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Student Loans a Lot Like the Subprime Mortgage Debacle, Watchdog Says
- ahnick 7y agoLet's say that one thinks eventually a large percentage of for profit private colleges will have to close their doors. (think small ones that no one has ever heard of, not your Ivy's) What's the analog to The Big Short here?
- arthurcolle 7y agoThere are asset-backed securities called SLABS (student loan ABS) that I guess you could make some kind of credit swap out of if that's what you're into. Probably super expensive to construct such an instrument since it like isn't a super liquid market.
- wtvanhest 7y agoThat is one route, or I think the better route may be cds on revenue bonds for public or private schools. Should be cheaper cds, but just as damaged as the crisis rolls through
- arthurcolle 7y agoMind explaining this strategy a little bit more? I'm not really up to speed on any other fixed-income instruments outside mortgages.
- lainga 7y agoNot if you bet on the double-A tranches. Nobody will think to do that, not even Michael Burry.
- deepnotderp 7y agoAsset backed securities
- listenallyall 7y agowhy not just short their stock? a bunch are publicly-traded, DeVry, Strayer, Grand Canyon...
- ethagknight 7y agoExcept in the subprime debacle, millions of people could declare bankruptcy and walk away. With student loans. The debtors are simply screwed with no recourse. That’s a big difference.
- chiefalchemist 7y agoSilly question: is there any legal way to default on a student loan? Can that be exploited? En mass? Perhaps?
- tehjoker 7y agoHere's the thing... when you do it en mass, it doesn't matter if it's illegal because nobody can do anything to stop you. It's called a strike. Apparently the people that started http://rollingjubilee.org/ http://rollingjubilee.org/ were originally working on a student debt strike project. Not sure exactly why they switched to a medical debt project, but it's certainly a worthy one.
- jrs235 7y ago>Not sure exactly why they switched to a medical debt project My assumption is that the government and lenders of government guaranteed loans aren't selling the delinquent accounts for pennies on the dollar.
- tehjoker 7y agoI only mentioned them because I was googling for student debt strike projects and I'd heard of them before. The jubilee project is a form of mutual aid and less a strike. The point of a strike is to build power for the striking class so that the creditor class is forced to make significant concessions up to and including relieving all of it. To be clear, this would mean huge numbers of people simply stop paying in a coordinated and public fashion.
- jrs235 7y ago
- duelingjello 7y ago$1,654,255,000,000 USD and counting ($38k/student) [0] There are US citizens with over a million dollars in debt. [1] This is crazy. Other countries invest in people, sometimes including non-citizens. 0. https://usdebtclock.org https://usdebtclock.org 1. https://www.marketwatch.com/story/he-ran-up-a-million-dollars-in-student-loan-debt-en-route-to-becoming-an-orthodontist-2018-05-25 https://www.marketwatch.com/story/he-ran-up-a-million-dollar...
- notadoc 7y agoLifetimes of debt service is a lenders dream
- McTossOut 7y agoSo, assume colleges overcharged. Maybe they overestimated the value of those new facilities. Lenders are just lenders, they shouldn't have to take it in the shorts, whatever universities are churning out underemployed workers seem like the issue here. The market for universities facing students sucks too. It's like getting a bunch of blind bids, and they're probably not "educated" enough to build that spreadsheet, plan 5 years out, and realistically guess that they'll be gainfully employed enough to cover the payments at the end of the tunnel. There's a market issue, and there's a hundred things students can do fuck-all to fix.
- aasasd 7y ago> Student Loans a Lot Well, bad for student. ¯\_(ツ)_/¯ I keep being baffled by continued use of the newspaper title style on the English-language web—but at least it's a steady source of entertainment.
- pilsetnieks 7y agoWell, for one, it's a news organization so newspaper style is somewhat acceptable for them, and second, as for your particular example, while it does read a bit like a garden path sentence, it's a completely valid compound noun.
- planetzero 7y agoWe need to get rid of student loans. The problem is that Universities don't ever need to worry about a student defaulting and can keep increasing the prices of tuition with impunity. If they default, they don't care, because the money is already in the bank. If universities had to worry about students defaulting, they would get rid of bullshit degrees that don't result in an actual job and the prices would come done due to free market forces.
- McTossOut 7y agoUniversities need to be well rounded because students don't know what they're doing. Interests and motivation wax and wane during formative years. And ultimately degree plans stick due to publishing and research grants. (unless you're at a technical school in sheep's clothing)
- vishalzone2002 7y agoThis is a good idea. Even if there is shaming by ranking universities with most to least number of student loan defaulters or alumni loans will be a good start here.
- planetzero 7y agoNot just shaming. They should be the ones actually loaning the money out to students.
- azhenley 7y agoSome universities have started doing income share agreements. They front the tuition cost for a portion of your future income. Depending on your degree program, they will take X percentage for Y years. Purdue was in the news for being one of the first: https://www.purdue.edu/dfa/types-of-aid/income-share-agreement/index.html https://www.purdue.edu/dfa/types-of-aid/income-share-agreeme... Planet Money had a nice podcast about how they work: https://www.npr.org/sections/money/2019/03/29/708152566/episode-903-a-new-way-to-pay-for-college https://www.npr.org/sections/money/2019/03/29/708152566/epis...
- 7y ago
- psaux 7y agoMy wife and I lived a very simple lifestyle for years (7ish) after college so we could pay off student loan debt. Awesome Ford Tempo car, local honeymoon, Studio apt for first 5 years, limited eating out. She has a masters (more loans), and is a teacher. So that made it even tighter. Is there any data on if folks with student loans are living above their means? I.e new TV’s, new car lease, vacations, ordering out. I am serious when I ask, as I read a ton, and can’t get to the root. I hear many different anecdotes. This is a serious problem, and I am truly out of sync on the main causes of payback ailment.
- jrs235 7y agoA lot of people got loans for degrees that don't pay. Or went a few years then dropped out. I went to a college known for its recreation management program. Cool industry. Not a lot of good paying jobs. I know a few universities with amazing turf programs... Only so many golf courses and turf fields that need someone with that kind of knowledge and that pay well. Most jobs in turf are mowing and applying chemicals that only one person on staff needs a big degree to ensure proper maintenance.
- psaux 7y agoI have read that, thank you for posting. Schools are good at selling the vision for sure. Sister did photography, and is amazing at it. Just doesn’t pay the bills. In that context, we do need future poets and artists, and I am sure their jobs will not cover their loans, major loss.
- zdragnar 7y ago> we do need future poets and artists, and I am sure their jobs will not cover their loans, major loss Do poets and artists need four+ year degrees, or degrees at all? Everything I've heard from friends who have gone to various programs have said that they actually really make it harder to be a good artist- whether from undermining your individual muse to cramping your style, or simply putting your mind in the box of what is "good" art. For that matter, does society need full-time artists and poets who have not yet proven their abilities to the point where they can sustain themselves at a level they are comfortable living with? Maybe, maybe not. There are jobs related to art (say, visual design or writing copy) that can be done on full or even limited part time basis.
- undefined3840 7y agoThe problem is compounded by the fact that students do not get to choose who their loan servicer is and thus a few servicers like Navient have a government approved monopoly on that business. Can look up many reports on their incompetence and misleading information that funnels students into repayment plans that maximize their own revenue.
- vonmoltke 7y agoAs far as I know Navient is the servicer for Federal loans. Who else is there since the change to DOE-only government loans?
- cableshaft 7y agoMine ended up getting shuffled around until it became Mohela. Once there it's stayed there. Wikipedia: "The Higher Education Loan Authority of the State of Missouri, aka the Missouri Higher Education Loan Authority or MOHELA, is one of the largest holders and servicers of student loans nationwide."
- rayiner 7y agoAll this talk about student loan forgiveness is an unnecessary solution to a problem that’s not really that bad: https://www.nytimes.com/2018/04/02/upshot/an-international-final-four-which-country-handles-student-debt-best.html https://www.nytimes.com/2018/04/02/upshot/an-international-f... Average BA holders in the US graduate with $28,000 in debt, versus $21,000 in Sweden. The Swedish system is basically like our income-based-repayment, which we have had since the 1980s. Except, as you’d expect with Sweden, there is less paperwork and fewer gotchas. Simply tweaking the PAY-E system Obama created, to add automatic enrollment and automatic annual income verification based on tax returns, would get us a system that has proven workable in Europe. All without trillion dollar loan forgiveness or radical changes. (And with, in my opinion, a fairer system of redistribution, where those who needed loans and got high paying jobs subsidizing those who needed loans but didn’t get high paying jobs.) (And simply tweaking ACA would get us pretty close to the Dutch model of health insurance. But that doesn’t get headlines.)
- diogenescynic 7y agoWhy was it necessary to change student loans to being non-dischargeable in bankruptcy? That is a recent change and it shifts the burden from banks having to evaluate the loans they are making which would likely mean fewer loans and thus less money earned from interest. It seems like student loans should be treated like any other unsecured loan. And really student loans shouldn’t even be necessary for public universities but that’s another point.
- Clubber 7y ago>Why was it necessary to change student loans to being non-dischargeable in bankruptcy? I believe it was something along the lines of people borrowing for law degrees then discharging the debt right after graduation with the knowledge gained from their new degree. I'm sure it was done in other degrees as well.
- dillonmckay 7y agoSo, nothing to do with undergraduate degrees?
- rotrux 7y agoPeople have been talking about this for at least a decade & I wonder when the shoe will actually drop.
- Guest42 7y agoI think it will once the media declares it more of an emergency. It seems that the magnitude and exponential nature of the growth is forgotten and that soon enough it will reduce the demand on many products and services.
- WizardAustralis 7y agoI forgot who said it but "bubbles grow far bigger than is rationally thought possible, and fall far faster than anyone expects". These bubble can go on for decades but once it bursts, the bottom of the bucket drops out and all the water goes with it.
- h5er4ah45eaq 7y agoProbably should be that the pop fast, not fall fast. In real life bubbles fall quite slowly.
- brewdad 7y agoWith my luck, in about 5.5 years when my kid is done with his bachelor's degree. Free college for all coming in Fall 2025!
- frockington1 7y agoHighly doubt that will ever happen. Imagine trying to sell the idea to non-college educated, parents who have paid for college, or former-students who have paid off loans. It might get a few cheers at a primary rally but I highly doubt it would ever gain enough traction to get through the house and the senate
- tengbretson 7y agoWhat would happen if we forced universities cosign the loans that their students take on?
- anfilt 7y agoBiggest problem it's almost impossible to discharge student loans in bankruptcy.
- sintaxi 7y agoThe reason for this is simple, a lender cannot repossess someones education to mitigate the damage.
- lotsofpulp 7y agoThe reason is because politicians wanted to advertise that they “help” students while also telling taxpayers they can have lower taxes. There was no other reason the government needed to get involved in student loans. So instead of paying for education directly and accounting for it as an expense, the politicians can claim they helped, taxpayers can feel like they helped and save money, and future generations get shafted.
- iamkroot 7y agoIf you could discharge student loans via bankruptcy nobody would get a loan. No financial institution is going to hand out 5 figure loans to a teenager with no credit history, no job, and no marketable skills.
- triceratops 7y agoAnd college might start costing something reasonable.
- magnusss 7y agoIt seems like the majority of the commenters here are missing the point. The increasing rate of student loan default is not a result of kids who go to a four year college, graduate with an unmarketable degree in philosophy, fall on hard times and then can’t pay their bills. It's kids who go to barber or cosmetology school, take on $30k of debt, then realize they don't make enough money cutting hair to support themselves, much less pay back a loan. There's a huge population of people like that. Source: https://www.ed.gov/news/press-releases/us-department-education-releases-national-student-loan-fy-2014-cohort-default-rate https://www.ed.gov/news/press-releases/us-department-educati...
- Shivetya 7y agowelcome to the rent seeking effects of occupational licensing, where you have to put more hours to do hair than be an EMT in some areas. either to pad the pockets of those providing the "education" or those in the industry looking to keep competition low. I would love to see how many of these loans go towards low wage jobs all because licensing issues force people into this racket
- bobcostas55 7y agoThere is also a huge number of people who don't graduate at all.
- rumanator 7y agoAt which point do US student loans start to resemble indentured servitude?
- the6threplicant 7y ago10 years ago?
- maneesh 7y agoAt least indentured servants only had a 7 year time span before payback was complete. Kids are getting lifetime loans these days.
- Shivetya 7y agoso in other words, when the government steps in and interferes with the loan market it just balloons costs and lacks the oversight it should have; because it was a quasi government agency which caused a big portion of the mess in the mortgage industry one with many connections to members of Congress
- LockAndLol 7y agoI cannot gather whether you are pro or contra regulation from this comment since regulation is stepping in and interfering...
- LockAndLol 7y agoThat's just ridiculous! Voting is for suckas! Ha ha, I got my weed and my iphone, who gives a fuck about politics??? /s
- rankingreborn 7y agoMost student loan is given to Women. So only way to solve this issue today is to forgive it.
- golergka 7y agoAs a non-american, what makes me curious is why do black students borrow twice as much money as other groups. Do they choose more expensive degrees?
- pgcj_poster 7y agoBlack Americans are poorer than most other groups, and I suspect that they're less likely to get parental support paying for college.
- zrail 7y agoLet’s be very clear: Black Americans are poorer because of racist policies that kept them out of the huge post-WWII governmental benefit programs. Things like the GI bill and veteran home loans, and homeownership in general were white-only for many years, allowing that group to build generational wealth that continues to this day.
- deleted 7y ago[deleted]
- TrumpSucks 7y agoLol.
- auiya 7y agoSource: https://en.wikipedia.org/wiki/Redlining https://en.wikipedia.org/wiki/Redlining
- empath75 7y agoThey have less money to start with.
- niceworkbuddy 7y agoYet is not like. When you default your mortgage, bank can get you rid of property. However what you have learned, you still have it in your head (at least in some way).
- WomanCanCode 7y agoStudent loans program should continue for highly sought out program like medical, dentistry, computer science and others. But there are degree like physics, history and general education that doesn't have great employability. The university here will take all the money they can because at the end of the day this is just business for them. Students sometimes will take the easiest course because they can
- iso947 7y agoIn the US, school is free from Kindergarten to grade 12. Why isn’t college free?
- iamkroot 7y agoIt's not free, it's subsidized by the government. An important distinction.
- dev-ns8 7y agoIs anything in this economic system "free" ?
- grecy 7y agoBecause the US is a for-profit society, not one focused on improving the lives of citizens. Companies are making billions on health insurance, education, etc. It won't change because they want to hold onto their profits.
- overcast 7y agoSchool taxes on property pay for K-12, whether you have a child or not. I'm not ready to pay many multiples of that to send everyone to college for "free" for the rest of my life.
- xyst 7y agoglad I realized that I needed to refinance my variable interest rate loans into a single fixed loan at ~2% APR after graduating. I think I would have been screwed in this current climate. IIRC, I received those loans at an advertised “teaser” rate of 1-2% APR, but since they were variable the percentage tended to increase over the years - 5-6% APR before refinancing.
- corporate_shi11 7y agoTime to eliminate government funded student loans. Most of the kids going to college now shouldn't even be there in the first place. I was doing volunteer work a few years back, speaking to some kids from the local community. One said he was going to a 4 year college, probably paid for by the government given the circumstances. Said he wanted to study "coaching". And our tax dollars are paying for this...
- AsyncAwait 7y agoThis is the reactionary right-wing Twitter take, but for every coach, there's computer science, engineering & biology students suffering under massive, unforgivable debt. Yes, student loans need to go, but not so that people don't go to college. That should be free for undergraduates in today's economy, where you need high level ed. for what used to be done by people who barely finished high-school 30 years back.
- aiphex 7y agoI think university education also makes more intelligent, socially and self aware members of society. Even if it doesn't directly lead to a career in a chosen field, it produces better people who hopefully make better employees.
- dwnvoted2hell 7y agoI don't think spending 150k on a degree makes you more intelligent. What makes you intelligent is the desire to further yourself in the first place. The ability to minimize the investment to get to maximum profitability is a sign of intelligence. “You wasted $150,000 on an education you coulda got for $1.50 in late fees at the public library.”
- malvosenior 7y agoThis is definitely not the case in 2019. Almost everyone has a degree and a lot of people demonstrate almost no ability to think for themselves.
- 7y ago
- BlueTemplar 7y agoI've seen people saying this for years - hopefully it's not the first time that NPR reports on this?
- vxxzy 7y agoThe value of secondary education has been diluted by the massive pool of "paper" floating around. There is quite the oversupply of "educated" (papered) individuals. The value of a secondary education has been diminished because of this oversupply. We've seen it in the tech scene: A good bit of companies equally value experience vs education (and some value experience more!) - and why not, the goal is to leverage labor for profit - in the case of tech; to create more utility. Unfortunately, we've done a disservice to ourselves: Instead of teaching others how to think, we've taught them what to think. Most graduates coming out of the ivory tower of education lack the ability to bootstrap their own intellectual development. Historically, universities served a purpose: the higher-level of information and application could only be consumed through them (gatekeepers). We are in a new era of information. Information is abundant. We'd be better off as a society if we focused on the "how to think" than the "what to think".
- deleted 7y ago[deleted]
- auiya 7y agoI think the student lending fiasco will be far worse than the sub-prime lending crisis. Although the amount of liquid assets and equity in the sub-prime lending debacle was an order of magnitude larger than the student loan crisis, the outcome for the student loan crisis isn't quite so clear yet. Allow me to paint a scenario... There is a significant difference between the two lending fiascos, but mostly in how the fallout will look. Both the mortgage crisis and the student loan crisis started out as government programs meant to incentivize borrowing. They succeeded, mortgage debt rose 12%/yr in the years leading to the crisis, student loan deb at 11%/yr. Student loan debt now outpaces credit card and auto debt, and is 2nd only to mortgage debt. An increase in easy borrowing lead to higher prices in both cases, in the 10 years leading up to the housing recession, home prices went up 80%. In the last 10 years tuition prices have risen by also 80%. Not a problem if the value of the home or degree continues to rise, but labor income for college grads hasn't grown in 60 years. At all. In fact, if you adjust for inflation there has even been a slight decrease since 1960. Currently 30% of student lending ends up in default, but this number is also growing quickly and projections show this number at 40% by 2025. Sub-prime defaults were around 11% at its peak, so the rates of default for student lending are WAY worse than those of sub-prime mortgage lending, even though the total debt is significantly less. The big problem w/ sub-prime lending was the inability to pay them back (obviously), and same is happening with student loans - due to a lack of underwriting. You can't exactly repossess a degree, and even if you could the value on the 2nd hand market would be null. Filing bankruptcy would make mortgage lending debts go away, but that isn't the case with student loans, which will remain in perpetuity. True, overall mortgage debt was about 10x what student loan debt is at its peak, but there haven't been large derivatives markets set up to eat it like what happened with the mortgage collapse. Since the student lending default overage is going to be WAY more than what the US Government will be able to recoup from Social Security checks or income tax refunds, the person who will ultimately foot the bill for this lending crisis will not be insured banks; it will be you, the taxpayer, and ultimate the economy writ-large. Unless payroll wages somehow magically jump high enough to cover the stagnation we've experienced since the 1960's - unlikely without intervention. It won't be easy for our economy to recover from this downturn either because the issues will be cultural and systemic. The course-corrective measures would be lenders locking out lower-income families from colleges, which prevents economic mobility and leads to a faster collapse of our middle class. Colleges will maybe drop tuition rates slightly but tuition is largely sticky, unlike housing prices. This may even lead to some colleges going out of business. Loans will likely start to be under-written appropriately, but this means degrees will be prioritized based on earnings potential, which means only a narrow field of study (medical, lawyers, tech, etc) will be eligible for lending. Schools may even price degrees differently, meaning schools will likely trend towards degree programs with the largest earnings potential, to the detriment of many other crucial fields of study. Ultimately college will become an institution to perpetuate a narrow focus of study, and only to those already in positions of wealth - which will further hasten the collapse of our middle class. The student lending crisis is already having far-reaching economic slowdown implications, from decreased home ownership, higher rental rates, to lower purchasing of goods/services overall; with no clear indication of how to easily course-correct. Not to mention a worsening of cultural and systemic issues already in place. We may not be smart enough to even realize what hit us until it does.
- ladyattis 7y agoI won't lie, I have six figure student loan debt. It was all my own stupid making but what I think it's worrying is how fast people are willing to defend the loan system as is for education as employers continue to inflate requirements and certification processes when often such work can be learned on the job (programming IMO should be a trade school equivalent job and not something you go to university for unless it's for something related to pure science or an engineering discipline). So I expect the whole loan crisis to come to a head come the next recession. For me, I'm not so sure I'll be able to climb out of the hole I made for myself but I just wish politicians at minimum would prevent others from digging their own for the future.
- Nursie 7y ago> (programming IMO should be a trade school equivalent job and not something you go to university for unless it's for something related to pure science or an engineering discipline). I learned way more in my degree about software principles and about theory than I could in years on the job. Computer Science degrees may not prepare people directly for software development in the workplace, but they do lead you to a greater understanding of what's around and underneath you that you're just not going to get commercially coding. I'm not saying everyone has to do it, but I am going to say it helped me tremendously to be a better creator of software. (--edit-- I'm also going to say that I was part of the last year of students that didn't have to pay for their degree's at all in England, I appreciate the value proposition is different when you have to take on debt to do the course.)
- deleted 7y ago[deleted]