takes longer to afford to rent an apartment on your own, buy a house, buy a car, get married, start a family, start a business, etc. If you're college educated you probably have a broad support network. So instead of being homeless, you move back in with your parents. So instead of losing your home, you may never get it in the first place. The consequences of defaulting on…

The draconian terms are going to push some people to emigrate if they are forced to default. There are a lot of Americans teaching English in China who are running from problems like these.

Re: The Student Loan Bubble is Starting To Burst

#48

Post by muzz »

marknutter wrote: post #25
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 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.

Re: The Student Loan Bubble is Starting To Burst

#49

Post by drcode »

muzz wrote: post #44
drcode wrote: post #29

Earlier quoted context omitted.

> People can't walk away from student loan debt, like they can walk away from real estate debt. I hate to be the bearer of bad news, everettForth, but this isn't going to be true much longer. (Something has to give, and this is what's going to give, I predict.)

Your speculation goes not make you "the bearer of bad news'

It would be "bad news" if (1) everettForth hasn't heard it yet and (2) it comes to pass in the future.

Re: The Student Loan Bubble is Starting To Burst

#50

Post by checker »

tzs wrote: post #30
abdophoto wrote: post #10

Every kid I come across that plans to go to college I tell them to find the cheapest route possible. Start at either a good community college or go to a public in-state school. You can still go to a good college for a reasonable price, but it seems more and more that kids are taking the more expensive route (dorms, out-of-state, etc).

For kids from poor or middle class families, Princeton, Harvard, Yale and Caltech will usually cost less than an in-state public school when it comes to what the student and his family actually have to pay. In-state public school has a lower sticker price, but have less non-loan need-based aid so students have to come up with a high percentage of the sticker price. The top private non-profit schools have higher stick…

I wish that I knew this when I was a senior. I saw the number with four zeros per semester and ran.
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