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What a Student Loan 'Bubble' Bursting Might Look Like

76 points by elliekelly 8y ago

popcorn49 8y ago
Infinitely scary.
number_six 8y ago
The fact that people can't ever discharge their loans makes it hard to imagine it "bursting" in the way that the housing market did in 2008. The whole notion of bursting is people collectively realizing their folly and everyone scrambling as quickly as possible to make out with whatever they've got left - like a run on a bank. In this case there is no bank to run on - people will just continue to have their wages/benefits garnished to continue to repay these loans that they are forever tied to. I feel like there's not really a "burst" that can happen - just that hopefully there can be some sort of debt forgiveness program or something that will alleviate the burden of the debts.
- dragonwriter 8y ago
  > The fact that people can't ever discharge their loans They can, it just has a higher bar of unaffordability before it can be discharged even in bankruptcy. OTOH, the higher the ratio of student loan debt to income becomes for typical borrowers, the more likely it is that there would be a wave of discharges. Even without discharges, though, you can have an escalating problem of loans becoming worthless to those with the right to collect them; that the loan isn't legally discharged doesn't mean that the borrower isn't practically judgement-proof. > The whole notion of bursting is people collectively realizing their folly and everyone scrambling as quickly as possible to make out with whatever they've got left - like a run on a bank. No, not like a run on a bank, more like a panic sale of a marketable asset class, in this case student loan assets (or student loan asset backed securities, just like the mortgage-backed securities that went through the same thing around 2008.) OTOH, this is really only likely to be a big issue with private, non-government-backed student loans, which exist and have high per-borrower balances, but are a minority of student loan debt. On the federal side, increasing defaults mostly reduce the difference between loans and grants and probably push public policy away from generally-offered loans to more targeted (by some mix of need, individual merit, and social desirability of course of study) grants. (These also are marketed and privately collectable after the government originates them, but the government guarantee limits the risk of value crash.)
  - AnimalMuppet 8y ago
    Could you explain a bit about the rules for discharges?
    - gbear605 8y ago
      I'm not an expert (or OP), but this is probably the information you're looking for: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/bankruptcy https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell... My (possibly inaccurate) summary is that they can be discharged if it would be impossible to live with a minimal standard of living while still paying off the loan.
      - godelski 8y ago
        Note that this says you can only get out if you file bankruptcy and can show that any form of repayment will cause undue hardship. More realistically you're going to get one of the other two options. > Your loan may be partially discharged, and you will still be required to repay some portion of your loan. > You may be required to repay your loan, but with different terms, such as a lower interest rate.
  - nopriorarrests 8y ago
    >On the federal side, increasing defaults mostly reduce the difference between loans and grants Interesting tidbit here is that half (yes, half) of the US government's financial assets are student loans. It was discussed here previously -- https://news.ycombinator.com/item?id=16136330 https://news.ycombinator.com/item?id=16136330. Something I find very hard to comprehend, tbh.
    - acover 8y ago
      I believe this does not include most of the mortgages. For example, Fannie Mae has 3.35 trillion in assets, which dwarfs total student loans. https://en.wikipedia.org/wiki/Fannie_Mae https://en.wikipedia.org/wiki/Fannie_Mae
- JumpCrisscross 8y ago
  The way it would burst is through a naive political change that permits e.g. the mass (and simultaneous) discharging of debt.
  - AnimalMuppet 8y ago
    Student debt, or all debt? All debt won't happen, because it will destroy a lot of assets - like pension funds. But student debt... that could happen if it became clear that much of it was uncollectable because the kids didn't have the money, and weren't ever going to have the money. We're not there, yet, but we do seem to be heading that way. Alternatively, student debt could be discharged through political means if the general public became galvanized into seeing student debt as a huge problem that is destroying many lives. Statistics won't produce that... but a very well-done movie might.
    - JumpCrisscross 8y ago
      > Student debt, or all debt? Student debt, pardon me. Allowing for limited discharge in special circumstances or general discharge in broader circumstances. The first could happen through the courts. The latter probably needs legislation.
- seanmcdirmid 8y ago
  My mom discharged her student loan debt by passing away. They didn’t even go after her estate for some reason. The bar is higher, but not impossibly high.
  - delecti 8y ago
    They didn't go after her estate because death of the student discharges student loans, it's hardly good advice for most borrowers though.
  - remote_phone 8y ago
    I would consider Death the highest possible bar there is.
    - deleted 8y ago
      [deleted]
    - imtringued 8y ago
      But it is guaranteed to happen eventually for all humans and therefore the debt is guaranteed to be discharged for every student. But I don't think most people who are struggling to repay their student loan are in their 70s so there is no risk of elderly people dying all at once and leaving the government stranded with the huge debt.
JamesBarney 8y ago
Summary of what a student loan bubble bursting would be from the article. The government would guarantee less student loans. This would be means some for profit institutions might shut down.
- sys_64738 8y ago
  The govt shouldn’t guarantee any student loans. My tax dollars shouldn’t be an ATM for student tuition.
  - rexpop 8y ago
    I am surprised to see this comment "faded." I suppose this means you've rubbed a moderator the wrong way. Administration of this website befuddles me. At any rate, I completely agree: the wealth of the average taxpaying citizen should not be used to pay the blackmail of too-big-too-fail financial engines holding public education for ransom. Blackmailers should be arrested, tried, and sentenced to community service. Their demands should not be met.
    - AnimalMuppet 8y ago
      > I am surprised to see this comment "faded." I suppose this means you've rubbed a moderator the wrong way. Not a moderator - a reader with enough karma to be able to downvote (500 karma, IIRC).
      - rexpop 8y ago
        Thank you, this has perplexed me for a long time.
    - X-Istence 8y ago
      Meta: comments are "faded" when they get downvoted by users. That is not a moderator decision.
  - elliekelly 8y ago
    > My tax dollars shouldn’t be an ATM for student tuition. In theory tuition is a great way to spend tax dollars because it creates better educated citizens who will earn more money (and pay more taxes). In practice it does seem to be more like monopoly money that props up sub-par schools and provides even worse education to those who could benefit from it the most.
ep103 8y ago
Aggregate student loan repayment should be capped as a percentage of yearly income. This should have been included as part of the same legislation that made student loans non-dischargable by bankruptcy. If you make 100k / year, and the rate is set at 10% (random number), 10k is the maximum amount you pay on your loans, regardless of the total amount you loans you have accrued. Currently, there is no downward pressure on either universities or banking institutions for tuition rates or amount of money lent in student aid, because the government guarantees repayment. As a result, tuition rises every year far faster than inflation, and banks are happy to join in the reaping of the profits. Capping repayment rates would correct both of those issues, as the ROI goes down significantly over a certain total amount lent, if indeed the sum total can be repaid within a lifetime. This would additionally ensure that while student loans are available to all students, all parties involved (student, bank, university) have an interest in ensuring the student will be able to pay back the loans, as opposed to now, where two parties have an interest in loaning as much as possible, and one child has conflicting interests. This would additionally force some accountability on universities for their programs. For-Profit institutions, which currently largely exist to gather tuition money while providing no real educational value would suddenly become unprofitable, and collapse. Simply put: if your graduating students make little money after graduation, their rate of repayment will be significantly smaller than an institution that provides actionable skills. Similarly, this would incentivize universities to ensure that all of their students are pursuing reasonable / coherent career paths. Currently, universities have the dual incentives to ensure that their students that go on to significant success and high paying industries do so (alumni donations), but also to collect as much tuition/room/board etc as possible from their existing students. This change would negate impact of the this second option. This would allow students who go to expensive schools to go into lower paying professions. This would allow students with the best and most expensive education to pursue all types of jobs (for example, teaching), not just the jobs best fit to pay down their debt. This would cap how punitive the accrued debt can be to the graduating student, and resolve the original issue mentioned in the article: student debt is now so overwhelming, it is preventing a generation from entering financial adulthood. And lastly, this is just a guess and could be wrong, but I would paradoxically expect that in addition to all of the above changes, capping repayment rates would also result in lower amounts of student debt willingly taken on by students. This is for the simple reason that it is easy to rationalize "I'll be able to pay back {Insert_Any_Abstract_Dollar_Figure_Here} once I graduate and get my dream job", but everyone intrinsically would understand: "If I take out this loan, I'll be paying 10% of my income for the next 30 years"
closetCS 8y ago
I don't see this here, but could a student debt bubble result not in a wave of defaults but as a contributing factor in a market slowdown or recession because the average borrower will have less disposable income to spend on other goods and products due to the insane debt payments? A wave of defaults most likely won't hurt any major institution except the federal government, but the lack of consumer spending seems like a potential problem for our consumeristic economy.
- beefalo 8y ago
  I've had similar conclusions when considdering this as well. These loans are not wiped out by bankruptcy so they will be a permanent drain to personal wealth indefinitely. I think we will see lasting effects as more and more young people are unable to invest, save for retirement, and buy real estate but there won't be a sudden shock to the economy like the mortgage bubble.
  - closetCS 8y ago
    I think we are seeing this drain already occuring actually. The popular news sources are all reporting that millenials are struggling to buy homes and build savings, though this may be due to low wages rather than debt servicing costs
exabrial 8y ago
Just like the housing crisis... when are we going to learn that government backed debt is a terrible thing for our nation? Creditors _should_ turn away bad lendees or cap loan limits, or increase your interest rate based on risk factors. Some exmaples of this might be: * Limiting the amount of money you can be loaned for majors that don't have good job prospects. People should turn to grants for these types of educations * Increasing your interest rate if you miss class * Increasing your interest rate for poor grade performance
- rmason 8y ago
  Why shouldn't it cost less for an English or a philosophy degree than an engineering degree? The job prospects are not only worse but so are your lifetime earnings. Or looking at it another way the English and philosophy majors are subsidizing the cost of an engineering degree.
  - JamesBarney 8y ago
    From a cost perspective it doesn't cost that much more to educate an English major than an engineering major.
    - qihqi 8y ago
      I am not sure if that is true. English professors are paid less than Eng ones and does not require expensive lab and equipment.
      - borkt 8y ago
        In all honesty, as a Materials Engineering student at a "learn by doing school", I could easily have done without the expensive lab equipment, but not without the library. I've always thought industry should be supporting the labs and having students perform some relatively basic work for them, for a random example Scanning Electron Microscope sample prep and basic analysis Edit: not a current student and graduated 10 years ago.
csense 8y ago
I'm thinking the solution will be political, not economic. Once there are enough people in enough pain that it turns them into single-issue voters on this issue, someone will create taxpayer-funded relief. If it's a Democratic-led solution, it'll probably be in the form of massively expanded support for universities that eliminates the cost entirely, or reduces it to what one might be able to reasonably earn/save at a minimum wage job. If it's a Republican-led solution, it'll probably be in the form of creating a tax-deferred savings account for college, combined with subsidized work-study program. Both parties will probably agree to bail out degree holders who can't pay after a certain number of years. They will probably also force cost cutting reforms on schools.
- rexpop 8y ago
  Debt should be forgiven, not relieved. We should not reward the debtors for constructing this byzantine nightmare.
- 535188B17C93743 8y ago
  Isn't a 529 what you're describing?
motohagiography 8y ago
If the loans are guaranteed by the government and people can't discharge them, then there is almost zero risk to the creditor. How do they justify charging interest higher than a government bond? I can see why there are rumblings of loan forgiveness, as it has metastasized into something truly horrible. https://en.wikipedia.org/wiki/Debt_bondage#Definition https://en.wikipedia.org/wiki/Debt_bondage#Definition
- smolder 8y ago
  I think that profitability at all levels is the core of the issue with crazy student loan debt. Why do guidance counselors steer kids toward expensive schools they can only afford through huge impractical loans? Why do overpriced schools exist in the first place? I suspect because some institutions getting rich off loan interest use their influence to encourage this. Mass exploitation of a population is best done when you can advise them to act in your best interest while convincing them its in their own, and that's best done from a position of authority. If the health of society was a primary concern then the conflicting profit motive would have been legislated out of existence, so we could maximize the benefits of an educated population for the least cost.
nixpulvis 8y ago
I strongly believe that lower cost vocational education with group housing for 18-23 year olds is part of a solution to this problem. You don't need the full college experience, but as the article mentions, getting away from home is a part of it for most.
- deleted 8y ago
  [deleted]
- rglovejoy 8y ago
  > I strongly believe that lower cost vocational education with group housing for 18-23 year olds is part of a solution to this problem. In other words, the Army.
  - nixpulvis 8y ago
    Well...
  - smolder 8y ago
    I don't think a bigger military is what the US needs, unless we were simultaneously shrinking the private sector money fire that the DoD provides fuel for. On an individual level, freedom-impeding loan debt is still less of a personal cost than what army recruits pay.
- Aromasin 8y ago
  Years back, most public services in the UK provided this exact thing. Junior nurses, service personnel, police constables and the like all lived in what was effectively a small dormitory, akin to university halls but much cheaper. It worked well and allowed them to save money to buy their own properties, while being relatively cost effective. It also made becoming a public worker a reasonably desirable profession; providing them essentially free housing, a decent pension, and a good sense of community that comes from living with colleagues and friends. As funding was cut to public services over the years, the housing was sold off to private buyers and replaced with grant schemes. Unfortunately the grants have not increased at the rate of rent and housing, leaving many junior public workers worse off. It is in my opinion potentially contributing to a public worker shortage at the very least [1]. The armed forces kept much of their housing due to their bigger budget, but less group housing has meant worse economies of scale, and many of these buildings have become horribly dilapidated, lacking basic amenities [2]. [1] https://fullfact.org/health/are-we-short-40000-nurses/ https://fullfact.org/health/are-we-short-40000-nurses/ [2] https://www.bbc.co.uk/news/uk-43135967 https://www.bbc.co.uk/news/uk-43135967
iambateman 8y ago
While we may not see a big burst, it’s possible that a generation of defaulting borrowers will gain steam. As more and more people justify and publicize non-payment, it may become politically untenable to collect on those loans. Imagine a collective movement of 9,000,000 all ceasing to pay their student loans at once. If I thought all my friends weren’t planning on repaying, I would be quick to join them. Is the government really going to dig thousands of dollars from the bank accounts of millions of people at once?
konaraddio 8y ago
> Meanwhile, some people are more than happy to spend $100,000 on a graphic design degree that may get them a job paying roughly $40,000 a year > A lot of that has to do with what Goldfarb likes to call the narrative—one that convinced kids that the only route to middle-class respectability was to get a college degree and that suggested failing to do so meant having failed at the American dream of upward mobility. To keep using the economist's terms, I would also say that 18-year-old high school seniors definitely qualify as "novice investors." Their philosophy can be summarized by Colin Hanks in the 2002 movie Orange County. When asked why he's so obsessed with getting into Stanford University and college more generally, he snaps back, "Because that's what you do after high school!" Too often I see articles about student debt make a comment about how students have been tricked or misled into pursuing a degree. Why does no one talk about the alternative? Let's talk about the alternative: You don't get a degree and now you're resume gets automatically thrown out of most applications. Only a small fraction of those without degrees manage to get well-paying jobs; they're the outliers. Albeit unrelated to employment rate, look at the salary differences: https://www.bls.gov/careeroutlook/2018/data-on-display/education-pays.htm https://www.bls.gov/careeroutlook/2018/data-on-display/educa... Some might say it's worth making $X/yr and debt-free than making $Y/yr with $Z debt but this only holds true when Y > (P*Z + X) where P is the percentage of the total initial debt being paid off per year (e.g. P = 0.2 if you're paying $10k/yr to get rid of a $50k debt). And these values are hard to predict.
- woolvalley 8y ago
  If the only reason why your buying a degree is get past an automated resume filter, and they are all the same otherwise, then for god sakes, don't buy the porsche, buy the used toyota!
  - AstralStorm 8y ago
    Except the filters look at the brand.
- cddotdotslash 8y ago
  > Let's talk about the alternative: You don't get a degree and now you're resume gets automatically thrown out of most applications. The decision to get a degree is not a binary one. It's possible to get a degree in a higher-paying field. Or, go to a community college for 2 years and then transfer. Or pick a state school over a $60k/yr private school. Or choose your second choice school that offers more scholarships. I think some of the blame rests on our guidance counselors and parents who often do little to make the connection between degrees, debt, and post-graduate earnings obvious to students. Too often the question we pose to high school juniors is "what do you like to do the most?" rather than "is there an intersection between something you like to do and opportunities for a degree-holder in that field after graduation?"
heyjudy 8y ago
I have $9k in student loans that bankruptcy wouldn't set aside for a degree I can't use (nothing to do with the degree, the defect is I) and Navient, Betsy DeVos' company, can go straight to hell.
the_antipode 8y ago
Unrelated to the topic of the student debt bubble, the opening paragraph left a bad taste in my mouth: > I hated the film adaptation of The Big Short. The acting was good and it did have a surprising amount of energy for a story that centers around men in suits doing math. But I felt condescended to. Maybe director Adam McKay tested an original cut—one minus Margot Robbie—and realized a good amount of the audience couldn't follow the plot without having a sexy lady in a bathtub break the fourth wall to explain subprime mortgages and the financial crisis. Sounds awfully pompous, like it came from r/iamverysmart. Much of the impetus behind The Big Short certainly was to break down the 2008 financial crisis to those that aren't economics/finance wonks, or for whom a narrative holds more weight than a several-hundred page non-fiction book about it. It's not that I want journalists to coddle their audience, I just think it's a bad look to completely dump on other creators to inflate one's ego while trying to make a point. How about this, which still includes a bit of criticism of the director (but milder): "While the film adaptation of The Big Short had good acting and a surprising amount of energy for a story that centers around men in suits doing math, it wasn't exactly my cup of tea. Perhaps it's because I felt Adam McKay didn't trust his audience quite enough to understand the ins-and-outs of complex subprime mortgages and the financial crisis, instead falling back on gimmicks like having Margot Robbie in a bathtub break the fourth wall to explain it all. "In some ways, America's student-debt crisis is a lot simpler than all that." I don't know, maybe that's not any better: and maybe by criticizing the author I've become the thing I set out to...criticize. Whatever.
zomg 8y ago
At it's core, this is an economic problem. When there's an "endless" supply of money, prices go up. Combined with the newfound belief that, you must, and in fact, are entitled to go to college, "demand" goes up too. The result is students racking up needless debt when they probably shouldn't have gone to college to begin with. College is NOT the only option to build a successful career, but in America, with no degree, you're seemingly sub-par in the eyes of our backwards society. So, who wins? All these "Not-for-profit Universities" whose profit margins (non-profit, doesn't mean that aren't profit-ABLE) are probably better than many Fortune 500 companies. The solution is to dry up the source of loan money, reduce the pumped up demand for bogus degrees kids are getting and encourage young people to consider other career options. You don't need a piece of paper to be successful.
- fredgrott 8y ago
  yes BUT we have some things masking stuff: in the USA and other places colleges repeat for first two years same course in High school...Indiana and some other states now rewards HS students taking the get out of college courses tests now with free 2-year degrees to reduce student debt on 4 year degrees
- downrightmike 8y ago
  There was an article over the weekend about MIT and that 58% of their students receiving financial aid. And how the tuition has gone up over 1000% in the last 20 years. And that MIT is purposly setting the tuition so high because it enables them to be a tax exempt charity based on that 58%. Point is that it is in the school's best interest to make it unaffordable for most of the students that go there. More loan money is available, so the tuition goes up to keep it unaffordable for most of the students.
- KozmoNau7 8y ago
  Everyone has the right to education. Right now it is an artificially limited resources, which hurts future society and hampers social mobility, working in direct opposition to the promised American Dream.
equalunique 8y ago
I cannot fathom what it must be like having near $100K in college debt. I dropped out in the middle of my 3rd year from a state college that only charged $279/credit hour, and a lot of my credits were already transferred from high school. Putting people into massive amounts of debt in exchange for a shot at a prosperous future puts a lot of pressure on them to rake in the dough, which I fear is going to corrode the morality of those going into high-paying institutionalized positions. In effect you are looking at the upper-middle-classes of the economy starting out with a big incentive to stratify because everything they have worked for rides on being able to pay off those loans - a toxic praxis. On the other hand, if you are a policymaker for a nation's central bank, then this might be your strategy for ensuring your workforce produces measurable value.

76 points by elliekelly 8y ago

Infinitely scary.

The fact that people can't ever discharge their loans makes it hard to imagine it "bursting" in the way that the housing market did in 2008. The whole notion of bursting is people collectively realizing their folly and everyone scrambling as quickly as possible to make out with whatever they've got left - like a run on a bank. In this case there is no bank to run on - people will just continue to have their wages/benefits garnished to continue to repay these loans that they are forever tied to. I feel like there's not really a "burst" that can happen - just that hopefully there can be some sort of debt forgiveness program or something that will alleviate the burden of the debts.

dragonwriter 8y ago
> The fact that people can't ever discharge their loans They can, it just has a higher bar of unaffordability before it can be discharged even in bankruptcy. OTOH, the higher the ratio of student loan debt to income becomes for typical borrowers, the more likely it is that there would be a wave of discharges. Even without discharges, though, you can have an escalating problem of loans becoming worthless to those with the right to collect them; that the loan isn't legally discharged doesn't mean that the borrower isn't practically judgement-proof. > The whole notion of bursting is people collectively realizing their folly and everyone scrambling as quickly as possible to make out with whatever they've got left - like a run on a bank. No, not like a run on a bank, more like a panic sale of a marketable asset class, in this case student loan assets (or student loan asset backed securities, just like the mortgage-backed securities that went through the same thing around 2008.) OTOH, this is really only likely to be a big issue with private, non-government-backed student loans, which exist and have high per-borrower balances, but are a minority of student loan debt. On the federal side, increasing defaults mostly reduce the difference between loans and grants and probably push public policy away from generally-offered loans to more targeted (by some mix of need, individual merit, and social desirability of course of study) grants. (These also are marketed and privately collectable after the government originates them, but the government guarantee limits the risk of value crash.)
- AnimalMuppet 8y ago
  Could you explain a bit about the rules for discharges?
  - gbear605 8y ago
    I'm not an expert (or OP), but this is probably the information you're looking for: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/bankruptcy https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell... My (possibly inaccurate) summary is that they can be discharged if it would be impossible to live with a minimal standard of living while still paying off the loan.
    - godelski 8y ago
      Note that this says you can only get out if you file bankruptcy and can show that any form of repayment will cause undue hardship. More realistically you're going to get one of the other two options. > Your loan may be partially discharged, and you will still be required to repay some portion of your loan. > You may be required to repay your loan, but with different terms, such as a lower interest rate.
- nopriorarrests 8y ago
  >On the federal side, increasing defaults mostly reduce the difference between loans and grants Interesting tidbit here is that half (yes, half) of the US government's financial assets are student loans. It was discussed here previously -- https://news.ycombinator.com/item?id=16136330 https://news.ycombinator.com/item?id=16136330. Something I find very hard to comprehend, tbh.
  - acover 8y ago
    I believe this does not include most of the mortgages. For example, Fannie Mae has 3.35 trillion in assets, which dwarfs total student loans. https://en.wikipedia.org/wiki/Fannie_Mae https://en.wikipedia.org/wiki/Fannie_Mae
JumpCrisscross 8y ago
The way it would burst is through a naive political change that permits e.g. the mass (and simultaneous) discharging of debt.
- AnimalMuppet 8y ago
  Student debt, or all debt? All debt won't happen, because it will destroy a lot of assets - like pension funds. But student debt... that could happen if it became clear that much of it was uncollectable because the kids didn't have the money, and weren't ever going to have the money. We're not there, yet, but we do seem to be heading that way. Alternatively, student debt could be discharged through political means if the general public became galvanized into seeing student debt as a huge problem that is destroying many lives. Statistics won't produce that... but a very well-done movie might.
  - JumpCrisscross 8y ago
    > Student debt, or all debt? Student debt, pardon me. Allowing for limited discharge in special circumstances or general discharge in broader circumstances. The first could happen through the courts. The latter probably needs legislation.
seanmcdirmid 8y ago
My mom discharged her student loan debt by passing away. They didn’t even go after her estate for some reason. The bar is higher, but not impossibly high.
- delecti 8y ago
  They didn't go after her estate because death of the student discharges student loans, it's hardly good advice for most borrowers though.
- remote_phone 8y ago
  I would consider Death the highest possible bar there is.
  - deleted 8y ago
    [deleted]
  - imtringued 8y ago
    But it is guaranteed to happen eventually for all humans and therefore the debt is guaranteed to be discharged for every student. But I don't think most people who are struggling to repay their student loan are in their 70s so there is no risk of elderly people dying all at once and leaving the government stranded with the huge debt.

JamesBarney 8y ago

Summary of what a student loan bubble bursting would be from the article. The government would guarantee less student loans. This would be means some for profit institutions might shut down.

sys_64738 8y ago
The govt shouldn’t guarantee any student loans. My tax dollars shouldn’t be an ATM for student tuition.
- rexpop 8y ago
  I am surprised to see this comment "faded." I suppose this means you've rubbed a moderator the wrong way. Administration of this website befuddles me. At any rate, I completely agree: the wealth of the average taxpaying citizen should not be used to pay the blackmail of too-big-too-fail financial engines holding public education for ransom. Blackmailers should be arrested, tried, and sentenced to community service. Their demands should not be met.
  - AnimalMuppet 8y ago
    > I am surprised to see this comment "faded." I suppose this means you've rubbed a moderator the wrong way. Not a moderator - a reader with enough karma to be able to downvote (500 karma, IIRC).
    - rexpop 8y ago
      Thank you, this has perplexed me for a long time.
  - X-Istence 8y ago
    Meta: comments are "faded" when they get downvoted by users. That is not a moderator decision.
- elliekelly 8y ago
  > My tax dollars shouldn’t be an ATM for student tuition. In theory tuition is a great way to spend tax dollars because it creates better educated citizens who will earn more money (and pay more taxes). In practice it does seem to be more like monopoly money that props up sub-par schools and provides even worse education to those who could benefit from it the most.

ep103 8y ago

Aggregate student loan repayment should be capped as a percentage of yearly income. This should have been included as part of the same legislation that made student loans non-dischargable by bankruptcy. If you make 100k / year, and the rate is set at 10% (random number), 10k is the maximum amount you pay on your loans, regardless of the total amount you loans you have accrued. Currently, there is no downward pressure on either universities or banking institutions for tuition rates or amount of money lent in student aid, because the government guarantees repayment. As a result, tuition rises every year far faster than inflation, and banks are happy to join in the reaping of the profits. Capping repayment rates would correct both of those issues, as the ROI goes down significantly over a certain total amount lent, if indeed the sum total can be repaid within a lifetime. This would additionally ensure that while student loans are available to all students, all parties involved (student, bank, university) have an interest in ensuring the student will be able to pay back the loans, as opposed to now, where two parties have an interest in loaning as much as possible, and one child has conflicting interests. This would additionally force some accountability on universities for their programs. For-Profit institutions, which currently largely exist to gather tuition money while providing no real educational value would suddenly become unprofitable, and collapse. Simply put: if your graduating students make little money after graduation, their rate of repayment will be significantly smaller than an institution that provides actionable skills. Similarly, this would incentivize universities to ensure that all of their students are pursuing reasonable / coherent career paths. Currently, universities have the dual incentives to ensure that their students that go on to significant success and high paying industries do so (alumni donations), but also to collect as much tuition/room/board etc as possible from their existing students. This change would negate impact of the this second option. This would allow students who go to expensive schools to go into lower paying professions. This would allow students with the best and most expensive education to pursue all types of jobs (for example, teaching), not just the jobs best fit to pay down their debt. This would cap how punitive the accrued debt can be to the graduating student, and resolve the original issue mentioned in the article: student debt is now so overwhelming, it is preventing a generation from entering financial adulthood. And lastly, this is just a guess and could be wrong, but I would paradoxically expect that in addition to all of the above changes, capping repayment rates would also result in lower amounts of student debt willingly taken on by students. This is for the simple reason that it is easy to rationalize "I'll be able to pay back {Insert_Any_Abstract_Dollar_Figure_Here} once I graduate and get my dream job", but everyone intrinsically would understand: "If I take out this loan, I'll be paying 10% of my income for the next 30 years"

closetCS 8y ago

I don't see this here, but could a student debt bubble result not in a wave of defaults but as a contributing factor in a market slowdown or recession because the average borrower will have less disposable income to spend on other goods and products due to the insane debt payments? A wave of defaults most likely won't hurt any major institution except the federal government, but the lack of consumer spending seems like a potential problem for our consumeristic economy.

beefalo 8y ago
I've had similar conclusions when considdering this as well. These loans are not wiped out by bankruptcy so they will be a permanent drain to personal wealth indefinitely. I think we will see lasting effects as more and more young people are unable to invest, save for retirement, and buy real estate but there won't be a sudden shock to the economy like the mortgage bubble.
- closetCS 8y ago
  I think we are seeing this drain already occuring actually. The popular news sources are all reporting that millenials are struggling to buy homes and build savings, though this may be due to low wages rather than debt servicing costs

exabrial 8y ago

Just like the housing crisis... when are we going to learn that government backed debt is a terrible thing for our nation? Creditors _should_ turn away bad lendees or cap loan limits, or increase your interest rate based on risk factors. Some exmaples of this might be: * Limiting the amount of money you can be loaned for majors that don't have good job prospects. People should turn to grants for these types of educations * Increasing your interest rate if you miss class * Increasing your interest rate for poor grade performance

rmason 8y ago
Why shouldn't it cost less for an English or a philosophy degree than an engineering degree? The job prospects are not only worse but so are your lifetime earnings. Or looking at it another way the English and philosophy majors are subsidizing the cost of an engineering degree.
- JamesBarney 8y ago
  From a cost perspective it doesn't cost that much more to educate an English major than an engineering major.
  - qihqi 8y ago
    I am not sure if that is true. English professors are paid less than Eng ones and does not require expensive lab and equipment.
    - borkt 8y ago
      In all honesty, as a Materials Engineering student at a "learn by doing school", I could easily have done without the expensive lab equipment, but not without the library. I've always thought industry should be supporting the labs and having students perform some relatively basic work for them, for a random example Scanning Electron Microscope sample prep and basic analysis Edit: not a current student and graduated 10 years ago.

csense 8y ago

I'm thinking the solution will be political, not economic. Once there are enough people in enough pain that it turns them into single-issue voters on this issue, someone will create taxpayer-funded relief. If it's a Democratic-led solution, it'll probably be in the form of massively expanded support for universities that eliminates the cost entirely, or reduces it to what one might be able to reasonably earn/save at a minimum wage job. If it's a Republican-led solution, it'll probably be in the form of creating a tax-deferred savings account for college, combined with subsidized work-study program. Both parties will probably agree to bail out degree holders who can't pay after a certain number of years. They will probably also force cost cutting reforms on schools.

rexpop 8y ago
Debt should be forgiven, not relieved. We should not reward the debtors for constructing this byzantine nightmare.
535188B17C93743 8y ago
Isn't a 529 what you're describing?

motohagiography 8y ago

If the loans are guaranteed by the government and people can't discharge them, then there is almost zero risk to the creditor. How do they justify charging interest higher than a government bond? I can see why there are rumblings of loan forgiveness, as it has metastasized into something truly horrible. https://en.wikipedia.org/wiki/Debt_bondage#Definition https://en.wikipedia.org/wiki/Debt_bondage#Definition

smolder 8y ago
I think that profitability at all levels is the core of the issue with crazy student loan debt. Why do guidance counselors steer kids toward expensive schools they can only afford through huge impractical loans? Why do overpriced schools exist in the first place? I suspect because some institutions getting rich off loan interest use their influence to encourage this. Mass exploitation of a population is best done when you can advise them to act in your best interest while convincing them its in their own, and that's best done from a position of authority. If the health of society was a primary concern then the conflicting profit motive would have been legislated out of existence, so we could maximize the benefits of an educated population for the least cost.

nixpulvis 8y ago

I strongly believe that lower cost vocational education with group housing for 18-23 year olds is part of a solution to this problem. You don't need the full college experience, but as the article mentions, getting away from home is a part of it for most.

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rglovejoy 8y ago
> I strongly believe that lower cost vocational education with group housing for 18-23 year olds is part of a solution to this problem. In other words, the Army.
- nixpulvis 8y ago
  Well...
- smolder 8y ago
  I don't think a bigger military is what the US needs, unless we were simultaneously shrinking the private sector money fire that the DoD provides fuel for. On an individual level, freedom-impeding loan debt is still less of a personal cost than what army recruits pay.
Aromasin 8y ago
Years back, most public services in the UK provided this exact thing. Junior nurses, service personnel, police constables and the like all lived in what was effectively a small dormitory, akin to university halls but much cheaper. It worked well and allowed them to save money to buy their own properties, while being relatively cost effective. It also made becoming a public worker a reasonably desirable profession; providing them essentially free housing, a decent pension, and a good sense of community that comes from living with colleagues and friends. As funding was cut to public services over the years, the housing was sold off to private buyers and replaced with grant schemes. Unfortunately the grants have not increased at the rate of rent and housing, leaving many junior public workers worse off. It is in my opinion potentially contributing to a public worker shortage at the very least [1]. The armed forces kept much of their housing due to their bigger budget, but less group housing has meant worse economies of scale, and many of these buildings have become horribly dilapidated, lacking basic amenities [2]. [1] https://fullfact.org/health/are-we-short-40000-nurses/ https://fullfact.org/health/are-we-short-40000-nurses/ [2] https://www.bbc.co.uk/news/uk-43135967 https://www.bbc.co.uk/news/uk-43135967

iambateman 8y ago

While we may not see a big burst, it’s possible that a generation of defaulting borrowers will gain steam. As more and more people justify and publicize non-payment, it may become politically untenable to collect on those loans. Imagine a collective movement of 9,000,000 all ceasing to pay their student loans at once. If I thought all my friends weren’t planning on repaying, I would be quick to join them. Is the government really going to dig thousands of dollars from the bank accounts of millions of people at once?

konaraddio 8y ago

> Meanwhile, some people are more than happy to spend $100,000 on a graphic design degree that may get them a job paying roughly $40,000 a year > A lot of that has to do with what Goldfarb likes to call the narrative—one that convinced kids that the only route to middle-class respectability was to get a college degree and that suggested failing to do so meant having failed at the American dream of upward mobility. To keep using the economist's terms, I would also say that 18-year-old high school seniors definitely qualify as "novice investors." Their philosophy can be summarized by Colin Hanks in the 2002 movie Orange County. When asked why he's so obsessed with getting into Stanford University and college more generally, he snaps back, "Because that's what you do after high school!" Too often I see articles about student debt make a comment about how students have been tricked or misled into pursuing a degree. Why does no one talk about the alternative? Let's talk about the alternative: You don't get a degree and now you're resume gets automatically thrown out of most applications. Only a small fraction of those without degrees manage to get well-paying jobs; they're the outliers. Albeit unrelated to employment rate, look at the salary differences: https://www.bls.gov/careeroutlook/2018/data-on-display/education-pays.htm https://www.bls.gov/careeroutlook/2018/data-on-display/educa... Some might say it's worth making $X/yr and debt-free than making $Y/yr with $Z debt but this only holds true when Y > (P*Z + X) where P is the percentage of the total initial debt being paid off per year (e.g. P = 0.2 if you're paying $10k/yr to get rid of a $50k debt). And these values are hard to predict.

woolvalley 8y ago
If the only reason why your buying a degree is get past an automated resume filter, and they are all the same otherwise, then for god sakes, don't buy the porsche, buy the used toyota!
- AstralStorm 8y ago
  Except the filters look at the brand.
cddotdotslash 8y ago
> Let's talk about the alternative: You don't get a degree and now you're resume gets automatically thrown out of most applications. The decision to get a degree is not a binary one. It's possible to get a degree in a higher-paying field. Or, go to a community college for 2 years and then transfer. Or pick a state school over a $60k/yr private school. Or choose your second choice school that offers more scholarships. I think some of the blame rests on our guidance counselors and parents who often do little to make the connection between degrees, debt, and post-graduate earnings obvious to students. Too often the question we pose to high school juniors is "what do you like to do the most?" rather than "is there an intersection between something you like to do and opportunities for a degree-holder in that field after graduation?"

heyjudy 8y ago

I have $9k in student loans that bankruptcy wouldn't set aside for a degree I can't use (nothing to do with the degree, the defect is I) and Navient, Betsy DeVos' company, can go straight to hell.

the_antipode 8y ago

Unrelated to the topic of the student debt bubble, the opening paragraph left a bad taste in my mouth: > I hated the film adaptation of The Big Short. The acting was good and it did have a surprising amount of energy for a story that centers around men in suits doing math. But I felt condescended to. Maybe director Adam McKay tested an original cut—one minus Margot Robbie—and realized a good amount of the audience couldn't follow the plot without having a sexy lady in a bathtub break the fourth wall to explain subprime mortgages and the financial crisis. Sounds awfully pompous, like it came from r/iamverysmart. Much of the impetus behind The Big Short certainly was to break down the 2008 financial crisis to those that aren't economics/finance wonks, or for whom a narrative holds more weight than a several-hundred page non-fiction book about it. It's not that I want journalists to coddle their audience, I just think it's a bad look to completely dump on other creators to inflate one's ego while trying to make a point. How about this, which still includes a bit of criticism of the director (but milder): "While the film adaptation of The Big Short had good acting and a surprising amount of energy for a story that centers around men in suits doing math, it wasn't exactly my cup of tea. Perhaps it's because I felt Adam McKay didn't trust his audience quite enough to understand the ins-and-outs of complex subprime mortgages and the financial crisis, instead falling back on gimmicks like having Margot Robbie in a bathtub break the fourth wall to explain it all. "In some ways, America's student-debt crisis is a lot simpler than all that." I don't know, maybe that's not any better: and maybe by criticizing the author I've become the thing I set out to...criticize. Whatever.

zomg 8y ago

At it's core, this is an economic problem. When there's an "endless" supply of money, prices go up. Combined with the newfound belief that, you must, and in fact, are entitled to go to college, "demand" goes up too. The result is students racking up needless debt when they probably shouldn't have gone to college to begin with. College is NOT the only option to build a successful career, but in America, with no degree, you're seemingly sub-par in the eyes of our backwards society. So, who wins? All these "Not-for-profit Universities" whose profit margins (non-profit, doesn't mean that aren't profit-ABLE) are probably better than many Fortune 500 companies. The solution is to dry up the source of loan money, reduce the pumped up demand for bogus degrees kids are getting and encourage young people to consider other career options. You don't need a piece of paper to be successful.

fredgrott 8y ago
yes BUT we have some things masking stuff: in the USA and other places colleges repeat for first two years same course in High school...Indiana and some other states now rewards HS students taking the get out of college courses tests now with free 2-year degrees to reduce student debt on 4 year degrees
downrightmike 8y ago
There was an article over the weekend about MIT and that 58% of their students receiving financial aid. And how the tuition has gone up over 1000% in the last 20 years. And that MIT is purposly setting the tuition so high because it enables them to be a tax exempt charity based on that 58%. Point is that it is in the school's best interest to make it unaffordable for most of the students that go there. More loan money is available, so the tuition goes up to keep it unaffordable for most of the students.
KozmoNau7 8y ago
Everyone has the right to education. Right now it is an artificially limited resources, which hurts future society and hampers social mobility, working in direct opposition to the promised American Dream.

equalunique 8y ago

I cannot fathom what it must be like having near $100K in college debt. I dropped out in the middle of my 3rd year from a state college that only charged $279/credit hour, and a lot of my credits were already transferred from high school. Putting people into massive amounts of debt in exchange for a shot at a prosperous future puts a lot of pressure on them to rake in the dough, which I fear is going to corrode the morality of those going into high-paying institutionalized positions. In effect you are looking at the upper-middle-classes of the economy starting out with a big incentive to stratify because everything they have worked for rides on being able to pay off those loans - a toxic praxis. On the other hand, if you are a policymaker for a nation's central bank, then this might be your strategy for ensuring your workforce produces measurable value.