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Student loan debt surpassed credit card and auto loan debt in the US last year. Many college grads graduate with large sums of debt and can't find relevant jobs

by maresca 11y ago

Student loan debt surpassed credit card and auto loan debt in the US last year. Many college grads graduate with large sums of debt and can't find relevant jobs. Since student loan debt isn't forgivable, it'll be interesting to see the effect of this over the next decade. I have a hunch that the next big market crash will be caused by student loan debt.

hueving 11y ago
Student debt has been thought to be the next crash, but I'm not sure how unless the laws change. It's not dischargable in bankruptcy so it's not like you can walk away.
- JupiterMoon 11y ago
  Will living in permanent default become the new bankruptcy? Also what happens to your US student debt if you move abroad and stop paying it?
  - kcole16 11y ago
    Eventually, creditors might write it off, but the borrower would be liable if they ever return to the US. Also, given how annoying it is for international banks to work with US expats, I can't imagine they would look past that kind of dent in credit history.
- eastbayjake 11y ago
  Student loan debt won't create a crash, it has just been an enormous brake on the US economy for almost a decade now and we've grown so used to its effects that we don't really notice it anymore. Imagine how many young people would start a company or take a risky-but-educational job except that they need the liquidity and stability to make a student loan payment every month? You could get living expenses close to zero by living with your parents for a while, but student loan payments require you to have some cash coming from somewhere each month.
  - learc83 11y ago
    >You could get living expenses close to zero by living with your parents for a while, but student loan payments require you to have some cash coming from somewhere each month. Not with federal student loans. They have income based repayment plans. If you have no income, you don't pay. After 20 years the debt is forgiven.
    - eastbayjake 11y ago
      Unfortunately the cap on maximum borrowing with federal student loans is quite low compared to the total cost of many colleges, so there's lots of private loans that come due six months after graduation and don't really care what your income level is -- they just want to be paid.
      - learc83 11y ago
        That's true. But of the total student loan debt of $1.2 trillion, and $1 trillion is federal student loan debt. Private loans are a comparatively small problem.
        eastbayjake 11y ago
        WOW, thank you for posting this. That is astounding and I had no idea it was that magnitude when I wrote my previous post. If anyone wants a source, the $1 trillion number is from the federal Consumer Financial Protection Bureau[1] and CFPB has even made available a detailed breakdown of the federal government's student loan portfolios[2] [1] http://www.consumerfinance.gov/newsroom/student-debt-swells-federal-loans-now-top-a-trillion/ http://www.consumerfinance.gov/newsroom/student-debt-swells-... [2] https://studentaid.ed.gov/sa/about/data-center/student/portfolio https://studentaid.ed.gov/sa/about/data-center/student/portf...
  - rhino369 11y ago
    For federal loans (private loans are hard to get these days) the law is actually very reasonable. You pay 10% of your (Income - 150% of poverty level). That's less than 10% of your income. And nearly zero for a lot of people. You pay it for 20 years and they wipe out the debt. One huge problem is that people don't sign up for this system or instead just default. It's shocking that so many college graduates are sticking their head in the sand. It's a simple process. I've done it twice.
- digikata 11y ago
  It's the next crash through a different vector - if the loans aren't dischargable, a large portion of the the economic activity that young people normally generate as they grow along their career path is now siphoned off to repaying loans. That's a low value use of the money to the rest of the economy. Maybe it doesn't end in a dramatic crash but an economic stagnation for as long as inflation is low (inflation being a side channel way of devaluing those loans...). An interesting note: http://www.npr.org/sections/money/2015/09/05/437628996/episode-647-the-benefits-of-bankruptcy http://www.npr.org/sections/money/2015/09/05/437628996/episo...
  - cryoshon 11y ago
    We can already see this in the US economy. Millenials are largely putting off traditional milestones like marriage, car ownership, having children, saving for retirement (or saving at all) and home ownership for lack of capital. These are pretty major drivers of consumption, but think about the second order effects: fewer home pools being built, fewer new auto parts needed, fewer childrens clothes being bought, fewer weddings to need DJs, etc. There's quite a bit of fallout there, and it's going to be hard to pin John and Son's pool construction company going tits up on student loan debt slowing the economy, even if it's the case.
debaserab2 11y ago
Depending on the loan, student loan debt can be forgivable: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell...
- Domenic_S 11y ago
  If you 1) have a job at a 2) qualifying employer (non-profit or government). If you have a job, you're definitely not as impacted WRT your student loans as someone without a job.
nostromo 11y ago
I agree that student loan debt seems like an asset bubble -- in that the price of an education greatly exceeds the valuation justified by the fundamentals. But I can't think of a way that the bubble could actually pop. Or what it would look like if it did. Unlike housing, you can't walk away from your education; student loans are designed to prevent debtors from ever escaping their obligations. They're also guaranteed by the federal government, which has seemingly infinite resources. Educational institutions themselves are also either private, or are state-run, both of which would shield the impacts of a collapse from the average citizen. The average citizen isn't invested in education like they were in public tech companies or housing. It's also impossible to short Harvard or the UC system. I actually think this is worse in some ways. Bubble pops are scary, but the bandaid comes off quickly. Instead I fear educational indebtedness will just be a silent vampire on our economy for decades to come.
- lisper 11y ago
  > But I can't think of a way that the bubble could actually pop. Or what it would look like if it did. It would look like a social movement. It would look like tens of millions of young people realizing that they have fallen under the yoke of life-long indentured servitude to the older generation, and either 1) getting organized enough to get the law changed or, 2) saying "fuck it, I've got nothing left to lose" and rioting in the streets.
  - learc83 11y ago
    For federal student loans, there isn't a life of indentured servitude. There are income based repayment plans that with fairly low costs per month. A single guy working at starbucks making 30k per year would only pay about $100 per month even with a 200k loan (if he had a wife and kid, he'd pay nothing). Then after 20 years the rest is forgiven.
    - zardo 11y ago
      In year 20 he pays income tax on the forgiven amount. He'd better be saving up for that.
learc83 11y ago
Student loan debt isn't dischargeable in bankruptcy, but their are income based repayment plans. You can pay back either 10% of your discretionary income, for 20 years and then the remaining balanced is forgiven (if a balance remains). Discretionary income is defined as the difference between your income and 150% of the federal poverty level. If you have 200k in student loans, but only make 30k a year because you can't find a job better than starbucks, you'll only pay about $100 a month. If you have a spouse and a kid, you'll pay nothing. *note these number depend on when you borrowed. Older loans have to pay 15% for 25 years instead of 10% for 20 years.
- chimeracoder 11y ago
  > You can pay back either 10% of your discretionary income, for 20 years and then the remaining balanced is forgiven (if a balance remains). For federal subsidized loans, forgiveness of loans means that it comes out of taxpayer money. For people talking about student loans as a bubble and wondering when it will pop and what that will look like, this is the most likely mechanism for that to happen. This is a really serious principal-agent problem, because schools have only indirect incentives (at best) to make sure that their graduates are employed at rates which allow them to pay back those loans in full. On the other hand, the federal government is essentially incapable of denying people these loans as long as they meet the financial criteria. In that light, it's not hard to see how tuitions have spiked, and student debt along with it. Schools are essentially incentivized to take out massive loans against their students, which amounts to another source of public funding for universities.
  - learc83 11y ago
    There's only about a trillion dollars in Federal student loans. It's nothing compared to the real estate bubble.
- zanny 11y ago
  Yet if you are below the poverty level (unemployed) those monthly minimums can be overwhelming.
beamatronic 11y ago
s/big market crash/massive dollar devaluation
tribune 11y ago
Not to discount the severity of the student loan problem, but the market is really not large enough to cause the next big crash. For some perspective, pre-crisis mortgage debt was almost two-thirds of GDP whereas student loans are still a much smaller portion. Mortgages on hugely inflated home prices also sucked up a huge portion of incomes in 2007. Add in the systemic infection of credit default swaps and junk mortgage-backed securities on Wall Street and you had the Crash. Hopefully we'll wisen up well before student loans get to that point.

by maresca 11y ago

hueving 11y ago

Student debt has been thought to be the next crash, but I'm not sure how unless the laws change. It's not dischargable in bankruptcy so it's not like you can walk away.

JupiterMoon 11y ago
Will living in permanent default become the new bankruptcy? Also what happens to your US student debt if you move abroad and stop paying it?
- kcole16 11y ago
  Eventually, creditors might write it off, but the borrower would be liable if they ever return to the US. Also, given how annoying it is for international banks to work with US expats, I can't imagine they would look past that kind of dent in credit history.
eastbayjake 11y ago
Student loan debt won't create a crash, it has just been an enormous brake on the US economy for almost a decade now and we've grown so used to its effects that we don't really notice it anymore. Imagine how many young people would start a company or take a risky-but-educational job except that they need the liquidity and stability to make a student loan payment every month? You could get living expenses close to zero by living with your parents for a while, but student loan payments require you to have some cash coming from somewhere each month.
- learc83 11y ago
  >You could get living expenses close to zero by living with your parents for a while, but student loan payments require you to have some cash coming from somewhere each month. Not with federal student loans. They have income based repayment plans. If you have no income, you don't pay. After 20 years the debt is forgiven.
  - eastbayjake 11y ago
    Unfortunately the cap on maximum borrowing with federal student loans is quite low compared to the total cost of many colleges, so there's lots of private loans that come due six months after graduation and don't really care what your income level is -- they just want to be paid.
    - learc83 11y ago
      That's true. But of the total student loan debt of $1.2 trillion, and $1 trillion is federal student loan debt. Private loans are a comparatively small problem.
      - eastbayjake 11y ago
        WOW, thank you for posting this. That is astounding and I had no idea it was that magnitude when I wrote my previous post. If anyone wants a source, the $1 trillion number is from the federal Consumer Financial Protection Bureau[1] and CFPB has even made available a detailed breakdown of the federal government's student loan portfolios[2] [1] http://www.consumerfinance.gov/newsroom/student-debt-swells-federal-loans-now-top-a-trillion/ http://www.consumerfinance.gov/newsroom/student-debt-swells-... [2] https://studentaid.ed.gov/sa/about/data-center/student/portfolio https://studentaid.ed.gov/sa/about/data-center/student/portf...
- rhino369 11y ago
  For federal loans (private loans are hard to get these days) the law is actually very reasonable. You pay 10% of your (Income - 150% of poverty level). That's less than 10% of your income. And nearly zero for a lot of people. You pay it for 20 years and they wipe out the debt. One huge problem is that people don't sign up for this system or instead just default. It's shocking that so many college graduates are sticking their head in the sand. It's a simple process. I've done it twice.
digikata 11y ago
It's the next crash through a different vector - if the loans aren't dischargable, a large portion of the the economic activity that young people normally generate as they grow along their career path is now siphoned off to repaying loans. That's a low value use of the money to the rest of the economy. Maybe it doesn't end in a dramatic crash but an economic stagnation for as long as inflation is low (inflation being a side channel way of devaluing those loans...). An interesting note: http://www.npr.org/sections/money/2015/09/05/437628996/episode-647-the-benefits-of-bankruptcy http://www.npr.org/sections/money/2015/09/05/437628996/episo...
- cryoshon 11y ago
  We can already see this in the US economy. Millenials are largely putting off traditional milestones like marriage, car ownership, having children, saving for retirement (or saving at all) and home ownership for lack of capital. These are pretty major drivers of consumption, but think about the second order effects: fewer home pools being built, fewer new auto parts needed, fewer childrens clothes being bought, fewer weddings to need DJs, etc. There's quite a bit of fallout there, and it's going to be hard to pin John and Son's pool construction company going tits up on student loan debt slowing the economy, even if it's the case.

debaserab2 11y ago

Depending on the loan, student loan debt can be forgivable: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell...

Domenic_S 11y ago
If you 1) have a job at a 2) qualifying employer (non-profit or government). If you have a job, you're definitely not as impacted WRT your student loans as someone without a job.

nostromo 11y ago

I agree that student loan debt seems like an asset bubble -- in that the price of an education greatly exceeds the valuation justified by the fundamentals. But I can't think of a way that the bubble could actually pop. Or what it would look like if it did. Unlike housing, you can't walk away from your education; student loans are designed to prevent debtors from ever escaping their obligations. They're also guaranteed by the federal government, which has seemingly infinite resources. Educational institutions themselves are also either private, or are state-run, both of which would shield the impacts of a collapse from the average citizen. The average citizen isn't invested in education like they were in public tech companies or housing. It's also impossible to short Harvard or the UC system. I actually think this is worse in some ways. Bubble pops are scary, but the bandaid comes off quickly. Instead I fear educational indebtedness will just be a silent vampire on our economy for decades to come.

lisper 11y ago
> But I can't think of a way that the bubble could actually pop. Or what it would look like if it did. It would look like a social movement. It would look like tens of millions of young people realizing that they have fallen under the yoke of life-long indentured servitude to the older generation, and either 1) getting organized enough to get the law changed or, 2) saying "fuck it, I've got nothing left to lose" and rioting in the streets.
- learc83 11y ago
  For federal student loans, there isn't a life of indentured servitude. There are income based repayment plans that with fairly low costs per month. A single guy working at starbucks making 30k per year would only pay about $100 per month even with a 200k loan (if he had a wife and kid, he'd pay nothing). Then after 20 years the rest is forgiven.
  - zardo 11y ago
    In year 20 he pays income tax on the forgiven amount. He'd better be saving up for that.

learc83 11y ago

Student loan debt isn't dischargeable in bankruptcy, but their are income based repayment plans. You can pay back either 10% of your discretionary income, for 20 years and then the remaining balanced is forgiven (if a balance remains). Discretionary income is defined as the difference between your income and 150% of the federal poverty level. If you have 200k in student loans, but only make 30k a year because you can't find a job better than starbucks, you'll only pay about $100 a month. If you have a spouse and a kid, you'll pay nothing. *note these number depend on when you borrowed. Older loans have to pay 15% for 25 years instead of 10% for 20 years.

chimeracoder 11y ago
> You can pay back either 10% of your discretionary income, for 20 years and then the remaining balanced is forgiven (if a balance remains). For federal subsidized loans, forgiveness of loans means that it comes out of taxpayer money. For people talking about student loans as a bubble and wondering when it will pop and what that will look like, this is the most likely mechanism for that to happen. This is a really serious principal-agent problem, because schools have only indirect incentives (at best) to make sure that their graduates are employed at rates which allow them to pay back those loans in full. On the other hand, the federal government is essentially incapable of denying people these loans as long as they meet the financial criteria. In that light, it's not hard to see how tuitions have spiked, and student debt along with it. Schools are essentially incentivized to take out massive loans against their students, which amounts to another source of public funding for universities.
- learc83 11y ago
  There's only about a trillion dollars in Federal student loans. It's nothing compared to the real estate bubble.
zanny 11y ago
Yet if you are below the poverty level (unemployed) those monthly minimums can be overwhelming.

beamatronic 11y ago

s/big market crash/massive dollar devaluation

tribune 11y ago

Not to discount the severity of the student loan problem, but the market is really not large enough to cause the next big crash. For some perspective, pre-crisis mortgage debt was almost two-thirds of GDP whereas student loans are still a much smaller portion. Mortgages on hugely inflated home prices also sucked up a huge portion of incomes in 2007. Add in the systemic infection of credit default swaps and junk mortgage-backed securities on Wall Street and you had the Crash. Hopefully we'll wisen up well before student loans get to that point.