The Student Loan Bubble

MommyLiberty5013 · July 2014

This has come up a bit on other discussions...

What do you gals/guys think this will look like when it bursts? When do you think this will happen? What role do you think colleges and universities will play in causing it or helping clean up the mess? Whose fault is this? What responsibility do students with loans need to take here? What do you think is a realistic level of tax payer involvement, if any?

I realize these are all highly speculative questions. I think we agree that there is a SL Bubble and as all bubbles do, it will pop. Right?

What, if any, steps are you taking or considering to navigate this economic situation?

smbenevides1989 · July 2014

I agree with @AprilH81. Schools are becoming too much of a showcase system than an education system. You don't need all the extra fancy stuff just to have a "great college experience". To me, I think that can ultimately hinder a student's education by feeding them fun instead of knowledge.

What do you gals/guys think this will look like when it bursts?

-All hell will break loose? I have a feeling some colleges that need the influx of funds in order to stay open will close and those students will end up having to find somewhere else to get their education. Of course, other colleges will just have to find a way to fund the colleges from someplace else. There may even be an issue with bail outs. It's just going to be an overall mess.

When do you think this will happen?

Probably within the next 5 years if it goes at this rate.

What role do you think colleges and universities will play in causing it or helping clean up the mess?

They will probably start shutting down some activities to save on costs.

Whose fault is this?

-It's an all around fault - schools for uping their prices, student's and parent's for not taking the time to understand what they need to do in order to limit/avoid SL.

What responsibility do students with loans need to take here?

-The responsibility will just have to lie with the parents/student. They chose to get the loans taken out, therefore they will just have a rude awakening about paying them back.

What do you think is a realistic level of tax payer involvement, if any?

hoffse · July 2014

Honestly? I think what will happen is the government will simply forgive them. We'll have a big bail out, and it will be one of those things that shuts the government down for a few weeks because they will fight over it, but at the end of the day there will be a big bail out once the bubble pops.

And only then will they address student loan reform.

I'm thinking we're 5-10 years away.

MommyLiberty5013 · July 2014

I hate to say it, but I think we're in for another bail out too. I just don't see anyone wanting to own up and take responsibility. The issue is that after the housing bubble and the recession and the weak dollar, how much more can our economy sustain all the while going deeper and deeper into debt?

vlagrl29 · July 2014

hoffse said:

Honestly? I think what will happen is the government will simply forgive them. We'll have a big bail out, and it will be one of those things that shuts the government down for a few weeks because they will fight over it, but at the end of the day there will be a big bail out once the bubble pops.

And only then will they address student loan reform.

I'm thinking we're 5-10 years away.

exactly this! There is so much student loan debt they are forgiving right now why not the entire thing?

vlagrl29 · July 2014

as it stands now, if you make student loan payments on time for 20 years isn't the remaining balance forgiven. I could be wrong, but that's what I thought I had read.

brij2006 · July 2014

vlagrl29 said:

as it stands now, if you make student loan payments on time for 20 years isn't the remaining balance forgiven. I could be wrong, but that's what I thought I had read.

How do they not see something wrong with this picture? There's obviously something wrong with the way the money is being used/treated if this is what we have to come to.

Keeptruckin · July 2014

I am Canadian so our system is a little different. While I do think the naivety of some younger students is to blame, I also see a shift almond friends and coworkers. I know quite a few 30 something's who have decided to go back to school and are getting student loans. The money is going to pay bills and buy cars, not just on tuition. My one friend went to school in her late twenties to study Chinese medicine. She figured it was a way to stay home with her baby. Take a few classes and use the rest to cover the shortage from her quitting her job to stay home. She now has 60,000 in debt for a job that pays less than the one she had.

brij2006 · July 2014

What do you gals/guys think this will look like when it bursts? Some colleges will close down, cut programs, and people won't be able to get loans to go to school

When do you think this will happen? Within the next 5-10 years

What role do you think colleges and universities will play in causing it or helping clean up the mess? They will cut programs, fire professors and support staff, and put a cap on maximum new students they will accept.
Some state schools (like Nevada) are already doing this due to state budget cuts.

Whose fault is this? I think it's the lenders' faults. They're treating student loans the same way they treated mortgages just 5-10 years ago. We all saw what that did.

What responsibility do students with loans need to take here? They need to really try and understand what student loan debt means, what they're getting for their tuition, and what they can do with their degree. Also that college is not a party time to rack up debt and have a free-frall.

What do you think is a realistic level of tax payer involvement, if any? I don't think tax payers should be involved in this fix, but we all know how that ends up. The government steps in and the tax payers pay for it.

I realize these are all highly speculative questions. I think we agree that there is a SL Bubble and as all bubbles do, it will pop. Right?

What, if any, steps are you taking or considering to navigate this economic situation? I'm making sure that our children are not put in the same situation my H and I were put in. We graduated with a combined student loan debt of almost $90k. H took a factory job that paid more than using his degree would, and I took a decent job that my SL payment took 40% of my takehome pay.
We want to make sure our children do have college funds, but that there are stipulations to those funds. No private school, a degree you can actually use, and you work while in school.

Xstatic3333 · July 2014

I agree with PPs that this is mostly the government's and schools' faults. Costs are skyrocketing out of control. It's also the fault of the "everyone needs to go to college" mentality that most of us in our 20s and 30s grew up with.

I have a hard time imagining a blanket forgiveness of SL debt. I can't see Congress going for it, not that I think they should. I do think we'll see more and more people going into forgiveness programs now that they are better publicized. What I would LIKE to see is refinancing options that would reward those who pay back their loans responsibly, but that just failed in Congress and may never be back. I just think that's a better way to go than forgiveness for most borrowers (not all-shout out to the board regulars using PSLF responsibly!)

I'd also like to see some money going into federal programs to educate kids about loans. Another thing that I think could help is caps on borrowing based on major or program. I, as an environmental scientist, shouldn't be allowed to borrow $150,000 like many of my friends did. Max salary in my field probably tops out around $80,000 if you're lucky. For a future physician, however, that could be reasonable. Of course some people don't end up practicing the fields they study, but it would be a start.

Wulfgar · July 2014

I am thinking that the student loan bubble will bust within 10 years.

I believe that it is the main stream media along with everyone else's fault with all of the go to college to get a degree to get a "good" job.

What I have thought and would love to see is that you can't borrow more than 1.5 times your starting salary for the degree that you want. If it is a liberal arts degree that has few job openings and very low income potential, these would have to be paid in cash, no credit.

Part of this could be solved by cutting all student loans for those going to for profit schools that have a high drop out rate. That would be the first step. The second step would be to stop giving student loans to those that don't test into college level classes. If your first semester or year is all about college prep, that should be paid in cash.

hoffse · July 2014

I think one issue is that traditionally, most true liberal arts degrees don't just hand you a job when you graduate. They never have, and that was never the point. I had three majors in college - English, art history, and political science. There was virtually nothing I could have "done" with any of them, short of continuing my education or getting some job that didn't relate to any of them directly. I was ok with that, because I didn't major in those areas to get a job - I majored in them because I found value in learning about those things for 4 years.

That's consistent with most of the liberal arts majors - philosophy, history, even math and the pure science majors (bio, physics, etc) often have to keep going if they want a job that directly relates to what they studied. Not always, but usually. There's nothing wrong with that - a liberal arts education has never been about securing a job post-graduation. A BA and a BS aren't terminal degrees, and they've never been treated as such. And that's the primary reason why college is not for everybody - more people should be going to training programs immediately after high school because that does relate directly to a job post-graduation. And it doesn't require continuing your education.

I think the bigger issue is that the government is willing to give unsecured loans to 18 year olds that are the size of a mortgage without a credit check and without adequate preparation of what it means to borrow $100K+. The gov simply has assurances that when the kid goes bankrupt someday, they are in front of other creditors.

Sisugal · July 2014

What will happen? You will continue to see Community Colleges grow with more students attending 2 years schools which offer job oriented skills.

Our local university just published it's budget for the coming school year. They are "hurting" due to lower enrollment (demographics for incoming freshmen have declined over recent years), increase in minimum wage adds cost (almost 1M, increased health care premiums, increased teacher salary, increased energy costs.

Why should there be a bailout? If you borrow it - you need to pay it back. Compare how much people will spend on vehicles and houses over the next 30 years vs the student loan amount. Does borrowing for school impact personal finances and the economy as a whole -- absolutely. So - the solution may be to lower expectations about which college you go to, work and save for a few years before going to school - workFT and go to school PT, go to community school, and over all down size your lifestyle to afford an education.

BlueBirdMB · July 2014

hoffse said:

Honestly? I think what will happen is the government will simply forgive them. We'll have a big bail out, and it will be one of those things that shuts the government down for a few weeks because they will fight over it, but at the end of the day there will be a big bail out once the bubble pops.

And only then will they address student loan reform.

I'm thinking we're 5-10 years away.

And then the entire economic system will unravel. Money doesn't grow on trees. Those government backed loans… when we have to pay for all of it… there isn't money for it. That's a fact.

smerka · July 2014

Hoffse - I think you are wrong about BAs and BSs being all you need to get a job. My parents' generation, the oldest Baby Boomers, absolutely could get jobs with just a bachelors degree. My generation, Gen X (I'm 41), could get jobs assuming your degree wasn't in art history, philosophy, etc. My degree is in geology and there were lots of opportunities when I graduated and tons if I wanted to work in the oil industry. A lot of the 'softer' majors could get jobs with Accenture and the other big consulting companies where they would get training. Those jobs blew up with the Enron scandal. When the Baby Boomers' kids started graduating from high school, they assumed things were the same as when they were kids and pushed their kids to college. But the Baby Boomers didn't save for college because it was pretty cheap when they were kids. My parents went to college for free or paid a couple hundred dollars. So they started taking out loans and flooding colleges with students.

Sisugal · July 2014

There are many trades that only require 2 years - and a 2 year school may also be a cheaper alternative to complete your universal credits before transferring to a 4 year college for those who need at least a BA.. After that my advice is work a few years then seek a MA if wanted/needed to advance a career.

Not all markets are the same - if you are on the east or west coast you are dealing with a different job market than fly over country. Also not everyone wants a high power career track. They need a job -- I see far too many PhDs without one - much less one in their field.

Sisugal · July 2014

Have you priced what an electrician or plumber charges? ($75 and hour in my MCOL area). My brother builds high end custom homes (no degree) and makes more than I do with my degree.
We are both happy with our choices.

uncreatedsnow · July 2014

Sisugal said:

Have you priced what an electrician or plumber charges? ($75 and hour in my MCOL area). My brother builds high end custom homes (no degree) and makes more than I do with my degree.
We are both happy with our choices.

My dad is a plumber and doesn't understand why I don't make more than he does(6 figures) because I have a degree and he doesn't.

#NoPressure

brij2006 · July 2014

Sisugal said:

Have you priced what an electrician or plumber charges? ($75 and hour in my MCOL area). My brother builds high end custom homes (no degree) and makes more than I do with my degree.
We are both happy with our choices.

I'm just going to throw this out there. We live in a LCOL rural area, a college degree is not something people get, and there are mostly labor intensive jobs.

I know a farmer who netted $500k last year, and a crop sprayer who netted $130k. I have a bachelors degree and am nowhere near either one of those, and work in the same town.

There are opportunities for people to make great money if they're willing to put the work and effort into it. I think what is hurting our society right now is that the new generation coming into the workforce thinks they have to have a college degree to make good money, and that because they have that degree they should out-earn the ones who do not have one. That just isn't the case anymore. Employers are finally starting to pay based on your effort, not your resume.

formerlyGDaisy09 · July 2014

I'm going to agree with @Hoffse, that private-liberal arts colleges do offer more than a degree, I double majored (Chemistry and Dance) and have used both those degrees professionally, so there is additional value in those schools. I had opportunities to do research that only graduate students at larger public universities get to do. I enjoyed small class sizes (one on one attention in 100 level science classes, unheard of in public universities). Leading up to graduation I made strong connections in a tight alumni-network. And only got a job in May 2009 because an alum of a different small private liberal arts college e-mailed my advisor asking if she had any graduating seniors interested in a research position.

I'm not sure I would have found the same kind of success at a large public university...my state school would have been UCONN, I think I would have changed majors if 100 and 200 level chemistry classes had 200-300 people in them...

I also think that BAs and BSs are becoming the "new high school diploma" in some industries, that said I feel I was successful in working for 2 years and then working and simultaneously completing my MS over 3 years....the best advice I got was to find a way to get someone else to pay for graduate school (i.e. my employer). the utility of higher education has shifted, we also must shift how we think about paying for higher education.

In healthcare we talk about providing valuable care where value is the quality divided by the cost...perhaps there should be a value equation for higher education? where class size, networking opportunities, employment/graduate school acceptance rate, etc become the quality piece and average student loan debt upon graduation becomes the cost piece? Some liberal arts schools do a great job at providing aid/scholarship to prevent students from accumulating massive amounts of debt, others (the majority) do a very poor job.

hoffse · July 2014

BlueBirdMB said:

hoffse said:

Honestly? I think what will happen is the government will simply forgive them. We'll have a big bail out, and it will be one of those things that shuts the government down for a few weeks because they will fight over it, but at the end of the day there will be a big bail out once the bubble pops.

And only then will they address student loan reform.

I'm thinking we're 5-10 years away.

And then the entire economic system will unravel. Money doesn't grow on trees. Those government backed loans… when we have to pay for all of it… there isn't money for it. That's a fact.

Well... if you are the US government, it does sort of grow on trees. Or rather, it's grown from the US Mint, which is under control of the US Treasury Department and then distributed to the fed for circulation. So when they run out, they can simply print more.

Does printing extra money devalue the money currently in circulation? Yes. But also means that the government actually CAN do wide-spread bailouts if they wanted to, without raising the money to do it through taxes. It's not great fiscal policy, but it's possible. Or they can do a bailout through additional US debt & issuance of bonds.

Taxes aren't the only way the government gets money to spend.

To be clear, I absolutely think people should pay the loans they took out. But if we're talking about what we think will happen, vs. what should happen? Well I think people SHOULD pay them back. But I also think there will be a bailout.

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