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
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:
No promises, but thought I'd mention a few relevant users that work in the industry: Asset Management Guru @Robert D.-Little II" Jeffrey-Lagomarsino
Fingers crossed that one of those helps you.
Bump
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.
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.
Yup, I remember that now thanks... Been a while since my Sophomore year research into this topic for an assignment haha.
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.
If tens of millions collectively decided to just stop paying, overnight, into all perpetuity:
Lenders would sell their debt to debt collectors, while facing massive drops in income. Some would go bankrupt.
Debt collectors would probably garnish paychecks into all perpetuity
Schools would shut down, as students wouldn't be able to pay for tuition.
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.
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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