Will The Student Loans Bubble Pop?
A WSO user not too long ago wrote a personal, almost poetic piece about his own experience with student debt titled, I Am The Toxic Debt. I can't help but think about the imminent dangers of unscrupulous student loans lending, as many institutions are still being chastised for easy lending which created the housing crash. Is our institutions doing the same thing, lending to students in a lack-luster economy? From Q4 2007 to Q1 2012, student loans have grown from $93 to $452.6 billion, a growth of 332%.
Student loans may be a liability on the consumer balance sheet, but they constitute an asset for Uncle Sam. Just how big? Nearly 35% of the total federal assets, over four times the 8.6% percent for the total mortgages outstanding.
This doesn't include private loans. Estimated total outstanding loans are estimated to be about one trillion dollars. But I get it, human capital and innovation is the driving force of economic growth. In a piece by Bloomberg:
Keep in mind that much of that $1 trillion is “good debt.” Most borrowers have manageable loans, and workers with a bachelor’s degree earn 84 percent more over their lifetimes on average than those with only a high school diploma. They also face much lower unemployment rates. So a college loan remains a very smart investment for many people.
Do you think student loans could be the next bubble? Is congress doing enough to contain the problem? Or do you think the level of debt will prove to be a worthy investment into the US economy?
Comments
Student loans cannot be
Student loans cannot be discharged in bankruptcy.
So the answer to your question is no, it won't (can't) pop.
Why are student loans so hard
Why are student loans so hard to discharge?
YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...
UFOinsider: Why are student
Why are student loans so hard to discharge?
Because some of our politicians believe education is a God give right and that everyone should be able to get a loan for college, regardless of a persons grades / ability / income / test scores / maturity, etc.
In order to allow a plethora of people to attend college, they had to open the flood gates for student loans. Banks wouldn't make loans to people who didnt have the ability / income / scores / correct major / maturity without acceptable collateral. Not being able to discharge loans in bankruptcy allows banks to make these loans without any underwriting done. Private or Public loans, dont matter.. same thing.
Need to Land a Job? Click Here.
mdk6c: Student loans cannot
Student loans cannot be discharged in bankruptcy.
So the answer to your question is no, it won't (can't) pop.
That's not true at all. The bubble will pop one day. We cannot substain what we are currently doing with student loans. Just because a loan cannot be discharged, doesn't mean that the person has to pay on it. And I know a handful who aren't paying on them now.
Need to Land a Job? Click Here.
not sure if this is a stupid
not sure if this is a stupid question, but can student loans be sliced and diced into CDOs?
Moneyball
See my other WSO blog posts
Nobama88: That's not true at
That's not true at all. The bubble will pop one day. We cannot substain what we are currently doing with student loans. Just because a loan cannot be discharged, doesn't mean that the person has to pay on it. And I know a handful who aren't paying on them now.
The government (which guarantees student loan ABSs) has all sorts of clever ways to get your friends to pay up (like garnishing their wages). So, even if they miss a few payments in the beginning, they will still be on the hook for the rest of their lives. There will never be the epidemic writedowns to student loan ABSs that there were to privately issued MBSs a few years ago.
Moneyball: not sure if this
not sure if this is a stupid question, but can student loans be sliced and diced into CDOs?
Sure, want to buy some?
Someone mentioned how you
Someone mentioned how you cannot discharge student loans in bankruptcy.
Aside from that will you see an implosion like you did in subprime? No, because a majority of student loans are packaged into government guaranteed student loan ABS called FFELP loans where they are 97% guaranteed by the US government.
Private loans on the other hand which aren't backed by the government... I've seen some bonds that have up to 20% of the loans in some sort of default or delinquency. If they become dischargeable, then a majority of these bonds will be practically worthless
Attended a conference not too long ago about this, and was told that 44% of defaults are from students who attend for profit colleges (University of Phoenix, DeVry, etc) For them I see absolutely no good coming out of the debt they take on. Even for some private colleges unless it's a top 30 school, the debt is questionable.
And I'm sure this highly indebted generation I'm sure is just dying to take out just as big of loans with Fannie/Freddie several years down the line right? If anything I'm almost curious where the next generation of homebuyers will be to buy houses at current prices
I'm expecting some sort of
I'm expecting some sort of radical change in the way college is priced in the next two decades. The bubble isn't in student loans, it's in the cost of tuition, whether private or public. Student loans are a big driver of this.
Financial Modeling Training
Guide to Finance Interviews
Nobama88: UFOinsider: Why
Why are student loans so hard to discharge?
Because some of our politicians believe education is a God give right and that everyone should be able to get a loan for college, regardless of a persons grades / ability / income / test scores / maturity, etc.
In order to allow a plethora of people to attend college, they had to open the flood gates for student loans. Banks wouldn't make loans to people who didnt have the ability / income / scores / correct major / maturity without acceptable collateral. Not being able to discharge loans in bankruptcy allows banks to make these loans without any underwriting done. Private or Public loans, dont matter.. same thing.
Because the government does such a good job when it comes to modifying underwriting standards, right? They did such a good job with the housing market.
I can only say that the effects of the student loan bubble on this generation will be profound. If you are an engineer, going to Wall St, becoming a nurse, etc. the loans are no big deal. But how many of your classmates got a decent paying job like the above?
I don't think it will pop; the government seems hell-bent on subsidizing loans further. We are still at the point where a complete bailout would be doable. The government would be the only thing that could pop the bubble, by allowing student loans to be dischargeable.
More profoundly, I think we will see the rise of a college educated working class. You know those reddit people who complain about 80k of debt for their sociology degrees? Those are its new members. These people will barely be able to keep up with the minimum payments, then fall further behind when they default. Servicing this debt will likely keep them in the lower middle class for a majority of their careers.
GoodBread: I'm expecting some
I'm expecting some sort of radical change in the way college is priced in the next two decades. The bubble isn't in student loans, it's in the cost of tuition, whether private or public. Student loans are a big driver of this.
Interesting point. My father runs a major university and he has been saying for the last five years or so that higher education is the next bubble to pop. However, he feels most of the pain will be felt by university faculties of the future. What does this imply? Well, when the currently tenured full professors in subjects like English and Lit-type subjects retire, they will be replaced by non-tenure track adjunct instructors to teach students basic composition and writing skills. They will be hired at a fraction of the cost and without the pompous, entitled attitude that comes with most academics. Professors in totally worthless subjects (i.e. anything with the word "Studies" in it) will simply not be replaced at all.
So the question is how do we
So the question is how do we profit from this? The implication seems to be that young people won't be able to buy a house as they wont be able to save up money for a deposit. I guess this would suggest that there will be a strong demand for affordable rental property? My guess is that if your parents weren't able to help you through college they won't be able to help you with a deposit. Any thoughts on this?
Thread hijack: best ways to
Thread hijack: best ways to get rid of student debt? My current plan is to just ball out after grad school and pay that shit down or maybe just join the national guard / army (and I've always wanted to anyway). Other ways to knock that shit off quickly? I hate being in debt.
YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...
I think the SLABS "bubble" is
I think the SLABS "bubble" is 33% human interest, 33% hype, and 33% reality.
First - Human Interest: Post-secondary education is seen by many as a birthright, and people are going to get worked up when tons of kids, who were told to "pursue their dreams" with no regrets, graduate swimming in debt. It makes for good news, and more importantly it challenges the basic assumptions of the American Dream, socioeconomic mobility, etc. I.e., these poor kids deserve whatever educational advancement they can attain, and Student Loan lenders are taking advantage of them. Similar to the pathos with the housing bubble - I'm not saying I don't sympathize with borrowers, but they are not guiltless just because they were naive.
Second - Hype: The point of the FFELP backing is to put a floor on losses, enhancing creditworthiness (and subsequent SLABS rating), thereby facilitating a much larger market and subsidizing availability to ultimate borrowers. FFELP-backed deals comprise the vast majority of issuance, at least 80% last time I checked. **Given this proportion, the 97% Uncle Sam guarantee effectively takes tail risk out of the picture.** Barring the Federal Government cutting FFELP loose and abandoning the wraps, losses are a known quantity. This isn't to say that SLABS are a slam-dunk for investors - the guarantees are well priced in - but the market can't really implode.
Third - Reality: At the end of the day, there are probably too many loans which won't be paid, or their repayment will come at material personal and social cost. We aren't quite facing a generation of art-history majors with 50k in 6.8% loans, but we do need to rectify our attitudes towards university education (both among parents and university officials), encourage responsible decisions among youth, and make financial literacy a god-dammed national priority. How this didn't happen post-08 is beyond me.
"There are three ways to make a living in this business: be first, be smarter, or cheat."
Lots of good input on this
Lots of good input on this thread so far, lets keep this going!
Here to learn and hopefully pass on some knowledge as well. SB if I helped.
College tuition is rising so
What this all comes down to
Do you need good credit to
The Four E's of investment
"The greatest Enemies of the Equity investor are Expenses and Emotions."- Warren Buffet
For kmess024, I've heard that
Moneyball
See my other WSO blog posts
Thread hijack: best ways to