patrick.net

And for anyoen who doubts the existence of a student loan bubble, jsut read this gem:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/04/30/MN4G1J8PRR.DTL#ixzz1LJFiq0xI

A friend of mine in Chicago is paying for her daughter to attend acting school in Los Angeles. Very pricy school. Not to mention living in SoCal for the next three or four years.

http://aada.org/home/home.html

My guess is that by the time she gets her acting "degree" (???), it will have cost well over $150K. Then what does she do? Get a job working fast foods?

I'm amazed her parents are funding this scam. No telling how many loans are involved. The Dad's (Bio and Step) I'm sure have been told to stay out of it.

My suggestion to my friend is that maybe her daughter should look into serving in the military for three years. Then she would have some educational benefits in which to pay for school. Assuming this "school" is approved by the VA.

Suggestion did not go over well.

HousingWatcher says

NEW YORK — The average college graduate leaves school with $24,000 in debt

That's it!? I'm surprised it's not more considering....

HousingWatcher says

Over the past 25 years, college tuition and fees have risen three times as fast as individual family income. And over the past decade, tuition has increased at a rate of 5.6 percent per year beyond the rate of general inflation.

Not everybody is ignoring it anymore. On a flight a few months ago I watched a 1 hour news special on the topic - one of the major news networks forget which.

I'm not sure "bubble" is the right word, but the ever rising levels of debt being offered to students to cover ever rising education costs are a large part of the CAUSE of those rising education costs, much like with the housing bubble.

SF ace says

you can default and file bankrucpcy as many time as possible, but students loan can almost never be discharged. It’s 99% risk free to the lender and 100% risky to the borrower. Of course, because the loan cannot be discharged is also the reasons the rate of interest is so low and access is easy.

= Bailout guaranteed?

That $24,000 can quickly grow during deferments when the bororwer has no job for several years. $24,000 is what they have in debt on the day of graduation. PLus, in many cases, those students will go on to grad school where their loan balance will quickly skyrocket. Law school will add $120,000 to that balance. Med school will add $250,000 to that balance.

klarek says

People seem to think I’m harsh towards those who bail on their mortgage obligations. Fact is that if you’re using a loan to pay for school (and very few these days CANNOT avoid this), you’re married to that debt for life.

Out of the blue... know anyone who used mortgage debt to pay off their student loans?

terriDeaner says

klarek says

People seem to think I’m harsh towards those who bail on their mortgage obligations. Fact is that if you’re using a loan to pay for school (and very few these days CANNOT avoid this), you’re married to that debt for life.

Out of the blue… know anyone who used mortgage debt to pay off their student loans?

No but there are allegedly people who have paid off student loans with credit card debt then bk'd.

shrekgrinch says

So watch the Feds turn it into a ‘public service’ scam for those who can’t pay.

They already have (nytimes):

Obama Signs Overhaul of Student Loan Program
http://www.nytimes.com/2010/03/31/us/politics/31obama.html

Students who borrow money starting in July 2014 will be allowed to cap repayments at 10 percent of income above a basic living allowance, instead of 15 percent. Moreover, if they keep up payments, their balances will be forgiven after 20 years instead of 25 years — or after 10 years if they are in public service, like teaching, nursing or serving in the military.

terriDeaner says

or after 10 years if they are in public service, like teaching, nursing or serving in the military.

thats terrible favoritism. Obama is really a big socialist after all. Way to stick it to the private sector.

ChrisLA says

terriDeaner says

or after 10 years if they are in public service, like teaching, nursing or serving in the military.

thats terrible favoritism. Obama is really a big socialist after all. Way to stick it to the private sector.

I think the point has been made before, but these are not particularly well paying jobs at the entry level. And depending on where you end up in the hierarchy of these career fields, those 10 years of debt slavery could end up being pretty rough.

Somebody says

Way to stick it to the private sector.

LOL.

http://research.stlouisfed.org/fred2/series/UNRATE

Troy says

terriDeaner says

Way to stick it to the private sector.

I didn't write that - Chris did.

Correct me if I am wrong, but I think that the term "bubble" is being thrown around a little fast and loose here.

Don't get me wrong I think there is a big problem with the debt people are taking on to get a degree, and yes tuition inflation has been going crazy.

But, don't you need a "greater fool" to have a bubble?

As stated by others the debt is not dis-chargeable, and there isn't going to be another "consumer" buying someone's education (hopefully an employer will, but I hope you get the point). Pretty much the only person screwed is the indebted student. Yes I understand the greater economic implications of this, but no one else is left "holding the bag" so to speak.

shrekgrinch says

The student loan indentured debtservitude scam is the ultimate vehicle to getting people into debt slavery, in my view.

Wow, shrek something that we are in total agreement on. I did not think I would live to see this day.
shrekgrinch says

And the federal government just took over most of it (the banks just originate the loans for the Feds with the exception of one public bank because a high-powered Dem is on that bank’s board). So watch the Feds turn it into a ‘public service’ scam for those who can’t pay.

Yeah, seems to be the direction it is going, and I don't know if I would call it a "scam"...

... not sure what the mention of an unnamed "high-powered Dem" helps with this point.... but... I guess OK...

shrekgrinch says

And watch those ‘public service volunteers’ end up working Democratic party phone banks around election time, too.

Oh, shrek... oh no... we were so close buddy...

This was just a lead in for another conspiracy theory? Oh, shrek...

Sigh...

Oh, well....

so...

close...

Education is an investment in ones future. Like with most things in life there are no absolutes. Jobs are not guartneeded. And situations change over time. That said, there is a difference between spend 150k for an "acting" degree vs. spending $250k to get your JD and pursue a legal career. One can make a sound investment or one can make a poor one.

I think the biggest problem with education is the fact that almost every high schooler in the country is told "you need to go to college" the focus is put on what schools they can get get accpeted into, not how to make sound career choices.

Although I agree it may not be a bubble per-se, but certainly the if the cost of a degree continues to escalate, a time will come when its cost far outweighs what it "should" when you look at the benefits of having said degree. Much as in a bubble prices rise far beyond what is sustainable. But that said the crash - that is to say people refusing to go to college, or refusing to go to the higher cost colleges - we're nowhere near that point yet.

shrekgrinch says

One futurist blogger has defined a ‘Misandry Bubble’ and its coming collapse. It is fascinating reading…but if you have feminist bone in your body, you’ll be pissed off (fair warning). http://www.singularity2050.com/2010/01/the-misandry-bubble.html

this is one of the most underreported problems in modern western societies. Men are absolutely discriminated against.

"That $24,000 can quickly grow during deferments when the bororwer has no job for several years. $24,000 is what they have in debt on the day of graduation. PLus, in many cases, those students will go on to grad school where their loan balance will quickly skyrocket. Law school will add $120,000 to that balance. Med school will add $250,000 to that balance."

Law school is around there..not sure about med. Grad school frankly is cheap, I actually pay a tad less than undergrad because you take fewer classes and it isn't as long (45 credits vs 120..yes night classes are slightly more to pay but even then it's cheaper)

What this is really about is how FAFSA raises the tuition. Nearly anyone can get student loans. But because there's limited amounts of teachers, staff and buildings the tuition keeps going up. If you can gurantee demand (which the government does) and supply stays the same..in any market prices will go up.

It is a bit funny because old presumptions aren't as true. Private schools already have higher tuition than public so if it can't fill the classrooms they actually lower standards rather than lower pricing. I'm in a public university and I know a private one of the same program that went from 48 credits to 42 where ours is 45...and they don't require a comprehensive exam at the end!

The for profit schools (DeVry, U of Phoenix, Kaplan) are going to probably close in the next few years. The Obama administration has said it wants more disclosure of results of their students and if they get cut off from FAFSA then there's no way students would be able to pay for it.

If we wanted to reverse this simply replace FAFSA with block grants to states to expand their university systems. Schools would have to compete and prices would go down.

In terms of why higher education is persued there's more openness from it than an employer. Students have grades, few employers will open up employee records. Turnover can be high with an employer which can render references moot. Schools have tenure which can last decades.Employers move and are more apt to close, schools not so much. Employers probably won't teach skills that are useful somewhere else because there is no incentive and why would they want to lose an employee to someone else?

"...or refusing to go to the higher cost colleges - we’re nowhere near that point yet."
Um we've been there for years now. I'm in mass and if you think that higher tiered schools aren't having a hard time getting students then you should come here. During the 90's ivy leagues pretty much started handing out large grants instead of loans to students because it was the only real way to add diversity.

Eventually what might end up happening..maybe this might be decades from now...large firms will eventually create a different set of standards maybe by industry certification or whatever in lieu of a degree.

Of course the other issue with all of this is frankly a high school diploma isn't nearly as much of what it was worth before. Heck nearly half of detroit supposedly can't read!
http://detroit.cbslocal.com/2011/05/04/report-nearly-half-of-detroiters-cant-read/

We still for some reason allow people to drop out of school fully knowing that there are no employers that will hire them (I know people that work at box stores and fast food..they don't hire them).

I agree that the term "bubble" is being thrown about a little loosely here.

There was a discussion I saw somewhere that tried to define it a little more carefully.... aha, here it is: http://www.gnomanomics.com/2011/04/tuition-bubble.html

terriDeaner says

Out of the blue… know anyone who used mortgage debt to pay off their student loans?

Personally? No. But I have read/heard countless stories and testimonials during the bubble's collapse about "victims" who did nothing wrong other than "consolidate" their debts. Congrats to them for cheating their way out of student loans, hard to blame them on that. A more honest way to have done it would be to sell the house for a profit, use the proceeds to pay the debt, and rent for a while. But greed and hope for continual equity growth kept them there.

EastCoastBubbleBoy says

I think the biggest problem with education is the fact that almost every high schooler in the country is told “you need to go to college” the focus is put on what schools they can get get accpeted into, not how to make sound career choices.

I agree, and this is in large part because so many jobs will not accept somebody without a college degree, even though there's nothing about the job that would necessitate it.

terriDeaner says

I think the point has been made before, but these are not particularly well paying jobs at the entry level. And depending on where you end up in the hierarchy of these career fields, those 10 years of debt slavery could end up being pretty rough.

I still don't think it excuses the Obama mentality where if one works for the government they should be treated better then a private sector. Huge special interest favoritism, government is not and should not be allowed to treat people different based on their employer.

"That said, there is a difference between spend 150k for an “acting” degree vs. spending $250k to get your JD and pursue a legal career. "

I don't see any difference between the JD and the acting degree. At the end of they day, the actor and lawyer will both be on the unemployment line. Each year, thousands upon thosuands of delusional lemmings enroll in law school thinking they are going to get a $160,000 BigLaw job. Sure they will. And I am going to marry into the British royal family.

Higher education is no doubt the largest domestic bubble of our times.

The question though: how to short it? I can't really think of a way....those for-profit schools have so many other issues factoring in to their valuation...but I suppose that's the easiest target.

I'd rather short mid-tier private, non-profit colleges or the vast amounts of bogus administration jobs where all this excess money goes to. Like people working as the assistant to the assistant to the president or people who are 'consultants to assist student athletes in choosing the optimal course schedules.' Of course, this is impossible to do :P

"thats terrible favoritism. Obama is really a big socialist after all. Way to stick it to the private sector."

How is that sticking it to the private sector? Let the private sector offer the same deal.

For profit schools are not the problem. Your falling for a trap set by the higher education lobbyists to distract you from the real problem. Of the 100 most expensive colleges in the U.S., NONE of them are "for profit."

HousingWatcher says

How is that sticking it to the private sector? Let the private sector offer the same deal.

unfortunately, gov't has to take money from the private sector to pay these student loans off.

the only conservative argument that has any traction with me is that it's too easy being generous with somebody else's money.

Fortune 500 companies are making record profits. They could always scale back their bloated executive compensation packages.

Florida corporate tax reduction goes to Gov. Scott

TALLAHASSEE, Fla. -- Corporations would get a tax cut of $1,100 each under a bill going to Gov. Rick Scott.

The Republican governor wanted a much bigger corporate income tax reduction than the one the GOP-controlled Legislature sent him Thursday.

Read more: http://www.miamiherald.com/2011/05/05/2202638/florida-corporate-tax-reduction.html#ixzz1LVFtuCGP

Yeah, and I have no doubt that corporatiosn are going to hire people since they now have an extra $1,100. No wonder the economy will never improve. Unemployment is going to be high for at least 10 years.

Corporations are hiring people... in China and India! I hope all of our software engieneer friends here don't enjoy their jobs too much. Pretty soon you might have to train your H1-B replacement!

HousingWatcher says

For profit schools are not the problem. Your falling for a trap set by the higher education lobbyists to distract you from the real problem. Of the 100 most expensive colleges in the U.S., NONE of them are “for profit.”

They're not the root of the problem but they benefit from the high price/federal loan subsidization/guarantees endemic with the mainstream, non-profit schools.

It's like people in the medical device industry making millions due to the health care cost bubble/Medicare payments. They aren't the cause of the problem, but they make money off of the problem.

Since the for-profit thing keeps coming up, I thought I'd point out an earlier thread that has relevant info:

For-Profit College infographic
http://patrick.net/?p=657973

What are the stats on relative successfulness for grads of profit vs. non-profit anyhow?

shrekgrinch says

Bubbles aren’t about those details (who holds the bag, etc). There definition is much more simple. Here’s wiki’s explanation:
From: http://en.wikipedia.org/wiki/Economic_bubble

Good article.

terriDeaner says

Since the for-profit thing keeps coming up, I thought I’d point out an earlier thread that has relevant info:
For-Profit College infographic

http://patrick.net/?p=657973
What are the stats on relative successfulness for grads of profit vs. non-profit anyhow?

Yeah, I think the big problem with for-profits is the predatory recruitment aspect that is comparably non-existent in non-profit schools.

I think the answer is simple.

WE DON'T CARE

The effect of student loan debt is less obvious. You default on your house you get booted out on the street. You can't pay back your student loans, they going to repo your education? No.

I think student debt is fine. It's self-balancing. If it's too heavy, well then they won't pay it. They'll NOT PAY in large enough numbers to put an end to the current looseness of student lending, then the tuition bubble will have been pricked.

If it's heavy but bearable, well other aspects of their financial life will suffer and they'll not dig that hole any deeper (go back for MBA) and they'll keep their kids out of it next time around.

The end.

Human survival improves alot with safe shelter from climate and predators.
Human survival does not improve at all with a BA in liberal arts from Berzerkely.

It makes sense to go into debt to avoid death from exposure to climate or predators.

It make no sense to go into debt to get a degree in underwater metaphysical bong making.

Higher education is feeling the effects of the "welfare state of mind" in their system now. Enjoy.

The only true purpose of a college degree is to fulfill the HR (human resources) barrier of entry, into the white collar world.

Only a dozen years ago, a person with an associates degree could work as a paralegal. Today, that person would need to have a bachelors degree, even if it's in modern basket-weaving or ancient Etruscan bong making.

So what's changed, in the world of clerical work, where the undergraduate degree is the key to getting in the door? Pretty much nothing. It just creates an artificial barrier to justify the existence of personnel depts or the notion that white collar work is socioeconomic class-oriented.

Rin,

I think you've pretty much nailed it. A lot of it is a racket of artificial barriers to entry.

wthrfrk80 says

I think you've pretty much nailed it. A lot of it is a racket of artificial barriers to entry.

Yep, and thus, Thiel's argument is a bit off the mark.

There are only so many Michael Dells or Steve Jobs in the world. For the most part, anyone who isn't a part of a starting circle of biz executives, needs at least one qualification to be 'seen' in an office. If Mark Zuckerberg were to mysteriously have his FB equity be stolen, he wouldn't even be qualified to apply for a job at his former company.

What Thiel should argue for instead, is the elimination of HR depts, nationwide, and have people submit national exam scores, like a combination of SAT IIs/GRE subject tests, in lieu of a college degree, to prove that they're academically qualified to be shuffling paper in an office. People can study on their own, take exams, and submit exam scores for entry level jobs. After a generation, the college degree will in effect, become obsolete for a majority of office workers.

Rin says

What Thiel should argue for instead, is the elimination of HR depts, nationwide, and have people submit national exam scores, like a combination of SAT IIs/GRE subject tests, in lieu of a college degree, to prove that they're academically qualified to be shuffling paper in an office. People can study on their own, take exams, and submit exam scores for entry level jobs. After a generation, the college degree will in effect, become obsolete for a majority of office workers.

Agree, except that so many are invested in the current system (racket). It's sort of like how everyone is invested in Brawndo stock in the movie Idiocracy.

Rin says

What Thiel should argue for instead, is the elimination of HR depts, nationwide, and have people submit national exam scores, like a combination of SAT IIs/GRE subject tests, in lieu of a college degree, to prove that they're academically qualified to be shuffling paper in an office.

I think that this will just end up being the same thing as over-paying for college. There will be all sorts of American Standardized Scoring (ASS) prep-courses that only people with money, people that borrow a lot of money, or Asians will ever do well on. Standardized testing is a good idea in principle, but it is so wide open for being gamed that it inevitably becomes sort of worthless. What would be the difference between a hiring manager looking for "BA In Underwater Bong Making" and "ASS Score of 666+"?