Can someone that knows their shit ELI5 what would happen if the student debt bubble bursts?

I want to know: How is it going to burst? They have to be paid back right? So you cant default on them.

What will happen to: Students, people with debt, and how it affects students in finance specifically and people just barely graduating looking for IB or any job in banking/trading

What's gonna happen to my debt? I dont have any right now because I think personally I made a wise decision to go to a CC for 2 years, but I'm only a freshman so I have time for it to fuck up.

Will I be able to get a job? Etc

Comments (9)

Oct 16, 2018

Hey qocbd, I think you deserve a response...heck, everyone does. We're listening, sorry about the delay ...my best guess at places on WSO that could help:

  • Stop Subsidizing the Dumb and Lazy (Student Loans) based on intelligence or work ethic, is letting the student know that no matter how hard he/she does not ... the $1T in debt outstanding in student loans is not able to be paid back? Currently with youth ... Student loans provided by the Government to the dumb and lazy are a disaster. It is a
  • What's the worst that can happen? alias of "Cletus," gets caught. It turns out that Cletus tried to redeem the cost of a steak ... Hey boys, I'm in a bit of a pickle here at work and I need some opinions on how much shit ... have a dinner policy that allows us to redeem any meal cost under $30. When I first started, I was ...
  • Math behind pricing a CMBS loan I get that it is market driven, but can anybody ELI5 the math behind how that is derived? or even what ... but I think this helps the team come up with the 210-220 bps. If somebody can walk me through the math ... of 210-220 bps. I also see references to a "15 bps per point". I dont know
  • AMA- Analyst at $1.5B Endowment Fund email and asked if the role would be on her team. She responded within an hour, telling me that it was ... report if I got the job, which I know both of the interviewers liked. What is a day in your life like ... writing and to always double-check your work. What advice would give to current students<
  • Bonus Use: Pay Off Student Loans vs. Grow the 401k the more conservative approach of growing the 401k, one which I happen to agree with. However, if ... someone, like myself, is about to graduate from college with a decent amount of student loan debt, does it ... been under the impression that one should eliminate personal debt as soon as possible, while still ...
  • What's the smartest thing a recent graduate can do with the money they earn from their first job/bonus? possible? What would you do if you could go back to being 22 right out of school to make yourself richer ... Just curious what the brilliant minds of WSO have to say about this. Obviously it's a good ... idea to pay down debt and not spend your money on a sports car, but also given the current interest ...
  • What if I Can't Afford a Target School? carry the debt of these schools? At what point would you consider the advantages of a target to be ... outweighed by the debt incurred? For example: Boston College at 55K / Year and graduate 80K in debt or ... back student loans with interest? Thanks for your help ...
  • More suggestions...

No promises, but thought I'd mention a few relevant users that work in the industry: @Asset Management Guru @Asset Management Guru @Jeffrey-Lagomarsino

Fingers crossed that one of those helps you.

Oct 19, 2018

Bump

Oct 19, 2018

I'd like to preface by stating that I haven't done too much research on the matter and anyone that is more of a SME, please feel free to chime in / correct me if I'm mistaken.

"I want to know: How is it going to burst? They have to be paid back right? So you cant default on them."

Not exactly sure what you mean by this. Of course you can default on your debt. It would hurt / destroy your credit and make it subsequently more difficult / impossible to get future mortgage / car / credit card loans but sure it is possible. I think about 20-30% of student loans are in delinquency right now. (It differs for each type of loan but I think this is either 30 or 60 days w/out a payment).

"What will happen to: Students, people with debt, and how it affects students in finance specifically and people just barely graduating looking for IB or any job in banking/trading"

Again, what do you mean "how it affects students in finance". Asking this is like saying "if the housing bubble bursts what does it mean for people living in Michigan"

I think you need to do a little more reading on the matter before resorting to asking an ELI5.

Oct 19, 2018

Just so you know, while you can default on student loans, since there's no collateral associated like there is with a mortgage they won't just go away.

With a house, if you can't pay, the bank takes it and it's done and you move on.

With private student loans, if you can't pay, they'll send collection agencies, garnish wages, sue and/or seize assets. With federal, you should be doing an income based plan so if you can't do that then you're likely financially irresponsible and the government has a lot more power to get their piece back without using legal action.

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Oct 19, 2018

Yup, I remember that now thanks... Been a while since my Sophomore year research into this topic for an assignment haha.

Oct 19, 2018

I don't think it will burst per se, but I think there's going to be massive drop off in consumption to compensate for the long term liability from this generation which leads to stagnation in the rest of the economy.

Not too high, not too low

Oct 19, 2018

If tens of millions collectively decided to just stop paying, overnight, into all perpetuity:

  1. Lenders would sell their debt to debt collectors, while facing massive drops in income. Some would go bankrupt.
  2. Debt collectors would probably garnish paychecks into all perpetuity
  3. Schools would shut down, as students wouldn't be able to pay for tuition.
  4. Regulations would be introduced. It would probably become much harder to get student loans, and I can only guess that it would become harder to start a school.

I think it would be pretty devastating on the economy.

But you also have consumer loans, car loans, etc. to watch out for.

Oct 19, 2018

Since it's hard to discharge student loans in bankruptcy, I think the most likely outcome is it's a slow drag on the economy for quite a while. Unfortunately the federal government has decided it wants to be in the student loan business, and holds a shit ton of loans. More people will be delinquent, but they'll garnish wages or whatever else to get some of it back. This is likely one of the big reasons why people are buying houses, getting married, etc. later in life now. So in that way it'll impact the broader economy.

I guess there's always a chance a Democratic President and Congress forgive a ton of federal loans at some point in the future, or make them easier to discharge for people making under a certain amount or who have been paying back for decades (but haven't paid them off because they're barely attacking the principal).

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Oct 19, 2018
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