$600,000 in student debt - Will The Bubble Pop?
Student loan debt is the second largest amount of debt behind mortgages, according to the Fed. Over the past decade, the amount of student loan debt has almost doubled, along with the average balance of graduating college students. A recent article on CNBC covered the story of a 48-year old mother of two admitting to having around $600,000 in outstanding loans (of course, not uncommon, but alarming nonetheless).
According to the article,
“Benson and her ex-husband’s student debt, which started at around $150,000 in the 1990s, has ballooned from interest and late fees”.
Borrowing is unlikely to slow down and the cost of education is only rising. At the same time, the student loan default rate more than doubled between 2003 and 2011, according to Education Department data. Forty percent of student borrowers are expected to default on their loans by 2023, according to the Brookings Institute.
“Cost escalation, which would normally be met with consumer resistance, is being facilitated by the easy availability of credit,” Nassirian said. “It’s disturbingly similar to what happened to tank the mortgage market.” “Predatory colleges target the same low-income populations that the subprime mortgage boom targeted by offering a similar promise of white picket fences and higher education as part of the American middle class dream”..
On the other hand, others say the mechanisms behind student loan debt are dissimilar to what we saw during the housing crisis in 2007-2009. Unlike other forms of debt - notably mortgages and auto loans, the collateral that backs student loan debt is the borrower's future earnings. In addition to this, degrees cannot be bought or sold, there is no real "value" to the degree outside of whatever use the graduate can make of it.
Thoughts? Will the student loan bubble pop? And any advice on current loan payments in general is also welcome.
Obviously, the status quo is unstainable. How its disruption/collapse will play out or how swiftly it will happen is anyone's guess. I'm not an expert on the issue, but as far as I can tell, the government guaranteeing loans to just about any student for any degree has bastardized the supply/demand equation, introducing artificial demand and reducing the incentives for colleges to innovate, be more efficient, or compete on cost. Socially, we need to get away from this idea that everyone should go to college.
I'm a big proponent of community colleges for students who are trying to figure things out because it's much less expensive to drop classes, change majors, etc. Unless someone showed exceptional academic potential in high school, I question the utility of shelling out $25K/year for English 101 mass lecture hall classes when community college is offering them for $2,000 a year and you can transfer to university (like I did) if you do well. In the end, my degree still looks the same as if I'd spent all four years there. And even though I transferred as a junior, I still met tons of people in my major coursework (accounting/business) that I keep in touch with and network with to this day.
Agreed. Unfortunately the liberals dominate higher education and will fiercely fight any proposal to not allow federal student loans to shitty majors/colleges Seriously know so many dumbasses that took Art as their major (not even at an Ivy).... lol good fucking luck.
Nothing will change until shit blows up. I believe what you touched on will be a driving factor though - that is, kids start taking more community college classes; attending trade schools; some colleges lowering pre-req requirements/lower the credits required to obtain a Bachelors (I believe this would require state approval... again, good luck passing something like that in Cali/NY etc)
Nobody is worried about Harvard grads. Other than the hard sciences and maybe accounting, colleges are a filtering mechanism. If you get into Harvard, you’re probably smart. I’ll hire you.
What we should be worried about are no name colleges (SW Bumfuck University) that accept anyone with a pulse. Employers assume that the kids there are probably not smart and they are often correct. Throw in a useless major at one of these schools and the kid is unlikely to earn more than if they never went to college at all. Yet, they have to pay money (usually borrow) for that privilege and delay their earning years. Dangerous combo.
Places that are thrown around here as “non target” are often pretty good schools, compared to the worst of the bunch where few people even graduate and those who do get jobs that used to be for high school grads.
Getting into top schools is a lot more about accessibility than "brains". Sure, the average SAT score at [insert school] is maybe a 1500, but how many of those students were taking prep classes? How many had access to tutors for their AP bio class? How many could go to math camp every year instead of having to work a full-time job during the summer to save for college? So I guess it depends on how you define and measure intelligence. As an employer, a "prestigious name" shouldn't absolve a candidate of such evaluation. The kid at SW Bumfuck just might not have had the resources, but might have way more grit and creativity than a Harvard kid whose 4.0 is actually a 3.2 minus inflation.
But I agree, a useless major at a no-name is a dead end and debt trap.
Absolutely agree that accessibility is a major factor, but the majority of students at these no-name universities (per the SW example, if you're telling me what part of the state you're in, pass), even if extremely bright probably should be in CC. If they are really bright and at one of these schools, there is a high chance it is because they did not have the social circles to give them access or knowledge.
In high school I went half day to a CC and found that the teachers there were extremely passionate about giving guidance to the students. Whereas in no-name state, you get associate professors like my Aunt who has been pursuing god know's what Ph D. in some bullshit studies of dance in 1960s literature for 20 years but isn't done. These types of people don't care about students and think they are smart as shit. If you have a conversation with them on any issue for debate, they will end up using some off-issue point, often insulting or diminutive, because they realize that they have exhausted the 3 points they had to make and don't want to admit they're wrong or have flawed logic.
I'm generalizing big-time on the people here, but I have friends who have gone to these schools and I've seen the professors. Most don't give a shit, and it doesn't help the students trying to figure it out at all.
A lot of kids show up at their university freshman year with no idea what they're doing, because college is the "safe" decision. They screw around for two years, change majors a few times, drop some classes, and drop out with $50K in student debt and three semesters worth of credits. I read somewhere that people who didn't graduate college default at higher rates even though their average debt tends to be lower. It begs the question...why were they there at that price in the first place? Many of them would have likely been happier and more successful going to learn a trade and make money.
Community college was perfect for me. I despised high school, got suspended multiple times, and barely graduated with a 2.3 GPA even though I did very well on all my standardized exams and could have gone to a "target school" if test scores were all that mattered. I was bright, but I hated having to ask someone for permission to use the bathroom when I was 17 years old with an after-school job paying a lot of my own bills. Community college was my "I'll give it a try" approach to college, and it turned out to great because teachers weren't assholes and treated me like an adult. I did well in community college, transferred to my university as a junior and did well there, broke into financial services, and the rest is history.
IMO, at least 25% of freshmen on any given college campus should be in community college instead, and that number is probably closer to 50%. Let kids figure it out for $2,500 a year instead of $25,000.
I don't think any college should be free. Even if it's like $20 a class, you should have to physically go out of pocket for some amount of your hard earned money to study something. The simple act of doing that is a much better motivator than signing up for free classes. Hell I am motivated more to make use of my $10/month Netflix account than the world's free knowledge at my fingertips at Khan Academy. If Khan Academy charged $0.99 a month then I would probably watch more videos, it's human psychology.