9 ms·

Fascinating article. A question I ponder is: given that, as I believe is true, the student loan bubble is going to burst in a messy way sometime in the next fe

Fascinating article. A question I ponder is: given that, as I believe is true, the student loan bubble is going to burst in a messy way sometime in the next few years, what happens to the college industry at that point? The last time it happened they made it illegal to discharge student loan debt in bankruptcy, but the rates of people unable to make payments is going up again, and at some point it will cause a financial problem, I would think. Does any of this calculus change if the student loan industry goes bust?

unimpressive 8y ago
What makes you think it's a bubble? Just because something is unpleasant, or even outright evil doesn't make it a bubble. Perhaps at some point an equilibrium is reached where these institutions extract exactly as much as the degree is worth, minus the little bit left that will incentivize people to take the deal. After all, the 'value' of these degrees has only gone up. Overproduced malthusian elitehood[0] has to be better than starving with the unnecessariat[1], maybe[2]. We are after all already at the near-apocalyptic scenario. Economically disenfranchised liberal arts graduates are roaming the earth and using the only skills they have to extract resources from the environment. In practice this amounts to a sort of Trust Me I'm Lying dystopia of manufacturing outrage with one hand and selling solutions on the other. For calibration, many students in the UK have turned to literal prostitution[3]. [0]: https://nationalpost.com/news/world/jonathan-kay-on-the-tyranny-of-twitter-how-mob-censure-is-changing-the-intellectual-landscape https://nationalpost.com/news/world/jonathan-kay-on-the-tyra... [1]: https://morecrows.wordpress.com/2016/05/10/unnecessariat/ https://morecrows.wordpress.com/2016/05/10/unnecessariat/ [2]: https://berthamasonsattic.wordpress.com/2018/10/12/i-applied-to-200-jobs-and-all-i-got-was-this-moderate-severe-depression/?src=longreads https://berthamasonsattic.wordpress.com/2018/10/12/i-applied... [3]: https://www.independent.co.uk/news/education/education-news/students-sex-work-prostitution-webcam-university-tuition-fees-education-a8614186.html https://www.independent.co.uk/news/education/education-news/...
- antt 8y ago
  Anything that grows exponentially is a bubble. The only question is when it stops growing because it has run out of space. A simple example is that if Caesar had invested one gram of gold after the conquest of Gaul at 3% compound interest today it would be worth 2.64e24 dollars. Or a trillion times larger than the world economy today.
extra88 8y ago
What industry? Most of the debt is to the federal government. Many loans used to be offered by banks but guaranteed by the government but in 2010 those were eliminated, making the Department of Education the sole issuer. The government already takes a number of steps to ease the burden and it could do more, offering more subsidies and/or opportunities for loan forgiveness. https://en.wikipedia.org/wiki/Student_loans_in_the_United_States https://en.wikipedia.org/wiki/Student_loans_in_the_United_St...
deleted 8y ago
[deleted]
JunkDNA 8y ago
As another commenter says, any semblance of the private student loan industry was wiped out shortly after the financial crisis. All the US student debt is now essentially backstopped by the US Federal government (in quasi-government run institutions like Sallie Mae). What will happen when this bubble bursts is that we will bail out the bad loans using US taxpayer money. This is another reason why universities can continue to raise tuition rates: they know there is significant political support to having the government "help students pay for college". The government tipped their hand regarding being open to outright forgiveness of debt by including a rule that they do full debt forgiveness if you go work for a non-profit right after school. This turns out to be a fantastic deal if you go to medical school. You can rack up hundreds of thousands of dollars in med school loans, go get a job at non-profit hospital for several years (and get paid market rates for your skills!), and then saddle the US taxpayer with your med school loans.
rossdavidh 8y ago
I suppose the word "bubble" might be problematic, since the term implies that once it stops growing, it will shrink dramatically. But, I'm not sure the government has an ever-growing ability to increase student loans, and the forgiveness programs are turning out (10 years on) not to result in much forgiveness. I have heard it said that indebtedness in student loans is interfering with the ability of many to take out loans for cars or houses, in other words, getting too much debt from the government to get any from the private sector. I don't like banks all that much, but I think they are politically powerful, and if they perceive student loans as impinging on their ability to make money, I would think they would get something done to change the situation. Who has more powerful lobbyists, universities or banks? Both way more powerful than I am, but I would not bet on universities.

unimpressive 8y ago

What makes you think it's a bubble? Just because something is unpleasant, or even outright evil doesn't make it a bubble. Perhaps at some point an equilibrium is reached where these institutions extract exactly as much as the degree is worth, minus the little bit left that will incentivize people to take the deal. After all, the 'value' of these degrees has only gone up. Overproduced malthusian elitehood[0] has to be better than starving with the unnecessariat[1], maybe[2]. We are after all already at the near-apocalyptic scenario. Economically disenfranchised liberal arts graduates are roaming the earth and using the only skills they have to extract resources from the environment. In practice this amounts to a sort of Trust Me I'm Lying dystopia of manufacturing outrage with one hand and selling solutions on the other. For calibration, many students in the UK have turned to literal prostitution[3]. [0]: https://nationalpost.com/news/world/jonathan-kay-on-the-tyranny-of-twitter-how-mob-censure-is-changing-the-intellectual-landscape https://nationalpost.com/news/world/jonathan-kay-on-the-tyra... [1]: https://morecrows.wordpress.com/2016/05/10/unnecessariat/ https://morecrows.wordpress.com/2016/05/10/unnecessariat/ [2]: https://berthamasonsattic.wordpress.com/2018/10/12/i-applied-to-200-jobs-and-all-i-got-was-this-moderate-severe-depression/?src=longreads https://berthamasonsattic.wordpress.com/2018/10/12/i-applied... [3]: https://www.independent.co.uk/news/education/education-news/students-sex-work-prostitution-webcam-university-tuition-fees-education-a8614186.html https://www.independent.co.uk/news/education/education-news/...

antt 8y ago
Anything that grows exponentially is a bubble. The only question is when it stops growing because it has run out of space. A simple example is that if Caesar had invested one gram of gold after the conquest of Gaul at 3% compound interest today it would be worth 2.64e24 dollars. Or a trillion times larger than the world economy today.

extra88 8y ago

What industry? Most of the debt is to the federal government. Many loans used to be offered by banks but guaranteed by the government but in 2010 those were eliminated, making the Department of Education the sole issuer. The government already takes a number of steps to ease the burden and it could do more, offering more subsidies and/or opportunities for loan forgiveness. https://en.wikipedia.org/wiki/Student_loans_in_the_United_States https://en.wikipedia.org/wiki/Student_loans_in_the_United_St...

deleted 8y ago

[deleted]

JunkDNA 8y ago

As another commenter says, any semblance of the private student loan industry was wiped out shortly after the financial crisis. All the US student debt is now essentially backstopped by the US Federal government (in quasi-government run institutions like Sallie Mae). What will happen when this bubble bursts is that we will bail out the bad loans using US taxpayer money. This is another reason why universities can continue to raise tuition rates: they know there is significant political support to having the government "help students pay for college". The government tipped their hand regarding being open to outright forgiveness of debt by including a rule that they do full debt forgiveness if you go work for a non-profit right after school. This turns out to be a fantastic deal if you go to medical school. You can rack up hundreds of thousands of dollars in med school loans, go get a job at non-profit hospital for several years (and get paid market rates for your skills!), and then saddle the US taxpayer with your med school loans.

rossdavidh 8y ago

I suppose the word "bubble" might be problematic, since the term implies that once it stops growing, it will shrink dramatically. But, I'm not sure the government has an ever-growing ability to increase student loans, and the forgiveness programs are turning out (10 years on) not to result in much forgiveness. I have heard it said that indebtedness in student loans is interfering with the ability of many to take out loans for cars or houses, in other words, getting too much debt from the government to get any from the private sector. I don't like banks all that much, but I think they are politically powerful, and if they perceive student loans as impinging on their ability to make money, I would think they would get something done to change the situation. Who has more powerful lobbyists, universities or banks? Both way more powerful than I am, but I would not bet on universities.