Pop Goes the Student Loan Bubble

Zero Hedge has some lovely scary charts showing a remarkably sharp uptick in student loan delinquencies. The bubble has officially burst:

As noted over at Reason 24/7 today, Market Watch has some additional reporting:

New data released today shows 11% of student loans were 90 days or more past due in the third quarter, up from 8.9% in the previous quarter and 8.8% a year prior, according to the Federal Reserve Bank of New York. It’s also the highest since at least 2003, when the bank first started tracking student loan delinquencies. “It’s a red flag and a warning sign that more Americans are struggling to repay their student loans — things are bad, really bad, and getting worse,” says Rich Williams, higher-education advocate at the U.S. Public Interest Research Group, a nonprofit based in Washington.

The latest data comes at a time when delinquencies on many other consumer debts, including credit cards and mortgages, are dropping. Overall, delinquency rates on outstanding consumer debt fell to 8.9% in the third quarter, from 10% a year prior, according to the FRBNY.

Zero Hedge warned in September that the student loan bubble had already burst. Now we’re seeing the fallout.

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  • $park¥||

    That chart kinda looks like a hockey stick. I guess chart people really like hockey.

  • Certified Public Asskicker||

    What's hockey?

  • BakedPenguin||

  • Zombie Jimbo||

  • Certified Public Asskicker||

    Thanks for the reminder!

  • BakedPenguin||

    You win.

  • Drake||

    Unexpected!

  • WTF||

    You mean going $80,000 into debt for a degree in theater arts is a bad idea? Only one solution:
    Government bailout!

  • anon||

    There's a degree for theater arts?

    What the fuck?

  • Zeb||

    You are actually surprised at this?

  • anon||

    Yes, but I shouldn't be, when I know you can get a degree in "Women's studies," whatever the fuck that is.

  • SugarFree||

    Puppetry. Master's Degrees in Puppetry exist.

  • nicole||

    But what about puppetry of the penis?

  • SugarFree||

    That's more of journeyman program. Warty is taking on interns for the spring, I hear.

  • Drake||

    It might be worth it if "Women's studies" didn't mean the opposite of what I wish it meant.

  • robc||

    We know what this means. Bailouts!

    Those of us who paid for college/houses and/or only took reasonable debt/mortgages get screwed again.

  • anon||

    Sigh. If only I had taken out loans to go to college instead of working my way through...

    The life of a moocher must be nice.

  • Carston||

    No shit, if we are going to get bailed out, why am I paying half my income paying back these loans?

  • some guy||

    The life of a moocher must be nice.

    Only if you have no shame. Do you want to have no shame?

  • db||

    At least most of us are still lubed up from the last screwing, so we don't have to incur that expense.

  • anon||

    Which last screwing?

    I thought whoever was fucking me was still in my ass.

  • Ptah-Hotep||

    You got lube? You must be one of the 1%'ers.

  • db||

    Blood.

  • CampingInYourPark||

    When campaigns promise debt relief...why would someone keep paying a debt?

  • some guy||

    I'm sure they'll attach some bullshit "penalty" for accepting the bailout.

    "Any person receiving a student loan debt reduction shall not, for a period of 3 years, be eligible to receive a student loan under any federal programs."

    Problem solved, right?

  • Brett L||

    At this point, the only way I'm getting right on my house in the next 10 years is complete forgiveness of all student loans. I own a starter house in a neighborhood away from the university in a college town. The value of my house would increase 25% the second adjuncts' student loans are forgiven.

    SLD, this is the least worst fix, if and only if the Feds also refuse to guarantee loans in the future. One time writeoff, institution pays 15% of outstanding loans garnered by students while attending, Feds pay 50%, banks take a 35% haircut.

  • ||

    One time writeoff, institution pays 15% of outstanding loans garnered by students while attending, Feds pay 50%, banks take a 35% haircut.

    The government needs to do all of that just so you can get your head above water on your mortgage? I am sure there is no way that the federal government or the banks will pass their losses on to the productive is there?

  • Brett L||

    They already are. I'm trying to find an end game. If we're gonna get fucked, I wanna be fucked in a way that helps me, too.

    Also, ideally, it would send interest rates up away from Japanese lost decade levels to something realistically sustainable. 4-8% at the discount window.

  • mad libertarian guy||

    Those of us who paid for college/houses and/or only took reasonable debt/mortgages get screwed again.

    This.

    Getting fucked by doing things the right way is getting old. At what point do we say, "Fuck you! Pay for your own shit!"

  • db||

    It was totally a good idea for government to subsidize unemployed people to get degrees that would be completed before all reasonable projections showed we would exit a major economic downturn.

  • db||

    Are these delinquincies counting the unemployment grace period for subsidized student loans?

  • The Derider||

    The market watch link says they are not counted as delinquent.

  • The Derider||

    You can't default on a federal student loan, so it's not like Lehman Brothers is gonna go bankrupt due to overleveraging on CDOs.

  • CampingInYourPark||

    And contrary to popular opinion, you CAN squeeze blood out of a turnip!

  • The Derider||

    Is it going to be hard to collect on this debt? Yes.

    Will this lead to a financial collapse like the sub-prime bubble? Probably not.

  • Red Rocks Rockin||

    Yeah, I'm sure a lot of people thought the same thing about the housing bubble, too.

  • The Derider||

    There are important differences between the sub-prime housing bubble and this one.

  • BakedPenguin||

    Yes, this benefits people who get degrees in Urban Planning.

  • The Derider||

    More like Lehman Brothers isn't overleveraged in sub-prime educational loan derivatives.

  • Restoras||

    What's Lehman Brothers?

  • The Derider||

    The kindling that started the last fire.

  • ||

    LOL, you have no idea when that fire started if you think Lehman was the kindling.

  • The Derider||

    Maybe a fire metaphor was too simple. You 'd need a rube goldberg firemaking engine to describe every nuance of that clusterfuck.

    But Lehman's bankruptcy was a point of no return.

  • Red Rocks Rockin||

    There are important differences between the sub-prime housing bubble and this one.

    It's been the only major factor in the rise of non-revolving credit the last four years, so you're definitions are meaningless.

  • thom||

    At least the sub-prime housing bubble was backed by some real assets?

  • ||

    So, because you can't legally default, the banks never have to write off the debt. Brilliant!

    That way, they can keep counting those debts at face value, and keep pretending that they represent actual assets!

    What could go wrong?!?

  • The Derider||

    The loans go into collection. Wages are garnished.

  • Restoras||

    Wages are garnished? Wages from what?

  • The Derider||

    Not everyone in default is unemployed.

    Of those that are, most will not be permanently unemployed.

    And finally, the government will garnish tax refunds as well, so transfer payments like the Earned Income Tax Credit go towards paying the loan.

  • some guy||

    It goes even farther. They can garnish your social security receipts to cover unpaid student loans. These loans can literally follow you to your grave.

  • Adam330||

    The debts owed to the banks are largely guaranteed by the federal government, so the banks won't have to write them off. All student loans since 2009 have been directly from the Dept of Ed, so no bank involved at all.

  • sarcasmic||

    I had a roommate who had managed to get her student loans discharged in a nasty divorce/bankruptcy.

    Though her credit was forever fucked and she was not eligible for any government benefit of any kind.

    She was a total dipshit, by the way. You two would have gotten along very well.

  • sarcasmic||

    That was like fifteen years ago when I knew her, and the discharge was obviously before that. I'm sure the rules have changed since.

  • ||

    What's your horse's name?

  • Red Rocks Rockin||

    You can't default on a federal student loan

    Um, actually, you can, you moron.

  • The Derider||

    What I mean is you can't discharge the loan in bankruptcy. The bank can't foreclose on your degree. You can't void the contract.

  • BakedPenguin||

    So debtor's prison is okay, so long as TEAM BLUE endorses it. Fuck you, joe.

  • The Derider||

    What the fuck?

    If you default on a student loan, they garnish your wages. That's the contract.

  • db||

    If you default on a loan because you don't earn enough to pay it off, just how does garnishment solve the problem?

  • The Derider||

    I'm not suggesting it solves the whole problem. It minimizes the problem. I'm not arguing that a student loan bubble popping is a good thing, I'm arguing it isn't as bad as the sub-prime mortgage bubble.

    It's also a much better solution that debtors prison.

  • Restoras||

    Wages? What wages?

  • Red Rocks Rockin||

    What I mean is you can't discharge the loan in bankruptcy. The bank can't foreclose on your degree. You can't void the contract.

    Which still doesn't mean you can't default. Christ, even the .gov calls it what it is, not Derider-speak:

    To default means you failed to make your payments on your student loan as scheduled according to the terms of your promissory note, the binding legal document you signed at the time you took out your loan.

    http://studentaid.ed.gov/repay-loans/default

  • Emmerson Biggins||

    when joe is talking about complicated money stuff, the words mean exactly what he wants them to mean. You and your racist dictionary mansplaining just need to get over it.

  • Rasilio||

    You can default on them, it is just next to impossible to get them discharged in bankruptcy.

    This does not change the fact that when you default on them the lender goes to Uncle Sam for the money they lost, that same Uncle Sam who is somewhat broke right now.

    Sure it won't cause a Lehman Brothers because the bailout mechanism is already built into the loans, what it will do is cause a spike in the debt, which is already unsustainably high.

    Further since an in default student loan NEVER falls off your credit you will end up with a huge number( and statistically significant percent of the population) of people who are essentially forever barred from using credit even though they otherwise have good credit and relatively good paying jobs which will create a further drag on the economy.

  • db||

    Maybe those people will create an underground cash economy or black market in credit, and the gov't misses out on tax revenue. Or sends them to prison, which is the same result as debtor's prison.

  • The Derider||

    The problem with the sub-prime housing bubble wasn't the bubble popping, persay, it was the fact that wall street was trading a massive volume in CDOs based on the sub-prime loan industry. That's why Lehman collapsed.

    The same is not true with educational loans.

  • Restoras||

    So, it'll be the same but different?

  • The Derider||

    It will be more isolated. It will be unlikely to result in snowballing financial-sector bankruptcies.

  • db||

    So, what now? It's either forgiveness on a large scale, or debtor's prison, if default is not an option. Either way, it fails to solve the root problem, which is not understanding TANSTAAFL.

  • Certified Public Asskicker||

    But there is free contraception, right?

  • db||

    You just have to make sure someone else has a baby in your stead so it can grow up to work and pay for your social security and medicare.

  • The Derider||

    If you default on a student loan, what happens?

    They garnish your wages. That's what will happen next to these people.

  • db||

    I'm sure they can all afford that.

  • The Derider||

    The amount garnished is a percentage of your take home pay.

    If you're unemployed, they can't collect, obviously.

  • db||

    So, at some point, the optimization problem has a trivial solution where the unemployable choose to remain unemployed because their basic choice is to either hold down a couple of shit jobs to pay off their loans and have no spending money, or to take a handout and not pay their loans. The quality of the lifestyles is comparable.

  • The Derider||

    I agree that this will be true for some, but the amount of wages garnished isn't flat in order to minimize exactly the situation you're describing.

    Also, unemployment benefits run out.

  • Anonymous Coward||

    You can't default on a federal student loan

    My brother's credit report says different.

  • JStep||

    I'm not sure what "bubble" was burst here. Are people out there thinking education is cheap, student loans are fair, or the economy is awesome right now? What's the "bubble"?

  • Red Rocks Rockin||

    What's the "bubble"?

    The use of non-dischargeable loans as a form of welfare.

  • The Derider||

    People used to view getting a college degree as a virtual guarantee of future economic success.

    Increased education prices and decreasing returns on college degrees has made that assumption less true.

    It's very similar to how wall street viewed any AAA-rated financial security as a sure thing, not realizing that the new CDOs were highly risky bets. When the bubble burst, the financial system took a massive hit, and the losses snowballed.

    The difference is that the education bubble bursting won't result in a financial meltdown.

  • Red Rocks Rockin||

    The difference is that the education bubble bursting won't result in a financial meltdown.

    You're naive if you think this isn't going to make a significant impact on the country's social and economic fabric--the entire foundation of the post-WW2 economy is that a college degree is essential for success. Once students realize that their chances of getting a good return on the increasing investment required to get a degree are smaller and smaller, that foundation collapses.

  • The Derider||

    No, I'm pretty sure I'm the only one in this conversation with at least a rudimentary understanding of financial markets.

    They're just not as vulnerable to this bubble as they were to sub-prime mortgages.

  • Red Rocks Rockin||

    No, I'm pretty sure I'm the only one in this conversation with at least a rudimentary understanding of financial markets.

    Dunning-Kruger Effect at its finest, folks.

  • Rasilio||

    The bubble in education began ~20 years ago as the cost of financing an education at a 4 year college started to rise beyond what one could reasonably expect to earn within the repayment period for most majors just as the market started to become saturated with people with those degrees.

    Sure, if you got the brainpower for it a degree in computer programming or chemical engineering is still a bargain, even if you gotta borrow $40k a year to complete it, but you are going to be hard pressed to make enough money to pay back $75k in student loan debt with a bachelors degree in anthropology, forget something useless like theatre arts or womens studies.

    Interest payments alone will run you about $400 a month and you'll be looking at earning right around the median salary with those degrees.

  • ||

    This,

    And the fact that as tuition rates rose, and the lack of any significant standards for who can qualify for a loan, meant more and more people were taking out student loans, which increased demand in the high-education market, which led to higher tuition, which led to bigger loans, .... thus the bubble.

  • Ted S.||

    20 years ago when I went to college I had to fill out financial aid forms. The college determined how much money I (technically, my family) could pay toward college, and would come up with a scholarship/grant/loan package to finance the rest.

    I immediately figured out that if Big Government put more money towards subsidizing a college education, the school would still say I could pay the same amount, but would be able to raise the price thanks to the extra money from government.

  • mad libertarian guy||

    Actually, theater is probably a better bargain than anthropology. In theater, marketable skills are taught. Set building, carpentry, painting, electricty, and yes, even acting.

    An anthropology program provides no such marketable skills.

  • nicole||

    So. Let's assume student loans are going to be forgiven, at least to some extent. I have a pretty big feeling that they are. And I was just reading a week or so ago that the latest plan is that if you pay a minimal percentage of your earnings for 20 years, the remainder is then completely discharged (going by average household income, it was basically like, you would never have to pay more than something like $70k, interest included, which is far less than many take out).

    Anywho, as we all know, when the magical student loan debt jubilee comes, not everyone will be included. It will be means-tested, just like the student loan interest deduction is (phases out at $75k for singles, don't know about married/head of household). So basically what this means is that people who god loans for degrees in fields that don't pay shit will have their debt for given, and responsible people who actually got an education that would lead to a job with money will continue to pay their bills.

    Obviously a travesty. But enough of one for the responsible folks to actually be super-pissed? I mean, I know I will be super-pissed. But this seems like the kind of thing that might put a few more people over the edge, if they're stuck paying for their MBAs while the jackass next door with a basket-weaving degree gets all the debt waived.

  • Rasilio||

    If this happens Divorce court here I come.

    Not that my wife and I will actually be splitting up, just that she has outstanding student loans and I have none but I earn all of the money (she's a SAHM)

    We'll get divorced, her household income will fall to close to $0 and her loans will mostly be forgiven and nothing else will change for us.

  • nicole||

    The actual amount of my outstanding debt is low, and I am the household earner, so actually "doing something about it" would not make any sense for me. But I would be pissed.

  • Randian||

    I'd have to think that married filing separately would satisfy this problem.

    After all, an individual's debt isn't computed to a married person if you file separately, is it?

  • Rasilio||

    I don't think it would because for this purpose both our incomes would still count as household income

  • hotsy totsy||

    Actually they don't care if you're married, engaged, or divorced. If you live together, you are counted as one household.

  • Heroic Mulatto||

    No offense, nicole, but MBAs fall squarely in the basket-weaving category.

    Jus' sayin'

  • JEP||

    According to Nassim Taleb, MBAs are partially responsible for there being so many shitheads in finance these days.

    Everyone goes and gets an MBA, they learn very little, but they think they're qualified to invest without having the slightest understanding of the kinds of markets they're investing in or the complications that arise when human beings decide not to conform to their model.

  • Heroic Mulatto||

    Indeed. MBA's obviously don't put the ball in their own court so that they might synergize completely communicative multidisciplinary relationships and continually supply high-quality growth strategies.

  • Heroic Mulatto||

    *MBAs

  • nicole||

    Posmens!

  • nicole||

    They do, but they make money afterward.

  • Heroic Mulatto||

    Some do, many don't.

  • nicole||

    I mean, I have what many here would typically brush off as a "useless degree," so I don't think it's about what you major in so much as what you after. But my general point stands.

  • Rasilio||

    With most degrees this is the case, I mean there are degrees which are effectively uselss, womens studies, african american studies, most specialized english degrees, and of course the ultimate being the generic "liberal arts" degree. However for most degrees while it is true that you will probably never actually work in the field you studied it will develop skills which are directly translatable to real world jobs. So for example "anthropology" (which I mentioned earlier) may appear useless because there are only a few thousand people in the world who actually work in the field and it doesn't pay particularly well the skills you pick up (if you actually learn from in) in understanding human social interactions would be very likely to make you a successful Project Manager for example.

  • The Derider||

    Plus the signaling effect of actually completing a rigorous college degree causes companies to value you more highly than other candidates, none of whom they have perfect information on.

  • The Derider||

    Does basket weaving pay 6+ figures?

    Most positions that require an MBA do.

  • Heroic Mulatto||

    The Derider has an MBA, I see.

  • The Derider||

    That's the most insulting thing anyone has ever said to me.

  • iggy||

    Yes, but most people who get an MBA don't get a job that requires it. Something like 20% of all college graduates get a business degree.

  • JEP||

    The days of getting 6 figures for an MBA are numbered.

    Just like with the generic undergraduate degree, the more people have them, the less they are worth.

    You don't have to be especially intelligent to get an MBA - mainly you just have to wear a suit to class every day and know whose ass to kiss. The job market has been flooded with MBAs in the past couple of years - precisely because they're are easy to get, and when people couldn't jobs right after undergrad, they thought "hey, I'll just go back to school and get an MBA. I'll be more marketable after that."

    So, now you have MBAs with no real world experience.

    Of course, there are exceptions. I'm sure there are a number of people who can get a lot from an MBA degree and put it to very good use. But they the exception is not the rule.

  • The Derider||

    I agree with this, pretty much.

  • JEP||

    I'm going to go back and spend some serious time re-thinking my life. Usually, if you oppose it, I take it was a good sign that I'm onto something...

  • Rasilio||

    There is no such thing as a position that actually requires an MBA, sure lots of HR drones put an artificial requirement for one on lots of positions but for the most part you are better off hiring someone with a degree in something specific and a decade or more of experience in the field than someone with a generalist degree like an MBA to hold a upper tier management position.

  • T||

    My MBA was useful specifically to understand the business side of things. Was it necessary? No. Has it made me more marketable? Maybe. Cany any fucking idiot get one? Judging by my peer group in the program, yes. For what I do, an MBA is always phrased as a nice to have, not a must have.

    It's the catfish of graduate degrees: it swims along the bottom and sucks up trash.

  • The Derider||

    Maybe I hang out with a higher class of business student, but people I know happily paid 60K+ to get MBAs that bumped their salaries over 6 figures.

    None of them went to university of phoenix, though.

  • Rasilio||

    Uh do you mean they bumped their salaries by an additional 6 figures or up to 6 figures?

    Cause you don't even need a college degree to get a 6 figure salary, just a brain, some talent with computers, and at worst a couple of vendor certifications or 10+ years of experience.

  • Stormy Dragon||

    Actually, vendor certs can actually hurt your earning potential, since they tend to get you pigeonholed as tech support rather than development, where the real money is.

  • Rasilio||

    Depends on the Cert, getting Oracle certified as a DBA or an MSSD cert is gonna guarantee you at least $120k and you won't be anywhere near tech support.

  • Rasilio||

    "Does basket weaving pay 6+ figures?"

    Given that the overwhelming majority of it's graduates go on to play Professional Sports I am pretty sure on average it does.

  • db||

    I'll be pissed, as I already paid off all my loans, which were not at today's, shall we say, attractive interest rates.

  • SugarFree||

    Me too. I'd to think this combined with a bad housing debt bailout to individuals might finally wake people the fuck up, but I doubt it will.

  • Heroic Mulatto||

    Me too. I'd to think this combined with a bad housing debt bailout to individuals might finally wake people the fuck up, but I doubt it will.

    IT'S ALL FREE ON MY EBT!!!! (mutatis mutandis)

  • ||

    What interest rates are those.
    Mine are at (IIRC) 6.25% or thereabouts.

    I keep hearing about these low student loan interest rates and I have no idea what people are talking about. Did I somehow check the wrong box on my FAFSA and get shunted into the shitty interest rate loan program?

  • db||

    Mine were over 8% IIRC.

  • nicole||

    Mine are around 2%. I mean seriously, I ain't complaining about that. And I'm not in a rush to pay them off either.

  • amelia||

    When interest rates on debt were low, they were offering consolidation loans. My loans were around 7.5%, but in the early aughts I consolidated them at about 4.25%.

  • Scarcity||

    My wife consolidated her Federal loans at about 2% (fixed) several years ago. Her private loans float and are currently at 4.00%.

  • alex griggs||

    I consolidated all my govt loans (about $100k) in 2005 for less than 2%. Private loans (about $40k) were between 4-5%, and I've paid those off. Letting the low-interest ones go and go and go. I figure real inflation at considerably more than that.

  • robc||

    The right answer is to end the government guarantee on loans (going forward) and allow student loans to be discharged in bankruptcy (on loans taken out going forward).

    Its amazing how different these loans will be when parents have to cosign for them and put up collateral.

  • SugarFree||

    The agonized wailing across campus would be a sweet melody to mine ears.

  • The Derider||

    I would say the first difference is that college would immediately become unaffordable for the poor. They don't have assets to put up as collateral.

  • Spoonman.||

    Financial aid and scholarships could help them out if only infinite student loan money hadn't made the cost of college astronomical.

  • Certified Public Asskicker||

    college would immediately become unaffordable for the poor.

    Not true, but so what? They would be better off without crushing student debt hanging over them for the rest of their life.

  • iggy||

    Derider, poor people graduate from college and, because their degree is completely worthless due to the number of people also graduating, they end up doing the exact same job they would have done without a degree. Only now they have massive loan debt.

    By the way, I just googled something about college tuition, and there's an Atlantic article from October that says colleges are failing low income students so 'We need government to invest more.' It also claims that 'Despite rising tuition, college still offers a good, even great, deal.' There are no words.

  • The Derider||

    College degrees are obviously not worthless.

    College degrees still act as gatekeepers to most high-paying jobs.

    Not every person who chooses to take out student loans to get a degree is making an irrational decision.

    Requiring collateral on student loans would make college unaffordable for poor people who would willingly accept a non-dischargable debt arrangement.

  • Rick Santorum||

    College degrees are obviously not worthless.

    They're worth less than what they cost.

    College degrees still act as gatekeepers to most high-paying jobs.

    Correct. But for your lifetime burger flipper or shelf-stocker, it doesn't matter if he's got a fancy slip of paper that says he majored in African-American Vernacular English. They're going to be poor, and no amount of college education is going to save them from that. With the student loan scheme, they are making themselves poorer with no real benefit.

    Why do you hate poor people?

  • The Derider||

    Shit, you say that no amount of education will change a burger-flipper into something more productive, and you think I hate poor people?

  • Rick Santorum||

    you think I hate poor people?

    Yes. I want the burger flipper to make a living wage at his job of burger flipping. I want him to be the best damn burger flipper that he can be. Because some men's lot in life is to flip burgers for forty years, and those people should be treated as a valuable part of society.

    You, though, you're just a classist, bigoted shithead who sneers at the burger flipper. You see him as an uneducated rube. You see the job as being something worthy of scorn.

    Not me. I love the poor.

  • andarm16||

    College degrees still act as gatekeepers to most high-paying jobs.

    In a way, this is true. The whole problem goes back to Griggs V. Duke Power. Basically, employers are very limited in the tests that they can use to determine if a candidate is qualified for a job. So, a college degree is one of the only forms of testing that an employer can legally us to determine if someone is qualified for a job, you bet they are going to insist that people have one. Now, of course, if the Supreme Court were to ever decide that even a requirement for a college degree had an adverse impact, then well this bubble will pop and fast. Other than that, it's bailouts as far as the eye can see.

  • Anonymous Coward||

    College degrees still act as gatekeepers to most high-paying jobs.

    Yay, credentialism!

  • The Derider||

    Yay, market forces!

  • Anonymous Coward||

    Yay, market forces!

    Yay, disparate impact! You's discriminatin!

  • The Derider||

    If student loans are not offered unless you put up collateral, that prices the poor out of those loans because they don't have collateral by definition.

  • robc||

    Then they would do would people have done for generations and work their way thru college.

    Taking 6 years instead of 4 and coming out owing nothing would be better.

  • The Derider||

    Better for whom?

    It would certainly reduce the earnings potential of the person in question.

  • iggy||

    It wouldn't necessarily reduce the earnings potential of the person. People used to be secretaries and legal assistants without a college degree. Now you need a college degree to do both those things because there are too many people with degrees.

    If low income people end up with the same jobs, only now they have loan debt, how has this helped their earning potential?

  • The Derider||

    On the average, going to college raises your earnings potential.

    Waiting to enter college, or taking longer to finish college therefore reduces your overall earnings potential, because you wait longer to achieve the higher wage.

    I agree there is risk involved with this decision, and not all college degrees are the same.

  • Rick Santorum||

    It would certainly reduce the earnings potential of the person in question.

    Having massive debt does the same thing.

  • The Derider||

    Fine, but many rational people maximizing their earnings potential prefer "debt" to "waiting". Who are you to say they are wrong?

  • JEP||

    Oh now you're advocating people making their own decisions...

  • The Derider||

    I think unless there's very compelling evidence that people are making irrational decisions, you should assume they are making the best decisions for their personal situation.

  • Rick Santorum||

    Who are you to say they are wrong?

    Uh, when it involves government loans (which affects me via national debt), then, yes, I am one to say they are wrong.

  • R C Dean||

    Well, there's always math to say they are wrong.

    Which they are, almost without exception, if they think that having a degree in Year X with a ton of debt is better than having a degree in Year X + 2 with no debt.

  • Certified Public Asskicker||

    So they'll have to work for a few years or, work while pursuing their education.

    Hopefully that hard work doesn't kill them.

  • The Derider||

    Both options are available for the poor currently. People prefer taking on debt and paying off loans at a higher wage.

  • Rick Santorum||

    People prefer taking on debt and paying off loans at a higher wage.

    Really? All those sob stories about how graduates can't find work beg to differ.

    Why do you hate the poor?

  • The Derider||

    They made a rational decision that involved risk.

    Now that the risk didn't go their way, they are telling sob stories.

    Oldest story in the world.

  • Rick Santorum||

    They made a rational decision that involved risk.

    Now that the risk didn't go their way, they are telling sob stories.

    Now you're shifting the goalposts. People, in theory, prefer to take on debt and get more money to pay off that debt. What actually happens in the real world--outside of your little liberal bubble--is that people take on a lot of debt and then can't find decent work, which means they are paying off student loans at low wages.

  • The Derider||

    Yes, they took a risk that there would be high paying jobs available when they graduated, and then they graduated after a massive recession, where high paying jobs are less available than they predicted.

    Will that always be true? No.

  • Rick Santorum||

    Okay, well, they can "prefer" all they want in one hand and shit in the other, and we'll see which one comes first. I would "prefer" to be a millionaire getting laid every night, but this is the real world. Your policies create an unsustainable college bubble. Your policies have failed.

    Deal with it.

  • The Derider||

    If all policies that create bubbles are failures, free market capitalism is an abject failure.

  • Rick Santorum||

    free market capitalism is an abject failure.

    The free market encourages growth and innovation. It's the best method of wealth creation ever tried. It increases the standard of living for everyone.

  • Red Rocks Rockin||

    Yes, they took a risk that there would be high paying jobs available when they graduated, and then they graduated after a massive recession, where high paying jobs are less available than they predicted.

    Yeah, I mean it's not like they'd been brainwashed by our entire society since kindergarten to believe that getting a college degree was the be-all/end-all for professional success or anything, and that "it didn't matter what you studied, as long as you get that degree!!"

  • Certified Public Asskicker||

    I guess I should have asked by now why you assume that without the government, there would not be other ways to structure student loan debt?

  • The Derider||

    There are other ways to structure student loan debt currently. But you need the government to garnish people's wages.

  • iggy||

    People used to be able to work, get money, and then pay for college. The reason they can't anymore is because of a government funded bubble. If the cost of college deflated, many poor people would still be able to go by working or getting scholarships.

  • The Derider||

    The only way to deflate the cost of college is to dramatically lower enrollment.

    Making educational loans require collateral would certainly lower enrollment, but those changes would disproportionately affect the poor because they don't have collateral.

    Some poor people would still go to college, but they would represent a smaller proportion of the college educated.

  • nicole||

    If enrollment were dramatically lower, why would it matter that most poor people didn't go to college? It would be a step against degree deflation.

  • The Derider||

    Because it would also be a step against meritocracy.

  • Rick Santorum||

    Some poor people would still go to college, but they would represent a smaller proportion of the college educated.

    What's your point? You don't need a college education to do menial labor. The economy needs cashiers and janitors.

  • The Derider||

    Right, I'm suggesting that it would be more efficient for rich, stupid kids to become janitors than smarter poor kids.

    Requiring collateral for student loans ensures that will not happen.

  • Rick Santorum||

    I'm suggesting that it would be more efficient for rich, stupid kids to become janitors than smarter poor kids.

    How on Earth does saddling everyone with student loan debt ensure that the wealthy become janitors and the poor become kings?

  • The Derider||

    It doesn't ensure that outcome. It allows poor people to leverage their future incomes in order to pay for college.
    It means that a poor, smart kid can compete on a more equal footing with a rich, less intelligent kid.

  • Rick Santorum||

    It means that a poor, smart kid can compete on a more equal footing with a rich, less intelligent kid.

    Now they're both poor and indebted. Mission accomplished.

  • Red Rocks Rockin||

    The only way to deflate the cost of college is to dramatically lower enrollment.

    That's not going to happen as long as Obama and everyone else in the government is pushing the line that everybody should go to college.

    You're right that lowering enrollment would eventually result in lower tuition, thanks to the limits of scale, but there's no way in hell the educational complex would stand for it. There would be charges of racism and discrimination of all kinds--not to mention the fact that there's a very deep cultural attitude that working blue-collar jobs is for losers.

    I remember telling my AP US History teacher back in high school that I was looking to go to community college first, and her response was, "You have more capability than to limit yourself to community college." The pressure to integrate into the Big State University track is huge. Thank goodness my mother had more sense than my teacher and convinced me to go a cheap urban commuter college rather than a state university, or I'd still be paying off my student loans.

  • The Derider||

    I don't think people go to college because Obama told them to.

    I think people go to college because they make a rational, earnings-maximizing decision.

    If this bubble pops, and large numbers of people are unable to pay back their loans, that will affect the decision-making of rational, earnings-maximizing high school graduates.

    And the community college then transfer plan has become much more popular in the past 10 years, so things are already changing.

  • Rick Santorum||

    I think people go to college because they make a rational, earnings-maximizing decision.

    Which is why they major in Women's Studies and Queer Theory instead of becoming accountants.

  • iggy||

    Of course people don't go to college because Obama told them to. People go to college because the culture says they should and Obama happens to also be a product of that culture.

    You think people go to college because of rational, earnings maximizing decisions? If that were true, people wouldn't go to college and get a degree with no value. The fact that people get dumb degrees and can't pay off loans tells me that it isn't a rational, earnings maximizing decision.

  • Red Rocks Rockin||

    I don't think people go to college because Obama told them to.

    Irrelevant. The President has been pushing the line for years that everyone should go to college.

    I think people go to college because they make a rational, earnings-maximizing decision

    Or an irrational, debt-maximizing decision.

    If this bubble pops, and large numbers of people are unable to pay back their loans, that will affect the decision-making of rational, earnings-maximizing high school graduates.

    Well, no. It's going to impact the financial structure of this country in ways we can't even expect yet--because so many of these people use the loans for more than just college, and even paying back the loans for 10-20 years or more is a mortgage on whatever future earnings they make. You're fucking retarded if you think a trillion in loans is going to get paid back, particularly with an exponentially growing default rate.

    And the community college then transfer plan has become much more popular in the past 10 years, so things are already changing.

    Except community colleges are following the same inflationary tuition trajectory. That's what happens when you tell poor kids that they'll be losers if they don't go to college.

  • Rasilio||

    Think this through.

    And what happens to colleges when 40% of their student bodies drop out because they can't afford the tuition?

    Well they lay off staff, cut fat, and lower tuition while implementing more scholarship and work/study programs to get those kids back into school.

    What happens to corporate America when it's supply of college graduates dries up? Well they stop using the college degree as an artifical gatekeeper and start up internal training programs to build qualified indivduals they can promote from within.

    You talk like the market will not respond and leave those poor souls destitute and living in the dark for the rest of eternity just because we didn't give them the opportunity to saddle themselves with $80,000 in debt to get a job that pays $20,000 a year more than what they could have earned otherwise.

  • The Derider||

    If your faith in the market is so strong, why do you assume people saddling themselves with debt to improve their earnings potential are being irrational?

  • Rick Santorum||

    Because the means they are using to take on that debt is government distortion of the market. If the only student loans were privately owned and managed--and there were competition in the marketplace; Sallie Mae doesn't count because it is, yet again, another form of government intervention in the market--you wouldn't see everyone taking out student loans. Some would work their way through college, some would pay for it outright, and some would not go.

  • The Derider||

    You are confusing two issues here. Even if federal student loans distort the market, they don't cause people to suddenly lose the ability to maximize their earnings.

    People choose to take out federal student loans. They choose to take them out because they view earlier college graduation as worth the costs of debt.

  • Rick Santorum||

    Even if federal student loans distort the market, they don't cause people to suddenly lose the ability to maximize their earnings.

    Right. You are fully entitled to "maximize [your] earnings." You are not entitled to increase the national debt while distorting the market to do so.

  • Rasilio||

    My god are you dense?

    No dipshit people take out government loans because they are **SUBSIDIZED**. In a free market for education with no government subsidies those loans would have interest rates directly tied to the likelyhood that the specific student graduates as well as their likely earning potential upon graduation. This means someone majoring in Chemical Engineering would pay a lower rate than someone studying Medieval French Literature and a straight A student would pay lower rates than a C student.

    However since that does not happen and the rates are artifically low with everyone paying the same cost as a kid who got a 1600 on his SAT's and studying Chemical Engineering then the price signals present in a market telling C students that they are better off going into a Plumbers apprenticeship program and B students that majoring in Theatre Arts is a bad idea are erased leading to an overabundance of irrationality because the true costs of those irrational choices is obscured.

  • Rasilio||

    Some of them *ARE* being irrational but this is irrelivant because those same individuals would likely be just as irrational in an environment without the subsidized loans.

    The problem is that government subsidized student loans serve to obscure the true costs of an education and encourage overconsumption of education services driving up costs and creating waste in those services, this causes the costs to explode for all, including those who are NOT being irrational as well as those who never go to college and those who never graduate from college.

    The point is not that people are or are not being rational with their choices of whether to get a degree or not, the point is that everyone else is subsidizing that choice leading to *more* irrationality because frankly people can afford to be more irrational. As with all when you obscure market signals you make systems less not more efficient.

  • Ted S.||

    Didn't the government cause the problem in part with the Griggs v. Duke Power Co. case?

  • Restoras||

    For poor people with intelligence and who work hard college will always be available.

    If you lack either one of those atributes you probably shouldn't go to college if you are poor, and would be better off learning a trade.

  • Rick Santorum||

    you probably shouldn't go to college if you are poor, and would be better off learning a trade.

    Agreed completely. Not everyone needs a college education, but this sends progressives up the wall. YOU JUST WANT POOR PEOPLE TO BE UNEDUCATED SO THEY VOTE FOR YOU.

  • The Derider||

    No, I'm pretty sure progressives believe that the socio-economic status you were born with shouldn't determine whether or not you attend college.

    Why should a rich, stupid kid go to college when a smarter poor kid should "learn a trade"?

  • Rick Santorum||

    Why should a rich, stupid kid go to college when a smarter poor kid should "learn a trade"?

    Nice strawman, bro.

    If you lack either one of those atributes you probably shouldn't go to college if you are poor

    But a lazy, stupid poor person can go to college. He'll have to take out private loans to do so, or he can work his way through college, or maybe he can get some scholarships to help him through.

  • Restoras||

    Going to college is not a right. I am sorry that lots of rich dumb kids go to college but that is the choice they and their parents make. Whether it is a good one is irrelevent.

    Smart poor kids go to college all the time, on scholarship. That will always be open to them. If you are not smart enough, then you can still go on a part-time bsis if it means that much too you. And what's wrong with learning a trade and making your way in life that way? Oh, that's right...nothing.

  • The Derider||

    What's wrong with learning a trade and making your life in that way?

    Well, something is obviously causing people to prefer the college track over trade school. I think it's their rational, earnings maximizing behavior. What do you think?

  • Rick Santorum||

    Well, something is obviously causing people to prefer the college track over trade school. I think it's their rational, earnings maximizing behavior. What do you think?

    I think it's because shitheads like view plumbers as a low-class job for idiots and tell them that getting a degree in Urban Planning makes them a superior human being.

  • Restoras||

    Well, something is obviously causing people to prefer the college track over trade school. I think it's their rational, earnings maximizing behavior. What do you think?

    Well, I'd suggest that if your theory were correct we wouldn't be seeing a sharp spike in defaults, right? I mean, if you take out a loan to maximize your earnings potential, then it should be no sweat to pay it back, right?

    Personally, I think a lot of people (not all, lest you toss out another straw man) go to college because they have been brainwashed to beleive it is a guranteed ticket to a better life. That may have been true 30-40 years ago, when fewer people went to collge, but as the labor market has become saturated with collge graduates there is less need for them, and less need to pay them above market rates. Further, a lot of people take degrees in what they "love" or are "passionate" about (more brainwashing) without considering what actual future they have in those fields.

  • Rasilio||

    "Personally, I think a lot of people (not all, lest you toss out another straw man) go to college because they have been brainwashed to beleive it is a guranteed ticket to a better life'

    Honestly I doubt most kids even think it througt that far. I think most kids go to college because it is "expected" of them and they honestly have no idea what else to do with themselves once they graduate high school because no one has ever taught them how to take care of themselves.

    Not to mention college is glorified in mass media as a really fun place to go and discover yourself, party hard, and have lots of NSA sex where you get a free 4 or 5 year ticket to delay having to grow up and enter the real world.

    Yeah some kids think carefully about going to college and how that will impact their economic future, but I'll bet for 70% of them such thoughts never cross their mind.

  • Restoras||

    I think you are right, Rasilio, and as long as they are paying for it, or can fund the debt to pay for it, that's fine. Just don't come looking for a bailout when the shite hits the fan - just sayin'.

  • Red Rocks Rockin||

    Well, I'd suggest that if your theory were correct we wouldn't be seeing a sharp spike in defaults, right? I mean, if you take out a loan to maximize your earnings potential, then it should be no sweat to pay it back, right?

    Dude, don't introduce math into this. Derider can't cope.

  • robc||

    Why should a rich, stupid kid go to college when a smarter poor kid should "learn a trade"?

    Because he has the money to pay for it.

    Just like why rich, stupid kids gets to buy any good or service that a poor kid cant.

  • Rick Santorum||

    that college would immediately become unaffordable for the poor

    The reason for this? Idiots like you skewed the market with student loans. You subsidize college, so you get more people in college. What happens when you get a sharp uptick in demand? Prices go up. WHOOPS, ECON 101, HOW DOES IT WORK?

  • robc||

    Prices would drop thru the floor.

    The reason they went up so much the last 2 decades is the federal loan guarantee.

  • thom||

    Nonsense. I've known tons of people who's family's couldn't afford to pay for college, yet they still managed to go through either (a) getting plentiful grant and scholarship money; (b) working; or (c) some combination of a and b.

  • Spoonman.||

    The fact our government can't take these obvious steps shows how screwed we are.

  • Heroic Mulatto||

    This is exactly why we in the Higher Ed. biz are looking to fill our campuses with foreign students. No financial aid, the parents often pay in cash(!), and no fat chicks.

  • Red Rocks Rockin||

    The right answer is to end the government guarantee on loans (going forward) and allow student loans to be discharged in bankruptcy (on loans taken out going forward).

    I've been saying this for years. There's no incentive for colleges to keep tuition low right now because they know they're getting the money no matter what.

  • R C Dean||

    The feds already back/own those loans. The next step is to roll them into a QE program, where the Fed buys the loans with minty-fresh cash (the Fed will soon be running out of Treasuries to buy at its desired rate, so it will be looking for new assets to acquire for QE).

    This provides fresh funding for new student loans, keeping the pipeline open to the debt serfdom of new generations and providing for further grossly inflated income to that faithful Dem constituency, the academy. It also sets the table for buying lots o' votes via student loan forgiveness. Everybody (who matters) wins!

  • The Derider||

    Lolin at "debt serfdom"

    There's a whole lot of anger directed at profit-maximizing economic agents today.

  • iggy||

    Yes, when the profit maximizing economic agent does so by distorting the marketplace and getting government subsidies.

  • Rasilio||

    Um, you really don't understand markets do you?

    People are not profit maximizers unless you expand the definition of "profit" FAR beyond dollars and cents.

    What people are is happiness maximizers in that they try to find the things which will make them the most happy, sometimes that means the most money, usually not.

    You will note no one is faulting the kids for taking out the loans, the blame is being placed on the government subsidizing of those loans so that when the kids make that choice they are presented with the true full cost of it.

  • db||

    Why were student loans ever disbursed in US currency? They should be (if they should be at all) in some scrip the only Universities can redeem. I've heard of more than a few people who treated their student loans as if they were personal consumer credit.

  • SugarFree||

    Because it was always built into the system that they were for more than just tuition. Living expenses and housing are factored in.

    Of course, if they had to be spent on meal plans and dorm housing only, it would have only exploded the price on those as well.

  • iggy||

    Yeah, I used my student loans to buy the books I needed for class off of Amazon and to get a lap top, both of which were related to school, neither of which were bought from the school. That's why it's in US money.

  • nicole||

    I've heard of more than a few people who treated their student loans as if they were personal consumer credit.

    When I was in undergrad, I had a friend who went on a designer shopping spree every semester when his check came in. No joke. He would drop $2k in a couple hours, at least. And, of course, be flat broke halfway through term.

  • R C Dean||

    My folks actually made a profit on my undergrad. I was on a full-ride scholarship, but we would borrow as much as we could at subsidized student loan rates, and they would play the spread against CDs, Treasuries, etc.

  • thom||

    I bought a car with student loan money. Better terms. In grad school I remember talking about this with a group of classmates. We learned that we had all rolled at least one car into our student loans.

  • Rick Santorum||

    Laughing so hard at all the SWPLs who protested for MUH REPRODUCTIVE RIGHTS and got their free contraceptives. Good work. Now enjoy the fruits of your labor and starve in the streets.

  • A Mathematician||

    So do I buy DIA puts now?

  • Anonymous Coward||

    I think we're all missing the bigger picture here. If the government doesn't back student loans then all of the college spots will be filled by foreign students whose tuition will be paid for by their home countries' governments. We must not allow the dirty furriners, who we accepted into this country, to be educated over and above citizens. Therefore, we must make our loans bigger, better, and nondischargable. I thank you for your time.

    America Uber Alles.

  • iggy||

    Yesterday American told me that we have to stop the Messicans or else they'll fill our homeless shelters and spill out into the street in a wave of low wages, Tacos and rape.

    Now you're telling me that we need to stop those dirty foreigners from filling our colleges too? The foreigners are just going to take over everything, aren't they?

  • James Anderson Merritt||

    Sometimes I feel like such a loser because I pay my debts. You just know that, as soon as I make the last payment on the "parent" loans we took out for our son's education, somebody will declare bailout or amnesty. Or inflation will skyrocket so it becomes trivially easy to repay the fixed-interest loans. Then those who avoided prompt repayment will seem like the smart ones: that's practically the very definition of INjustice. As they say, if you want peace, work for justice. The negation is also true.

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