Skip to comments.Student loans: The next bubble (Do we have time to stop it?)
Posted on 05/15/2012 6:20:49 AM PDT by SeekAndFind
Washington is now debating how to keep student-loan rates low even as parents put the finishing touches on their kids college financial-aid forms. Everyone agrees that there is a student-loan crisis yet few seem to notice the student-loan market and pre-crisis housing lending are looking more and more alike. The result is likely to be no less so.
Washington policy-makers were quick to condemn private-sector lenders for the housing crisis, for pushing unsuspecting borrowers into houses they couldnt afford. The crisis featured no-documentation loans, low teaser interest rates and a disregard of the collateral supporting the loan. When housing prices stalled and then fell, the whole structure collapsed.
So how is the student-loan crisis like the housing crisis? The harder question is: How are they different? First, consider the student-loan borrower. Next to someone with a record of default, someone with no credit history is your next worst risk. Yet, that describes the student borrower.
These untested borrowers arent lent small sums, either. Government student loans can easily exceed $100,000 after graduate school. The chorus has risen loud when credit cards are marketed to students, yet the same individuals can rack up vastly more debt through a student loan. Second, consider the interest rates. The Washington debate now isnt over whether to lower student-loan rates, but how to pay for it. Lower rates through government subsidization call to mind housings teaser rates.
Student loans are subsidized in many ways. The Congressional Budget Office estimated in 2010 that the governments subsidy for a direct student loan amounts to 12 percent on a fair-value basis. Such subsidization encourages borrowers to take on more debt than they would if they had to bear the true economic costs.
Thats exactly what has happened.
(Excerpt) Read more at nypost.com ...
Major difference, you can go bankrupt or let the bank foreclose on the house.
You cannot discharge student loan debt through bankruptcy.
I’m sorry, young sir, but you’re taking the first step into the liberal education system, where costs constantly rise, and the quality of education constantly drops. Your ‘teacher’ likely works 10 hours a week, and pulls down close to $120k in salary and benefits, not to mention a retirement plan that will blow away that social security thing.
To indoctrinate you, your school has encouraged you to finance your tuition, your room and board, some of your day to day expenses, and possibly helped you find a credit card to charge your books to. Oh, and socked you at least an additional $1,000 for a mandated health care system.
They’ve done all of this, yet you direct your anger not at the people who are ripping you off, but at indistinct others. Someone else needs to pay for this, you say, the trumpet call of liberalism. ‘Someone pay for this, just so long as it isn’t me.’
To the poster, I say, for these students, it was too late the day that they signed the papers. Unlike home loans, student loans can’t be discharged through bankruptcy. These loans will be paid off, even if every menial job this college student has for the rest of his life is garnished. Worse still, the vast majority of the loans are already owned by the federal government - no need to bail anyone out.
You’re right: an asset is not a liability.
The bubble is in our current fashion of higher education, not in the loans themselves. Federal grants and loans have been the inflators to fuel it.
The student loan debt is about $800 billion and counting. Yes, 800 billion dollars.
That's not a crisis, that's an investment in higher education.
Now, as a taxpayer, I expect something for that investment.
(((( crickets ))))
I’m not sure I disagree with them but of course not for their reasons.
The Universities and Financial institutions loan 18 year olds tens of thousands of dollars. There are very few controls on the money. Many kids literally party the loan money away. At best its used to pay rent and car payments.
Add some risk and the lending institutions would back away. The Universities would be forced to reduce their outrageous prices or have empty classrooms.
Pretty much let the free market do its job.
I agree with your points.
I’ll add that it really is quite the racket—the student loan biz. Quite akin to loan sharks.
I smell flop sweat from the Oval Office...and I think the “he’s gay” rumors are going to hit the msm pretty soon...that was what the NewsWEAK cover was all about...to try to inoculate him. He’s going to need SOMETHING, and I have two guesses. 1) Bail out the dopes that got these loans for the worthless Studies degrees 2) Ratchet up racial conflict into an all out race war.
This guy is desperate and he knows he’s about to be outed. His down lown status, his real father, that Ayers wrote his fab book, that Mooch did a pay/play thing at hospital in Chi, etc. It’s all just starting to boil. He will act increasingly desperate as these tidbits start coming to the surface.
Democrat politicians support the college bubble because they know indoctrinated students vote Democrat. The junk science here is that college educated people make more money. All it resulted in is millions of Democrat voters in over their heads, and a huge destruction of wealth.
When government tries to help the free market, government destroys the free market.
I have to ask the obvious question; If these educated young folks are so smart, why can’t they recognize the tab they’re running for four or five years ?
I believe that is the right approach. These "kids" can't give back the knowledge they received (I don't care what major/minor they took). What are we to do? Forgive this debt and tell them they can never have a job in the field for which they studied?
sorry kids, you signed on the line now you own this debt and your life's full potential will not come about until your debts are satisfied; you are slaves to the government you cherished in college.
Actually, I take some of that back. They are slaves to the re-payment of tax dollars that backed their loans and subsidized their college’s. Can’t pay it back? Well, get over here and paint my house and wash my car then (I’m a tax payer kid); have to start somewhere on this re-payment thingee. /s
The “bubble’ is not so much with student loans, but with the vast inefficiencies of academia, suffused as it is with vastly unproductive and talentless administrators and “educators”.
I agree to a certain point. That point is when the Universities and lenders get into a predatory mode.
My son just finished his freshman year. He was told numerous times that he’s an adult now and is parents don’t control him. At the same time they were trying to sell him something.
True - this is really a hugely lame article - loans to thousands of students and former students don’t equal a bubble that can go south. Each one has its own baggage to work out.
Thankfully, huge write offs needs a vote from Congress - Obama, of course, would like to avoid that and write off millions in trade for votes.