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Student Loan Debt Is Now as Big as the U.S. Junk Bond Market

360 points by rayuela 9y ago

EasyTiger_ 9y ago
Is it just me or are Bloomberg and WashPo really over-represented on this site?
uptown 9y ago
Mark Cuban has been writing about this since at least 2012: http://blogmaverick.com/2012/05/13/the-coming-meltdown-in-college-education-why-the-economy-wont-get-better-any-time-soon/ http://blogmaverick.com/2012/05/13/the-coming-meltdown-in-co... https://www.inc.com/mark-cuban/video-student-loans-bubble.html https://www.inc.com/mark-cuban/video-student-loans-bubble.ht...
mikeokner 9y ago
Typical shitty reporting from Bloomberg. Other than the dollar amount outstanding, there's nothing else in the article that draws any similarities to the junk bond market. It's about as meaningful as saying "Apple's market cap approaches the size of the US junk bond market" or "Student Loan Debt surpasses Apple's market cap in size." In fact, there isn't really any interesting information in the article at all. There seems to be an insinuation that the size is a bad thing, but even then they don't come out and say why.
- murph-almighty 9y ago
  At a minimum, a comparison of the default rate between the two would be nice.
  - Tactic 9y ago
    Just FYI the average default rate for the 2014 Cohort was 11.5% but that varies WIDELY depending upon the school from 0.10% to 56.20%. Official numbers can be found at: https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html
  - cm2187 9y ago
    Default rates in good times can be very misleading (as the subprime crisis showed).
    - SimbaOnSteroids 9y ago
      Can't you extrapolate default rates to when we don't have good times.
      - cm2187 9y ago
        That's what banks do to manage their credit risk, they look at defaults rates "through the cycle", i.e. including the last downturn. But for new asset classes, like subprime in their time and like student loans now (if you look at chart in the article in term of growth), people have to make their own assumptions in term of how it will behave in a downturn. And that's where the credit markets can be really dangerous. These assumptions are what banks and rating agencies got wrong last time. And I think it is fair to assume that people under financial hardship will probably default on their student loan before they default on their mortgage (roof over their head) or their car.
  - jartelt 9y ago
    The article does compare them (albeit without much detail). “Delinquency rates on student loans are much higher than those on auto loans or mortgages, due to loose student loan underwriting standards, the unsecured nature of student debt, and the inability to charge off non-performing student loans in bankruptcy,” Goldman Sachs Group Inc. analysts Marty Young and Lotfi Karoui wrote in a note Tuesday. “The substantial majority of student loan default risk is borne by the U.S. Treasury.”
    - ktta 9y ago
      If the default risk is borne by the US Treasury, then what risk do we have in general?
      - Raidion 9y ago
        The risk that the increased supply of money lowers the value of that money. Not that this is the straw that's gonna break the camels back, but it's not like there aren't consequences to the taxpayer for allowing the government to allocate funds in a sub optimal manner.
        linkregister 9y ago
        This money isn't unbounded; it's confined by the budget allocated to the Department of Education and various government organizations (like Fannie Mae, et. al.). Ultimately the Department of Education is responsible for this money. The last 30 years are remarkable in the amount of controversy surrounding student loans and the default of large education funds. The following article describes this in greater detail: https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/ https://tcf.org/content/report/student-loan-guaranty-agencie....
      - Jeema101 9y ago
        I think the main risk would be a deterioration in the government's finances since the government is expecting to get paid back and is factoring in those payments to the financial outlook. That could in turn lead to an increase in the government's borrowing costs, which could affect lots of other things negatively.
PatientTrades 9y ago
There is plenty of blame to go around here. However a major cause of this has been the push by the left that college is the only path to success. Trade and vocational schools as well as military service are all great options for young adults who may not know exactly what they want to do with their life right away. Spending 4 years of your life taking on debt, simply because society tells you college is the path to success is wrong. Also, colleges themselves need to be held accountable here. Most universities are sitting on billions in tax free endowments and not using that money in useful ways. How about use some of that money to help offset some of these debts?
- lawlessone 9y ago
  >as well as military service are all great options for young adults Getting shot at for an education doesn't seem that great. Better off just moving to a better country.
  - artorias 9y ago
    >implying you're going to get deployed simply by joining the military You're one of them guys that sucked on the ASVAB, eh?
  - deleted 9y ago
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  - whb07 9y ago
    One could essentially sign up to be a librarian (bit of an exaggeration but there are active duty members who work at libraries). Same goes for Coast Guard which doesn’t get deployed in the traditional sense and are more like water police. Ceteribus paribus, the military provides stable job, income, and a generous scholarship. The scholarship is roughly $70-$100k depending on school and a monthly housing stipend. For SF area, that stipend is $4.2k/month
  - latencyloser 9y ago
    Anecdotal, but my mother was a mechanic, my uncle a cryptographer, another uncle was some type of police on base, my cousin is a drone pilot and just sits in an office like building despite technically being involved in combat I suppose. Several former colleagues mostly did admin-type work while enlisted. The last person I know to have actually seen combat was my grandfather in Korea--but he knew what he signed up for and it was fairly deliberate at the time, he had wanted to be like his cousin that had fought on Iwo Jima years prior who was also a volunteer. All used their GI bill to get an education. My point being, there's tons of military jobs that don't involve violence. For each job that does require violence, dozens more auxiliary positions are required to support that job.
duncan-donuts 9y ago
I wonder how educators are handling this. When I was set to graduate high school a decade ago we spent a portion of our home room hour planning our collegiate futures. I think I may have been the exception -- where my advisor stressed that we had to do something. Too often I hear that, "college is the only option." I personally never experienced that, but I wonder if educators are stressing that 4 year universities aren't the only option, just one of the many options. I think, with the lack of skilled workers, people can do really well with a vocational degree in a trade. Then again, that type of work is much more physically demanding than my job as a software engineer.
- zjaffee 9y ago
  People neglect to realize that a master plumber can make just as much as a software engineer should they have the skillset to be on the right kind of projects.
  - cantankerous 9y ago
    FWIW: It's probably easier to become a software engineer than it is to become a master plumber.
    - aaavl2821 9y ago
      For some people. Others just can't get their heads around programming Though point taken about how hard it can be to get certified for some of those trades
  - lotsofpulp 9y ago
    But quality of life is much higher for the software engineer, so assuming it's just as easy to be both, pay would need to be much higher for the plumber to incentivize people to do it.
    - damontal 9y ago
      Is it? I had some plumbers doing work in my house last year. They were pretty happy guys. Playing music on the radio, singing while they were at work. Meanwhile i'm here sitting at a desk all day.
artorias 9y ago
That's because liberal arts degrees are junk bonds. ba dum tiss
LeoJiWoo 9y ago
We need to cut student loans,and at the same time force tuition back down (probably by putting federal and state pressure on them by threatening to cut grants or taxing them higher). Universities need to return to their core purpose teaching young minds, furthering science, or preparing them for jobs. Instead of the corporate universities drowning students in debt.
- Overtonwindow 9y ago
  The basketball coach at my alma matter is paid double what the university president makes. I think that's wrong. I am deeply in the minority, but I think universities should focus less money on athletics, and more on academics.
- trophycase 9y ago
  Drowning students in debt so they are basically forced to work for evil corporations who do evil things.
aloukissas 9y ago
One statistic that's commonly left out of these discussions & articles is how late parents save for college. According to Sallie Mae (http://news.salliemae.com/publication/how-america-saves-college-2016 http://news.salliemae.com/publication/how-america-saves-coll...), most families don't start saving before their oldest child reaches 7 years old. This effectively robs 1/3 of the investment period's growth potential. Another one (as perhaps a consequence of the previous fact) is that the average family ends up saving up ~$16K, while the average grad leaves colleges with an average of ~37K in debt. As most experts in the field agree, the key winning strategy is starting to save as early as childbirth, even if it's a small amount.
- habosa 9y ago
  On the one hand, yes that's late. On the other hand it's sort of insane how you need to start putting money away for a child's education when they're only seven years old! You have no idea if the child will even want to go to college, how much their college of choice will cost, etc.
- jedberg 9y ago
  It's good in theory, but most new parents don't have the spare cash to start saving at birth, unless they are already fairly well off. I was lucky enough to have kids late in life and I can afford to put money in their college fund now, but most new parents sadly can't.
  - deleted 9y ago
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- mantas 9y ago
  Another statistic is that in quite a few places in the world families don't have to save money for kids' education at all. Looking from Europe, it looks like a weird cultural artefact. If someone I knew did this, my reaction would be "wtf, why don't you pay off your mortgage or go on vacation?".
- anonemouse145 9y ago
  You sound like a cigarette executive. "The real problem is we don't start em smoking before they leave the hospital. We could increase our profits 33% if every baby was exposed to nicotine before they leave the hospital." Maybe not all people in society should be socially required to purchase an expensive good, thus causing demand to be infinite, meaning price can only skyrocket. Given the number of Masters degrees working minimum wage or starting jobs now maybe we should admit we have a problem.
jedberg 9y ago
There is definitely an education bubble. It's way too easy to get money for college. You hear a lot of stories about the increasing costs of college and crushing debt on graduation, but you don't hear a lot of stories of "I wanted to go to college but couldn't get a loan". Almost everyone gets approved, regardless of their future ability to pay it back. We need a fundamental shift in the way college is paid for. Some (many?) would like to see a government funded system, others would like to see the removal of subsidized loans to bring prices back down (and leaving many unable to afford college in its wake). Another solution is to let you go to school for free and then pay a percent of all your future earnings back to your college, or at least into a pool that pays for the next generation's college. Of course with that system, colleges would bias towards people who are pursuing profitable majors, so you'd probably see a lot more STEM degrees and a lot fewer of everything else, until it got oversaturated, but there is a very long lead time between "too many degrees" and "no one studies this anymore". In other words, the fundamental problem is that we tell kids that college is the only path, creating insanely high demand for the product, when in reality there would be plenty of people much better served learning a trade or skill instead of four years doing something hate for a useless degree they'll never use.
- yegle 9y ago
  I thought the point of student loan is to grant it to anyone regardless of if they can repay? If the loan is granted by looking at the student's future potential to repay, students would prefer majors/colleges with higher chance of getting a student loan.
  - jartelt 9y ago
    If the word "loan" is in the name of the financial product, you are expected to repay. At some point we need to be upfront with high school graduate and tell them it is a bad idea to go study art history at a $40k a year no-name private college.
    - sorrymate 9y ago
      If the choice is between not going to college vs. earning a degree, statistically you earn more simply by having a college degree, regardless of the major. Bachelor Degree holders, on average, earn a million dollars more during their life time than those who only have a high school diploma. Even if you are accounting for lost earning potential, cost of tuition, supplies etc... your still talking about hundreds of thousands of dollars more earned than if you were to not achieve a degree. If you are talking in relation to going to university for a STEM degree vs. going to school for art history, you could certainly argue that STEM will will always make more. But I would still recommend young people go to school over not. Even if it is something 'useless'. Either way you slice it, the data indicates that encouraging youth to go to college is still worth it. Even with how expensive college is. Median Lifetime Earnings: https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/collegepayoff.pdf https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/c... Cost of School and Lost Earnings vs High School Grad: https://trends.collegeboard.org/sites/default/files/education-pays-2016-full-report.pdf https://trends.collegeboard.org/sites/default/files/educatio... BLS on Pay by Education https://www.bls.gov/opub/ted/2015/more-education-still-means-more-pay-in-2014.htm https://www.bls.gov/opub/ted/2015/more-education-still-means...
howard941 9y ago
These should be low yield non junk but for some reason they're high risk/high yield in spite of the principle being backed by the full faith and credit of the US Govt. and bankruptcy non-dischargability. There's a strange disconnect between the risk and the yield.
- stevenwoo 9y ago
  This non-dischargeability of the student loan changes made by Congress baffles me and strikes me as terribly unfair, and I'll never be using a student loan. I guess we should follow the money and ask whom does the bankruptcy non-dischargeability benefit?
  - rhino369 9y ago
    It benefits people who can pay back students loans and people who need students loans to make extra money. Before loans were non-dischargeable, you'd have students run up their debts and declare bankruptcy. This sort of fraudulent activity had no consequences since student loans are unsecured. The result was that the private student loan market was small. Nobody was going to loan money they'd never get paid back.
    - stevenwoo 9y ago
      Doesn't it also benefit universities who can then keep upping costs because the loans will rise to match the costs no matter what? Prior to the change was there a shortage of student loans (with a lot less people choosing university) or did we just shift the loan balance from the government to private industry?
danaliv 9y ago
I highly recommend Matthew Crawford's Shop Class as Soulcraft, which includes a discussion of how kids are railroaded into college even though it makes no sense for everyone to go. The destruction of vocational schools is a real problem here. And in a world where any work that doesn't require physical presence is ripe for offshoring, the loss of the vocations is problematic indeed. You can read the essay that started the book here: http://www.thenewatlantis.com/publications/shop-class-as-soulcraft http://www.thenewatlantis.com/publications/shop-class-as-sou...
- stochastic_monk 9y ago
  Reminds me of this old SMBC Comic.[1] "The easier college gets, the dumber you look for not having a degree." Having hoops for discriminating simplifies hiring and other decisions. Simple ones like these are going to stick around as long as people think degrees matter more than how a person produces. [1] https://www.smbc-comics.com/index.php?db=comics&id=2729#comic https://www.smbc-comics.com/index.php?db=comics&id=2729#comi...
- maxxxxx 9y ago
  For most people it's still the best bet to go to college if you want a career. Even in Germany with its strong vocational programs there is a long term trend of jobs going more and more to college graduates. My sister is "Bankkaufmann" and did OK when she started 25 years ago. Now the same job is only for people with a bachelors minimum.
code4tee 9y ago
A lot of that debt is funding bloated administrative costs and other overhead that doesn’t directly make for a “better” education, just a “more expensive” education. Fixing this problem starts with getting costs at universities under control. Taking on debt to fund education isn’t inherently bad, but having that debt back a bloated higher education sector is terrible.
- wmeredith 9y ago
  As I posted elsewhere in this thread... The majority cost increase (65%)[1] of higher education in the US over the last couple decades is due to a systematic defunding of government support for schools. It would be nice if we started investing in our country's education again. [1]2015 Study by the New York Federal Reserve - https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf https://www.newyorkfed.org/medialibrary/media/research/staff...
  - sorrymate 9y ago
    Unfortunately this is only the start. It seems Republicans have started a war on education. "a majority (58%) of Republicans say colleges and universities are having a negative effect on the way things are going in the country" We should be continuing to encourage higher education in addition to trade schools. Bachelor Degree holders, on average, earn a million dollars more during their life time than those who only have a high school diploma. Even if you are accounting for lost earning potential, cost of tuition, supplies etc... your still talking about hundreds of thousands of dollars more earned than if you were to not achieve a degree. Pew Research Poll http://www.people-press.org/2017/07/10/sharp-partisan-divisions-in-views-of-national-institutions/ http://www.people-press.org/2017/07/10/sharp-partisan-divisi... Figure 2A Lifetime Net Earnings by Education https://trends.collegeboard.org/sites/default/files/education-pays-2016-full-report.pdf https://trends.collegeboard.org/sites/default/files/educatio... Figure 1 Lifetime Earnings by Education https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/collegepayoff.pdf https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/c...
    - robocat 9y ago
pobo 9y ago
We just hired a self made developer who doesn't have a college degree. Oh Boy, everybody think he is some sort of code clown. College is nothing, but humans like to judge based on vanity values.
- deleted 9y ago
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nsporillo 9y ago
As a current student and one who will graduate with roughly $60k in student debt, after scholarships and grants - I often question the legitimacy of the driving factors in increased tuition. Most would say the volume of administrators has ballooned due to the increasing number of services universities now provide for the students. Better and more services offered to students should benefit quality of life. Does the economic impact of modern universities serve as a net positive for society? When we have more and more university staff using their salary to support their families they're contributing to the economy in a positive way. When we have students graduating with tens of thousands of dollars of debt, they're bound to repaying their loans. In order to do this, they must find a career and become "productive" members of society. This of course ignores the ethical and societal implications of expensive tuition...
- exolymph 9y ago
  "Legitimacy" is not really a factor when it comes to prices. Underlying production cost will put a floor on the price, absent subsidies, but the final dollar amount offered to the customer is a response to supply and demand. Universities are charging more because people will pay more — easy up-front money through loans is part of the reason why.
- OliverJones 9y ago
  The article mentions "loose student loan underwriting standards." Here's what's going on: The people originating the loans have no skin in the game. So, they don't call NYU or even Northern Essex Community College and say, "look, here's a student who wants to be a social worker, asking for 100K in loans to get the degree. We don't think they'll be able to repay that debt on a social worker's wages. So, no loan." If the lenders WERE calling the colleges saying that, the colleges would not be escalating tuition as radically as they are. It's not realistic to expect the kid who just got in to NYU or a community college to play that kind of hardball in negotiating tuition rates. But when the lenders don't play that hardball, it leaves higher-education executives trucking to the bank on the proceeds of those loans.
  - drspacemonkey 9y ago
cmurf 9y ago
Except a Republican Congress and Republican president made it much much harder for students to declare bankruptcy than corporations.
ransom1538 9y ago
Easy solution. LET the students default. Seriously, if students could default like they can buying a used car there would be lower tuition and better attention to whom you give a loan to.
- ajross 9y ago
  No offense, but that's ridiculous. There's money owed here. The schools already got it, the banks are owed it. Someone needs to make that right, you can't just "forgive" debt without some party taking a huge hit. Which one? I'm guessing the developed version of your proposal would be for the government to step in and make the payments to the banks. But.. that's ridiculous. If you want to throw around government money to reduce education burden, what you do is pay the schools directly by offering grants. You don't prop up the imbalanced loan system by making loan payments with tax dollars.
  - ransom1538 9y ago
    Wait. Isn't that how investing works? You invest hoping to get a return - but sometimes you don't. A loan in which students (or anyone) can't default is getting close to debtors prison. Whoever invested without caring who they gave the money to should, well, get those returns: $0.
  - grasshopperpurp 9y ago
    >No offense, but that's ridiculous. There's money owed here. The schools already got it, the banks are owed it. Someone needs to make that right, you can't just "forgive" debt without some party taking a huge hit. Which one? No offense, but the banks should take on risk if they're charging interest. Right now, they can have their cake and eat it, too, which is stupid - no offense.
    - sigstoat 9y ago
      > No offense, but the banks should take on risk if they're charging interest. Right now, they can have their cake and eat it, too, which is stupid - no offense. i'll skip the faux politeness of "no offense" and just point out that this is foolish. even if payback is literally guaranteed, interest is still required, because money now is worth more than money later, due to opportunity costs. the US federal government, which everyone considers the pinnacle of credit worthiness, still has to pay interest. further, just because the debt can't be discharged doesn't mean its paid off in a timely fashion. the interest rate has to be further increased to account for folks who just don't make payments for years at a time.
monkseal 9y ago
What feels so deceptive about the panic around student debt is the devil is the details. I think if you drill in median student loan debt for an UNDERGRADUATE is like $12k. That's less than a car loan and we don't have a panic about that. Most of the debt is for graduate, PHDs, law and MDs or undergrads who attend expensive private universities. These people should make more money from that investment. My point is overall average student loan debt or the overall outstanding amount owed is horrible way to look at it and talk about it. It creates an unnecessary panic.
- lazypenguin 9y ago
  It's also deceptive to downplay the situation by only looking at the debt in students' names. Many parents take out loans on behalf of their children. E.g. Parent Plus Loans: https://en.wikipedia.org/wiki/PLUS_Loan https://en.wikipedia.org/wiki/PLUS_Loan
  - kpwagner 9y ago
    Well over half of my student loan balance is in parent loans. I pay my parents monthly to pay for the loan payment. My younger two siblings are oblivious to what kind of debt they have. Now, my parents are a few years away from retirement--at least they hope--and they will be burdened with paying my siblings student loan debt on a fixed income.
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JonFish85 9y ago
To me, this is another implementation of the housing bubble: - People see college graduates making a lot of money - Politicians make it a priority to make it easier for people to get loans to go to college - More people take out loans to go to college - Colleges realize there is no downward pressure on price and raise tuition. - Politicians continue to make it easy for people to go to college - People take bigger loans to go to any school they wish Until the music stops, things are sort of OK. People's kids can go to any school they can get into, regardless of cost. Colleges can raise their tuition with no consequences. Politically it's a difficult problem, because the old solution of making more money available is getting out of hand, but what politician wants to stand up and tell people they can't go to the college of their dreams just because they can't afford it? During the housing bubble, it was the cycle of "people want to own a home" => "politicians say everyone should be able to own a home and make loans available" => "companies make money packaging up these loans" => "prices go up" => "people can't afford homes" => "politicians make more money available". Until the music stops, everything is great -- everyone is making money, everyone is getting what they want. Then it unravels...
- mattmanser 9y ago
  The thing I don't understand is, how does it unravel? It feels like politically acceptable short-termism of shunting education costs onto future generations. No-one's going to 'lose' money over it. Who will suffer? It doesn't look like it will be corporations that will suffer, save some institutions will close when the endless supply of money suddenly dries up. It looks to me like it will be governments, a political ticking time-bomb much worse than the growth of numbers of pensioners vs number of workers. Is it a potential social disaster where a lot of people will end up sent to a new version of debtors prison for a bit? Or will it massively impact future GDP of developed countries, as people won't be able to spend, they'll be paying back this onerous loans. Having the exact opposite effect that it's supposed to, instead of growing GDP by growing skills, it'll be killing it by curtailing worker spending potential. Tax revenues might fall due to higher education instead of grow. Governments seems to be making these student loans rock-solid backed by government assurances to the detriment of future generations. I haven't looked into it enough to know and am lucky enough to have paid all mine off as it was much smaller than today's crazy amounts.
fixermark 9y ago
That's at least one thing junk bonds and college degrees have in common.
etr-strike 9y ago
When the next recession strikes, interest rates have no place to go but into negative territory. The rates will be either explicitly negative, or effectively negative (inflation higher than interest rates). When that happens, bitcoin will be the only safe haven in the world to protect your wealth. The bubble people will be changing their tune very quick.
- raphaelj 9y ago
  What a wonderful idea, putting your savings in an highly volatile currency! Have you ever heard about people buying gold to store value?
  - etr-strike 9y ago
    The gold market can be manipulated as most people never take physical delivery of gold. There's no mechanism to audit everyone's holdings. Additionally, I'm of the opinion volatility will decrease as bitcoin matures. Do you really expect a currency bootstrapped from the ground up to not be volatile in its uptake? We'll see if you're singing the same tune when you're finally confronted with the certain depreciation of your USD holdings. (Will you still reject bitcoin when USD is depreciating at a rate of 5% per year?)
- WkndTriathlete 9y ago
  _The Economist_ has had several articles on countries that have experimented (temporarily) with negative interest rates and concluded those experiments didn't have much of an effect on those countries' respective economies. Whatever your view of the Fed is they are generally smart and well-read people who have probably also read those articles or the research papers backing them, so I think it's unlikely that interest rates will ever go negative.
- fnovd 9y ago
  When the next recession strikes, people will attempt to liquidate their Bitcoin to pay their bills and find out that no one really wants to buy them.
deleted 9y ago
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CalChris 9y ago
The fundamental problem here is that student loans have been declared a special debt not dischargeable through bankruptcy. At the same time, these loans can be Federally guaranteed through FFEL. This leads to $100K cooking schools promising to turn a recent dischargee from the Army into a pro-chef, sign here, here and here. If student loans were subject to bankruptcy banks would be more careful. Instead we have a political system making bank from banks for ruining young people's lives. Any libertarians care to wade in here and tell me this is a small price to pay for freedom?
- sorrymate 9y ago
  I agree. Why is it that banks are able to charge 6.8% interest for student loans, but the government will provide banks with that same student loan money for 0.03% interest. The middle man adds no value.
- OliverJones 9y ago
  Exactly. The lenders don't have enough skin in the game to make it worth negotiating with the colleges / universities to keep tuition down. The article mentions "loose student loan underwriting standards". That means the underwriters don't call the colleges on the carpet about grossly overpriced degree programs. So tuition spirals.
  - CalChris 9y ago
    I blame the lenders as well but I get there differently. With or without the threat of lendee bankruptcy, it isn’t in the interests of lenders to negotiate lower tuition. This doesn’t happen with houses. It’d never happen with tuition. Instead this is just free money for the banks. Since it guaranteed they risk nothing. Your no skin in the game is their lack of risk. I blame the lenders because they lobbied for this gift.
GoRudy 9y ago
How come no one is talking about the actual costs of schools? Why are they so expensive? Perhaps bloated budgets, systemic mismanagement across the country...?
- CaptSpify 9y ago
  The thing that everyone hates the most about schools is the administration. The most expensive part of schools is the administration. Seems pretty obvious to me which part of schools needs slimming down.
orchard1931 9y ago
The bottom line is the college loan system needs an overhaul. As just one example, the founders of Collegeloan.com made close to a billion dollars each prior to new laws passed in 2008. The founders have since left daily roles but themselves and current execs are still raking in money off student load debt. This is just one of the founders houses that has been on market for 4+ years. This house was paid for off the false hopes and high interest payment loans the schlepped to kids who have long since graduated and still paying off debt. https://www.sandiegoreader.com/news/2013/feb/20/unreal-casa-piena/# https://www.sandiegoreader.com/news/2013/feb/20/unreal-casa-... https://www.zillow.com/homedetails/14385-Cypress-Pt-Poway-CA-92064/2112805772_zpid/?fullpage=true https://www.zillow.com/homedetails/14385-Cypress-Pt-Poway-CA... Another house he sold in Vegas. https://www.realtor.com/news/unique-homes/ceo-and-poker-pro-cary-katz-selling-las-vegas-mansion/ https://www.realtor.com/news/unique-homes/ceo-and-poker-pro-... He also likes million dollar buy in poker. How many interest payments did kids make for him to afford this? http://www.pokerlistings.com/cary-katz-wsop-big-one-for-one-drop-q-and-a-91548 http://www.pokerlistings.com/cary-katz-wsop-big-one-for-one-... Do some research... this is just one company that was in the upper top 10 prior to 2008 shake up. Many more made far more of the backs of kids in this country. After the shake up the companies adjusted and went back to lobbying to gain back the insane profits they once saw. Obviously by the headline we are back to all time highs.
grandalf 9y ago
There are two relevant things to realize about this: 1) Student debt is much different than normal consumer debt in that it is not dischargeable if the holder declares bankruptcy. 2) For years, many politicians have been calling for the massive increases in the issuance of student loans, presenting the issue as though the only hope for many people to obtain education is to take on massive amounts of debt. If there weren't lots of bankers, politicians, and lobbyists getting rich off of this bubble, it might be possible to believe that they genuinely think that saddling teenagers with massive amounts of non-dischargeable debt was a good thing for society. Student loans are the biggest handout to the financial services industry in decades, and both parties are reaping the spoils of these deals.
- cinquemb 9y ago
  Only reason why I think there is much press about this is because it would make sense to me that increasing delinquency/amount of student loans will bleed into mortgage asset valuations and feed a long term bearish (inflation-adjusted) trend[0] (after all, these debts cannot be discharged[1] and negatively affect credit when not serviced, which factors into getting approved for mortgages, even after setting aside how stagnant wages have been for decades on avg), and I'm not too sure how banks would feel that if people are no longer opting to taking out 30year + mortgages that I'm sure compromise a significant part of their "assets". [0] https://fred.stlouisfed.org/series/ASHMA https://fred.stlouisfed.org/series/ASHMA [1] Well outside of some political student loan debt jubilee that will probably leave a lot of universities holding the bag, not to mention other private entities that have attached themselves to the student loan system.
Overtonwindow 9y ago
I majored in PolySci, so definitely non-stem. It was tough at first to manage my student loans, but with experience and pay increase, it got better until it was paid off. I knew going into this field that it's not always lucrative, and I would have to follow specific pathways to make a good living. I worry that universities don't teach students the true value of their degrees, and emphasize enough the average and typical salary expectations. There are too many college graduates saddled with enormous debt, but lacking a degree that will allow them to earn enough to pay it back, let alone develop a successful, and rewarding career.
taobility 9y ago
The root problem here isn't US college charged too much for tuition? Education is a basic human right, and everyone should have chance to be educated. So the government should subsidize the education, including the undergraduate education.
mschip 9y ago
The current tax reform discussions look to make it even worse be removing some of the current breaks for students paying off debt [1]. There was some talk last summer about extending the current $5200 tuition exemption as an employer benefit to include tuition repayment [2]. I guess that's now off the table. I haven't seen the math anywhere, but it sure seems like it would be cheaper to give tax breaks for paying off loans then to allow them to be defaulted on on forgiven in the case of government workers. [1] http://money.cnn.com/2017/11/15/pf/college/tax-reform-paying-for-college/index.html http://money.cnn.com/2017/11/15/pf/college/tax-reform-paying... [2] https://www.cnbc.com/2017/08/17/student-loan-debt-why-employers-may-want-to-help-pay-off-college-loans.html https://www.cnbc.com/2017/08/17/student-loan-debt-why-employ...
thescriptkiddie 9y ago
Easy solution: Make college free and forgive the student loans.
- kdamken 9y ago
  So then who pays for the money that was already borrowed?
mdfrancois 9y ago
Seriously, none of you has access to his tax records? ;)
c141charlie 9y ago
This fiasco is mostly on the government. The unlimited supply of student loan $ has enabled universities to not have to control costs like they would have had to if these $ were not as freely available.
posterboy 9y ago
The headline is sensational. The mere use of the word junk, although quite a few places apart, incures a mental relation of student loans to junk. The error here is that comparison between debt and market are a type mismatch and creativity is needed to resolve the actual meaning. Just look at the top comment concuring, "There is definitely an education bubble".
jswizzy 9y ago
With a little planing you can get a college education without putting yourself in debt. I did it. Sure you might have to go to community college for the first two years and eat a lot of ramen noddles but it's more than possible with all the grants, scholarships, and employer matching. Most people have no will power and just take the easy way out not thinking about the long term debt they will have.
jernfrost 9y ago
Good thing Trump and the republicans are tackling the problem then by giving students a tax break, oh wait... they gave them a tax hike. I guess those poor rich people in the US who have gotten the bulk of wealth creation since the 80s, where in desperate need of some tax cuts. Got to give it to the republicans. Get poor people focused on muslims, Mexicans, blacks, gays etc while they let the rich empty their pockets. A winning formula. You would have thought people had caught on to it by now.

360 points by rayuela 9y ago

Is it just me or are Bloomberg and WashPo really over-represented on this site?

Mark Cuban has been writing about this since at least 2012: http://blogmaverick.com/2012/05/13/the-coming-meltdown-in-college-education-why-the-economy-wont-get-better-any-time-soon/ http://blogmaverick.com/2012/05/13/the-coming-meltdown-in-co... https://www.inc.com/mark-cuban/video-student-loans-bubble.html https://www.inc.com/mark-cuban/video-student-loans-bubble.ht...

mikeokner 9y ago

Typical shitty reporting from Bloomberg. Other than the dollar amount outstanding, there's nothing else in the article that draws any similarities to the junk bond market. It's about as meaningful as saying "Apple's market cap approaches the size of the US junk bond market" or "Student Loan Debt surpasses Apple's market cap in size." In fact, there isn't really any interesting information in the article at all. There seems to be an insinuation that the size is a bad thing, but even then they don't come out and say why.

murph-almighty 9y ago
At a minimum, a comparison of the default rate between the two would be nice.
- Tactic 9y ago
  Just FYI the average default rate for the 2014 Cohort was 11.5% but that varies WIDELY depending upon the school from 0.10% to 56.20%. Official numbers can be found at: https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html
- cm2187 9y ago
  Default rates in good times can be very misleading (as the subprime crisis showed).
  - SimbaOnSteroids 9y ago
    Can't you extrapolate default rates to when we don't have good times.
    - cm2187 9y ago
      That's what banks do to manage their credit risk, they look at defaults rates "through the cycle", i.e. including the last downturn. But for new asset classes, like subprime in their time and like student loans now (if you look at chart in the article in term of growth), people have to make their own assumptions in term of how it will behave in a downturn. And that's where the credit markets can be really dangerous. These assumptions are what banks and rating agencies got wrong last time. And I think it is fair to assume that people under financial hardship will probably default on their student loan before they default on their mortgage (roof over their head) or their car.
- jartelt 9y ago
  The article does compare them (albeit without much detail). “Delinquency rates on student loans are much higher than those on auto loans or mortgages, due to loose student loan underwriting standards, the unsecured nature of student debt, and the inability to charge off non-performing student loans in bankruptcy,” Goldman Sachs Group Inc. analysts Marty Young and Lotfi Karoui wrote in a note Tuesday. “The substantial majority of student loan default risk is borne by the U.S. Treasury.”
  - ktta 9y ago
    If the default risk is borne by the US Treasury, then what risk do we have in general?
    - Raidion 9y ago
      The risk that the increased supply of money lowers the value of that money. Not that this is the straw that's gonna break the camels back, but it's not like there aren't consequences to the taxpayer for allowing the government to allocate funds in a sub optimal manner.
      - linkregister 9y ago
        This money isn't unbounded; it's confined by the budget allocated to the Department of Education and various government organizations (like Fannie Mae, et. al.). Ultimately the Department of Education is responsible for this money. The last 30 years are remarkable in the amount of controversy surrounding student loans and the default of large education funds. The following article describes this in greater detail: https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/ https://tcf.org/content/report/student-loan-guaranty-agencie....
    - Jeema101 9y ago
      I think the main risk would be a deterioration in the government's finances since the government is expecting to get paid back and is factoring in those payments to the financial outlook. That could in turn lead to an increase in the government's borrowing costs, which could affect lots of other things negatively.

PatientTrades 9y ago

There is plenty of blame to go around here. However a major cause of this has been the push by the left that college is the only path to success. Trade and vocational schools as well as military service are all great options for young adults who may not know exactly what they want to do with their life right away. Spending 4 years of your life taking on debt, simply because society tells you college is the path to success is wrong. Also, colleges themselves need to be held accountable here. Most universities are sitting on billions in tax free endowments and not using that money in useful ways. How about use some of that money to help offset some of these debts?

lawlessone 9y ago
>as well as military service are all great options for young adults Getting shot at for an education doesn't seem that great. Better off just moving to a better country.
- artorias 9y ago
  >implying you're going to get deployed simply by joining the military You're one of them guys that sucked on the ASVAB, eh?
- deleted 9y ago
  [deleted]
- whb07 9y ago
  One could essentially sign up to be a librarian (bit of an exaggeration but there are active duty members who work at libraries). Same goes for Coast Guard which doesn’t get deployed in the traditional sense and are more like water police. Ceteribus paribus, the military provides stable job, income, and a generous scholarship. The scholarship is roughly $70-$100k depending on school and a monthly housing stipend. For SF area, that stipend is $4.2k/month
- latencyloser 9y ago
  Anecdotal, but my mother was a mechanic, my uncle a cryptographer, another uncle was some type of police on base, my cousin is a drone pilot and just sits in an office like building despite technically being involved in combat I suppose. Several former colleagues mostly did admin-type work while enlisted. The last person I know to have actually seen combat was my grandfather in Korea--but he knew what he signed up for and it was fairly deliberate at the time, he had wanted to be like his cousin that had fought on Iwo Jima years prior who was also a volunteer. All used their GI bill to get an education. My point being, there's tons of military jobs that don't involve violence. For each job that does require violence, dozens more auxiliary positions are required to support that job.

duncan-donuts 9y ago

I wonder how educators are handling this. When I was set to graduate high school a decade ago we spent a portion of our home room hour planning our collegiate futures. I think I may have been the exception -- where my advisor stressed that we had to do something. Too often I hear that, "college is the only option." I personally never experienced that, but I wonder if educators are stressing that 4 year universities aren't the only option, just one of the many options. I think, with the lack of skilled workers, people can do really well with a vocational degree in a trade. Then again, that type of work is much more physically demanding than my job as a software engineer.

zjaffee 9y ago
People neglect to realize that a master plumber can make just as much as a software engineer should they have the skillset to be on the right kind of projects.
- cantankerous 9y ago
  FWIW: It's probably easier to become a software engineer than it is to become a master plumber.
  - aaavl2821 9y ago
    For some people. Others just can't get their heads around programming Though point taken about how hard it can be to get certified for some of those trades
- lotsofpulp 9y ago
  But quality of life is much higher for the software engineer, so assuming it's just as easy to be both, pay would need to be much higher for the plumber to incentivize people to do it.
  - damontal 9y ago
    Is it? I had some plumbers doing work in my house last year. They were pretty happy guys. Playing music on the radio, singing while they were at work. Meanwhile i'm here sitting at a desk all day.

artorias 9y ago

That's because liberal arts degrees are junk bonds. ba dum tiss

LeoJiWoo 9y ago

We need to cut student loans,and at the same time force tuition back down (probably by putting federal and state pressure on them by threatening to cut grants or taxing them higher). Universities need to return to their core purpose teaching young minds, furthering science, or preparing them for jobs. Instead of the corporate universities drowning students in debt.

Overtonwindow 9y ago
The basketball coach at my alma matter is paid double what the university president makes. I think that's wrong. I am deeply in the minority, but I think universities should focus less money on athletics, and more on academics.
trophycase 9y ago
Drowning students in debt so they are basically forced to work for evil corporations who do evil things.

aloukissas 9y ago

One statistic that's commonly left out of these discussions & articles is how late parents save for college. According to Sallie Mae (http://news.salliemae.com/publication/how-america-saves-college-2016 http://news.salliemae.com/publication/how-america-saves-coll...), most families don't start saving before their oldest child reaches 7 years old. This effectively robs 1/3 of the investment period's growth potential. Another one (as perhaps a consequence of the previous fact) is that the average family ends up saving up ~$16K, while the average grad leaves colleges with an average of ~37K in debt. As most experts in the field agree, the key winning strategy is starting to save as early as childbirth, even if it's a small amount.

habosa 9y ago
On the one hand, yes that's late. On the other hand it's sort of insane how you need to start putting money away for a child's education when they're only seven years old! You have no idea if the child will even want to go to college, how much their college of choice will cost, etc.
jedberg 9y ago
It's good in theory, but most new parents don't have the spare cash to start saving at birth, unless they are already fairly well off. I was lucky enough to have kids late in life and I can afford to put money in their college fund now, but most new parents sadly can't.
- deleted 9y ago
  [deleted]
mantas 9y ago
Another statistic is that in quite a few places in the world families don't have to save money for kids' education at all. Looking from Europe, it looks like a weird cultural artefact. If someone I knew did this, my reaction would be "wtf, why don't you pay off your mortgage or go on vacation?".
anonemouse145 9y ago
You sound like a cigarette executive. "The real problem is we don't start em smoking before they leave the hospital. We could increase our profits 33% if every baby was exposed to nicotine before they leave the hospital." Maybe not all people in society should be socially required to purchase an expensive good, thus causing demand to be infinite, meaning price can only skyrocket. Given the number of Masters degrees working minimum wage or starting jobs now maybe we should admit we have a problem.

jedberg 9y ago

There is definitely an education bubble. It's way too easy to get money for college. You hear a lot of stories about the increasing costs of college and crushing debt on graduation, but you don't hear a lot of stories of "I wanted to go to college but couldn't get a loan". Almost everyone gets approved, regardless of their future ability to pay it back. We need a fundamental shift in the way college is paid for. Some (many?) would like to see a government funded system, others would like to see the removal of subsidized loans to bring prices back down (and leaving many unable to afford college in its wake). Another solution is to let you go to school for free and then pay a percent of all your future earnings back to your college, or at least into a pool that pays for the next generation's college. Of course with that system, colleges would bias towards people who are pursuing profitable majors, so you'd probably see a lot more STEM degrees and a lot fewer of everything else, until it got oversaturated, but there is a very long lead time between "too many degrees" and "no one studies this anymore". In other words, the fundamental problem is that we tell kids that college is the only path, creating insanely high demand for the product, when in reality there would be plenty of people much better served learning a trade or skill instead of four years doing something hate for a useless degree they'll never use.

yegle 9y ago
I thought the point of student loan is to grant it to anyone regardless of if they can repay? If the loan is granted by looking at the student's future potential to repay, students would prefer majors/colleges with higher chance of getting a student loan.
- jartelt 9y ago
  If the word "loan" is in the name of the financial product, you are expected to repay. At some point we need to be upfront with high school graduate and tell them it is a bad idea to go study art history at a $40k a year no-name private college.
  - sorrymate 9y ago
    If the choice is between not going to college vs. earning a degree, statistically you earn more simply by having a college degree, regardless of the major. Bachelor Degree holders, on average, earn a million dollars more during their life time than those who only have a high school diploma. Even if you are accounting for lost earning potential, cost of tuition, supplies etc... your still talking about hundreds of thousands of dollars more earned than if you were to not achieve a degree. If you are talking in relation to going to university for a STEM degree vs. going to school for art history, you could certainly argue that STEM will will always make more. But I would still recommend young people go to school over not. Even if it is something 'useless'. Either way you slice it, the data indicates that encouraging youth to go to college is still worth it. Even with how expensive college is. Median Lifetime Earnings: https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/collegepayoff.pdf https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/c... Cost of School and Lost Earnings vs High School Grad: https://trends.collegeboard.org/sites/default/files/education-pays-2016-full-report.pdf https://trends.collegeboard.org/sites/default/files/educatio... BLS on Pay by Education https://www.bls.gov/opub/ted/2015/more-education-still-means-more-pay-in-2014.htm https://www.bls.gov/opub/ted/2015/more-education-still-means...

howard941 9y ago

These should be low yield non junk but for some reason they're high risk/high yield in spite of the principle being backed by the full faith and credit of the US Govt. and bankruptcy non-dischargability. There's a strange disconnect between the risk and the yield.

stevenwoo 9y ago
This non-dischargeability of the student loan changes made by Congress baffles me and strikes me as terribly unfair, and I'll never be using a student loan. I guess we should follow the money and ask whom does the bankruptcy non-dischargeability benefit?
- rhino369 9y ago
  It benefits people who can pay back students loans and people who need students loans to make extra money. Before loans were non-dischargeable, you'd have students run up their debts and declare bankruptcy. This sort of fraudulent activity had no consequences since student loans are unsecured. The result was that the private student loan market was small. Nobody was going to loan money they'd never get paid back.
  - stevenwoo 9y ago
    Doesn't it also benefit universities who can then keep upping costs because the loans will rise to match the costs no matter what? Prior to the change was there a shortage of student loans (with a lot less people choosing university) or did we just shift the loan balance from the government to private industry?

danaliv 9y ago

I highly recommend Matthew Crawford's Shop Class as Soulcraft, which includes a discussion of how kids are railroaded into college even though it makes no sense for everyone to go. The destruction of vocational schools is a real problem here. And in a world where any work that doesn't require physical presence is ripe for offshoring, the loss of the vocations is problematic indeed. You can read the essay that started the book here: http://www.thenewatlantis.com/publications/shop-class-as-soulcraft http://www.thenewatlantis.com/publications/shop-class-as-sou...

stochastic_monk 9y ago
Reminds me of this old SMBC Comic.[1] "The easier college gets, the dumber you look for not having a degree." Having hoops for discriminating simplifies hiring and other decisions. Simple ones like these are going to stick around as long as people think degrees matter more than how a person produces. [1] https://www.smbc-comics.com/index.php?db=comics&id=2729#comic https://www.smbc-comics.com/index.php?db=comics&id=2729#comi...
maxxxxx 9y ago
For most people it's still the best bet to go to college if you want a career. Even in Germany with its strong vocational programs there is a long term trend of jobs going more and more to college graduates. My sister is "Bankkaufmann" and did OK when she started 25 years ago. Now the same job is only for people with a bachelors minimum.

code4tee 9y ago

A lot of that debt is funding bloated administrative costs and other overhead that doesn’t directly make for a “better” education, just a “more expensive” education. Fixing this problem starts with getting costs at universities under control. Taking on debt to fund education isn’t inherently bad, but having that debt back a bloated higher education sector is terrible.

wmeredith 9y ago
As I posted elsewhere in this thread... The majority cost increase (65%)[1] of higher education in the US over the last couple decades is due to a systematic defunding of government support for schools. It would be nice if we started investing in our country's education again. [1]2015 Study by the New York Federal Reserve - https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf https://www.newyorkfed.org/medialibrary/media/research/staff...
- sorrymate 9y ago
  Unfortunately this is only the start. It seems Republicans have started a war on education. "a majority (58%) of Republicans say colleges and universities are having a negative effect on the way things are going in the country" We should be continuing to encourage higher education in addition to trade schools. Bachelor Degree holders, on average, earn a million dollars more during their life time than those who only have a high school diploma. Even if you are accounting for lost earning potential, cost of tuition, supplies etc... your still talking about hundreds of thousands of dollars more earned than if you were to not achieve a degree. Pew Research Poll http://www.people-press.org/2017/07/10/sharp-partisan-divisions-in-views-of-national-institutions/ http://www.people-press.org/2017/07/10/sharp-partisan-divisi... Figure 2A Lifetime Net Earnings by Education https://trends.collegeboard.org/sites/default/files/education-pays-2016-full-report.pdf https://trends.collegeboard.org/sites/default/files/educatio... Figure 1 Lifetime Earnings by Education https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/collegepayoff.pdf https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/c...
  - robocat 9y ago

pobo 9y ago

We just hired a self made developer who doesn't have a college degree. Oh Boy, everybody think he is some sort of code clown. College is nothing, but humans like to judge based on vanity values.

deleted 9y ago
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nsporillo 9y ago

As a current student and one who will graduate with roughly $60k in student debt, after scholarships and grants - I often question the legitimacy of the driving factors in increased tuition. Most would say the volume of administrators has ballooned due to the increasing number of services universities now provide for the students. Better and more services offered to students should benefit quality of life. Does the economic impact of modern universities serve as a net positive for society? When we have more and more university staff using their salary to support their families they're contributing to the economy in a positive way. When we have students graduating with tens of thousands of dollars of debt, they're bound to repaying their loans. In order to do this, they must find a career and become "productive" members of society. This of course ignores the ethical and societal implications of expensive tuition...

exolymph 9y ago
"Legitimacy" is not really a factor when it comes to prices. Underlying production cost will put a floor on the price, absent subsidies, but the final dollar amount offered to the customer is a response to supply and demand. Universities are charging more because people will pay more — easy up-front money through loans is part of the reason why.
OliverJones 9y ago
The article mentions "loose student loan underwriting standards." Here's what's going on: The people originating the loans have no skin in the game. So, they don't call NYU or even Northern Essex Community College and say, "look, here's a student who wants to be a social worker, asking for 100K in loans to get the degree. We don't think they'll be able to repay that debt on a social worker's wages. So, no loan." If the lenders WERE calling the colleges saying that, the colleges would not be escalating tuition as radically as they are. It's not realistic to expect the kid who just got in to NYU or a community college to play that kind of hardball in negotiating tuition rates. But when the lenders don't play that hardball, it leaves higher-education executives trucking to the bank on the proceeds of those loans.
- drspacemonkey 9y ago

cmurf 9y ago

Except a Republican Congress and Republican president made it much much harder for students to declare bankruptcy than corporations.

ransom1538 9y ago

Easy solution. LET the students default. Seriously, if students could default like they can buying a used car there would be lower tuition and better attention to whom you give a loan to.

ajross 9y ago
No offense, but that's ridiculous. There's money owed here. The schools already got it, the banks are owed it. Someone needs to make that right, you can't just "forgive" debt without some party taking a huge hit. Which one? I'm guessing the developed version of your proposal would be for the government to step in and make the payments to the banks. But.. that's ridiculous. If you want to throw around government money to reduce education burden, what you do is pay the schools directly by offering grants. You don't prop up the imbalanced loan system by making loan payments with tax dollars.
- ransom1538 9y ago
  Wait. Isn't that how investing works? You invest hoping to get a return - but sometimes you don't. A loan in which students (or anyone) can't default is getting close to debtors prison. Whoever invested without caring who they gave the money to should, well, get those returns: $0.
- grasshopperpurp 9y ago
  >No offense, but that's ridiculous. There's money owed here. The schools already got it, the banks are owed it. Someone needs to make that right, you can't just "forgive" debt without some party taking a huge hit. Which one? No offense, but the banks should take on risk if they're charging interest. Right now, they can have their cake and eat it, too, which is stupid - no offense.
  - sigstoat 9y ago
    > No offense, but the banks should take on risk if they're charging interest. Right now, they can have their cake and eat it, too, which is stupid - no offense. i'll skip the faux politeness of "no offense" and just point out that this is foolish. even if payback is literally guaranteed, interest is still required, because money now is worth more than money later, due to opportunity costs. the US federal government, which everyone considers the pinnacle of credit worthiness, still has to pay interest. further, just because the debt can't be discharged doesn't mean its paid off in a timely fashion. the interest rate has to be further increased to account for folks who just don't make payments for years at a time.

monkseal 9y ago

What feels so deceptive about the panic around student debt is the devil is the details. I think if you drill in median student loan debt for an UNDERGRADUATE is like $12k. That's less than a car loan and we don't have a panic about that. Most of the debt is for graduate, PHDs, law and MDs or undergrads who attend expensive private universities. These people should make more money from that investment. My point is overall average student loan debt or the overall outstanding amount owed is horrible way to look at it and talk about it. It creates an unnecessary panic.

lazypenguin 9y ago
It's also deceptive to downplay the situation by only looking at the debt in students' names. Many parents take out loans on behalf of their children. E.g. Parent Plus Loans: https://en.wikipedia.org/wiki/PLUS_Loan https://en.wikipedia.org/wiki/PLUS_Loan
- kpwagner 9y ago
  Well over half of my student loan balance is in parent loans. I pay my parents monthly to pay for the loan payment. My younger two siblings are oblivious to what kind of debt they have. Now, my parents are a few years away from retirement--at least they hope--and they will be burdened with paying my siblings student loan debt on a fixed income.
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JonFish85 9y ago

To me, this is another implementation of the housing bubble: - People see college graduates making a lot of money - Politicians make it a priority to make it easier for people to get loans to go to college - More people take out loans to go to college - Colleges realize there is no downward pressure on price and raise tuition. - Politicians continue to make it easy for people to go to college - People take bigger loans to go to any school they wish Until the music stops, things are sort of OK. People's kids can go to any school they can get into, regardless of cost. Colleges can raise their tuition with no consequences. Politically it's a difficult problem, because the old solution of making more money available is getting out of hand, but what politician wants to stand up and tell people they can't go to the college of their dreams just because they can't afford it? During the housing bubble, it was the cycle of "people want to own a home" => "politicians say everyone should be able to own a home and make loans available" => "companies make money packaging up these loans" => "prices go up" => "people can't afford homes" => "politicians make more money available". Until the music stops, everything is great -- everyone is making money, everyone is getting what they want. Then it unravels...

mattmanser 9y ago
The thing I don't understand is, how does it unravel? It feels like politically acceptable short-termism of shunting education costs onto future generations. No-one's going to 'lose' money over it. Who will suffer? It doesn't look like it will be corporations that will suffer, save some institutions will close when the endless supply of money suddenly dries up. It looks to me like it will be governments, a political ticking time-bomb much worse than the growth of numbers of pensioners vs number of workers. Is it a potential social disaster where a lot of people will end up sent to a new version of debtors prison for a bit? Or will it massively impact future GDP of developed countries, as people won't be able to spend, they'll be paying back this onerous loans. Having the exact opposite effect that it's supposed to, instead of growing GDP by growing skills, it'll be killing it by curtailing worker spending potential. Tax revenues might fall due to higher education instead of grow. Governments seems to be making these student loans rock-solid backed by government assurances to the detriment of future generations. I haven't looked into it enough to know and am lucky enough to have paid all mine off as it was much smaller than today's crazy amounts.

fixermark 9y ago

That's at least one thing junk bonds and college degrees have in common.

etr-strike 9y ago

When the next recession strikes, interest rates have no place to go but into negative territory. The rates will be either explicitly negative, or effectively negative (inflation higher than interest rates). When that happens, bitcoin will be the only safe haven in the world to protect your wealth. The bubble people will be changing their tune very quick.

raphaelj 9y ago
What a wonderful idea, putting your savings in an highly volatile currency! Have you ever heard about people buying gold to store value?
- etr-strike 9y ago
  The gold market can be manipulated as most people never take physical delivery of gold. There's no mechanism to audit everyone's holdings. Additionally, I'm of the opinion volatility will decrease as bitcoin matures. Do you really expect a currency bootstrapped from the ground up to not be volatile in its uptake? We'll see if you're singing the same tune when you're finally confronted with the certain depreciation of your USD holdings. (Will you still reject bitcoin when USD is depreciating at a rate of 5% per year?)
WkndTriathlete 9y ago
_The Economist_ has had several articles on countries that have experimented (temporarily) with negative interest rates and concluded those experiments didn't have much of an effect on those countries' respective economies. Whatever your view of the Fed is they are generally smart and well-read people who have probably also read those articles or the research papers backing them, so I think it's unlikely that interest rates will ever go negative.
fnovd 9y ago
When the next recession strikes, people will attempt to liquidate their Bitcoin to pay their bills and find out that no one really wants to buy them.

deleted 9y ago

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CalChris 9y ago

The fundamental problem here is that student loans have been declared a special debt not dischargeable through bankruptcy. At the same time, these loans can be Federally guaranteed through FFEL. This leads to $100K cooking schools promising to turn a recent dischargee from the Army into a pro-chef, sign here, here and here. If student loans were subject to bankruptcy banks would be more careful. Instead we have a political system making bank from banks for ruining young people's lives. Any libertarians care to wade in here and tell me this is a small price to pay for freedom?

sorrymate 9y ago
I agree. Why is it that banks are able to charge 6.8% interest for student loans, but the government will provide banks with that same student loan money for 0.03% interest. The middle man adds no value.
OliverJones 9y ago
Exactly. The lenders don't have enough skin in the game to make it worth negotiating with the colleges / universities to keep tuition down. The article mentions "loose student loan underwriting standards". That means the underwriters don't call the colleges on the carpet about grossly overpriced degree programs. So tuition spirals.
- CalChris 9y ago
  I blame the lenders as well but I get there differently. With or without the threat of lendee bankruptcy, it isn’t in the interests of lenders to negotiate lower tuition. This doesn’t happen with houses. It’d never happen with tuition. Instead this is just free money for the banks. Since it guaranteed they risk nothing. Your no skin in the game is their lack of risk. I blame the lenders because they lobbied for this gift.

GoRudy 9y ago

How come no one is talking about the actual costs of schools? Why are they so expensive? Perhaps bloated budgets, systemic mismanagement across the country...?

CaptSpify 9y ago
The thing that everyone hates the most about schools is the administration. The most expensive part of schools is the administration. Seems pretty obvious to me which part of schools needs slimming down.

orchard1931 9y ago

The bottom line is the college loan system needs an overhaul. As just one example, the founders of Collegeloan.com made close to a billion dollars each prior to new laws passed in 2008. The founders have since left daily roles but themselves and current execs are still raking in money off student load debt. This is just one of the founders houses that has been on market for 4+ years. This house was paid for off the false hopes and high interest payment loans the schlepped to kids who have long since graduated and still paying off debt. https://www.sandiegoreader.com/news/2013/feb/20/unreal-casa-piena/# https://www.sandiegoreader.com/news/2013/feb/20/unreal-casa-... https://www.zillow.com/homedetails/14385-Cypress-Pt-Poway-CA-92064/2112805772_zpid/?fullpage=true https://www.zillow.com/homedetails/14385-Cypress-Pt-Poway-CA... Another house he sold in Vegas. https://www.realtor.com/news/unique-homes/ceo-and-poker-pro-cary-katz-selling-las-vegas-mansion/ https://www.realtor.com/news/unique-homes/ceo-and-poker-pro-... He also likes million dollar buy in poker. How many interest payments did kids make for him to afford this? http://www.pokerlistings.com/cary-katz-wsop-big-one-for-one-drop-q-and-a-91548 http://www.pokerlistings.com/cary-katz-wsop-big-one-for-one-... Do some research... this is just one company that was in the upper top 10 prior to 2008 shake up. Many more made far more of the backs of kids in this country. After the shake up the companies adjusted and went back to lobbying to gain back the insane profits they once saw. Obviously by the headline we are back to all time highs.

grandalf 9y ago

There are two relevant things to realize about this: 1) Student debt is much different than normal consumer debt in that it is not dischargeable if the holder declares bankruptcy. 2) For years, many politicians have been calling for the massive increases in the issuance of student loans, presenting the issue as though the only hope for many people to obtain education is to take on massive amounts of debt. If there weren't lots of bankers, politicians, and lobbyists getting rich off of this bubble, it might be possible to believe that they genuinely think that saddling teenagers with massive amounts of non-dischargeable debt was a good thing for society. Student loans are the biggest handout to the financial services industry in decades, and both parties are reaping the spoils of these deals.

cinquemb 9y ago
Only reason why I think there is much press about this is because it would make sense to me that increasing delinquency/amount of student loans will bleed into mortgage asset valuations and feed a long term bearish (inflation-adjusted) trend[0] (after all, these debts cannot be discharged[1] and negatively affect credit when not serviced, which factors into getting approved for mortgages, even after setting aside how stagnant wages have been for decades on avg), and I'm not too sure how banks would feel that if people are no longer opting to taking out 30year + mortgages that I'm sure compromise a significant part of their "assets". [0] https://fred.stlouisfed.org/series/ASHMA https://fred.stlouisfed.org/series/ASHMA [1] Well outside of some political student loan debt jubilee that will probably leave a lot of universities holding the bag, not to mention other private entities that have attached themselves to the student loan system.

Overtonwindow 9y ago

I majored in PolySci, so definitely non-stem. It was tough at first to manage my student loans, but with experience and pay increase, it got better until it was paid off. I knew going into this field that it's not always lucrative, and I would have to follow specific pathways to make a good living. I worry that universities don't teach students the true value of their degrees, and emphasize enough the average and typical salary expectations. There are too many college graduates saddled with enormous debt, but lacking a degree that will allow them to earn enough to pay it back, let alone develop a successful, and rewarding career.

taobility 9y ago

The root problem here isn't US college charged too much for tuition? Education is a basic human right, and everyone should have chance to be educated. So the government should subsidize the education, including the undergraduate education.

mschip 9y ago

The current tax reform discussions look to make it even worse be removing some of the current breaks for students paying off debt [1]. There was some talk last summer about extending the current $5200 tuition exemption as an employer benefit to include tuition repayment [2]. I guess that's now off the table. I haven't seen the math anywhere, but it sure seems like it would be cheaper to give tax breaks for paying off loans then to allow them to be defaulted on on forgiven in the case of government workers. [1] http://money.cnn.com/2017/11/15/pf/college/tax-reform-paying-for-college/index.html http://money.cnn.com/2017/11/15/pf/college/tax-reform-paying... [2] https://www.cnbc.com/2017/08/17/student-loan-debt-why-employers-may-want-to-help-pay-off-college-loans.html https://www.cnbc.com/2017/08/17/student-loan-debt-why-employ...

thescriptkiddie 9y ago

Easy solution: Make college free and forgive the student loans.

kdamken 9y ago
So then who pays for the money that was already borrowed?

mdfrancois 9y ago

Seriously, none of you has access to his tax records? ;)

c141charlie 9y ago

This fiasco is mostly on the government. The unlimited supply of student loan $ has enabled universities to not have to control costs like they would have had to if these $ were not as freely available.

posterboy 9y ago

The headline is sensational. The mere use of the word junk, although quite a few places apart, incures a mental relation of student loans to junk. The error here is that comparison between debt and market are a type mismatch and creativity is needed to resolve the actual meaning. Just look at the top comment concuring, "There is definitely an education bubble".

jswizzy 9y ago

With a little planing you can get a college education without putting yourself in debt. I did it. Sure you might have to go to community college for the first two years and eat a lot of ramen noddles but it's more than possible with all the grants, scholarships, and employer matching. Most people have no will power and just take the easy way out not thinking about the long term debt they will have.

jernfrost 9y ago

Good thing Trump and the republicans are tackling the problem then by giving students a tax break, oh wait... they gave them a tax hike. I guess those poor rich people in the US who have gotten the bulk of wealth creation since the 80s, where in desperate need of some tax cuts. Got to give it to the republicans. Get poor people focused on muslims, Mexicans, blacks, gays etc while they let the rich empty their pockets. A winning formula. You would have thought people had caught on to it by now.