So when will the student loan bubble burst?

Parents Forum
1

<p>It's just as bad, if not worse, than the housing bubble. </p>

<p><a href="http://www.collegescholarships.org/research/student-loan-scheme.jpg%5B/url%5D"&gt;http://www.collegescholarships.org/research/student-loan-scheme.jpg&lt;/a>
<a href="http://www.swifteconomics.com/wp-content/uploads/2010/10/student_loans1.jpg%5B/url%5D"&gt;http://www.swifteconomics.com/wp-content/uploads/2010/10/student_loans1.jpg&lt;/a>
<a href="http://financemymoney.com/wp-content/uploads/2010/06/college-tuition.jpg%5B/url%5D"&gt;http://financemymoney.com/wp-content/uploads/2010/06/college-tuition.jpg&lt;/a>
Student</a> Loans: Default Rates Are Soaring - WSJ.com</p>

<p>You expect your kid to be able to pay off their loan with wages like these ?:</p>

<p><a href="http://assets.theatlantic.com/static/mt/assets/business/earnings%20growth%20mishel.png%5B/url%5D"&gt;http://assets.theatlantic.com/static/mt/assets/business/earnings%20growth%20mishel.png&lt;/a&gt;&lt;/p>

<p>Parents I implore you, no matter how much your kid whines and begs, don't give in. DO NOT let them go to a school where they have to take out more than $15k for 4 years. It's simply not worth it and they will thank you later. Education at a certain institution at all costs is a myth that keeps perpetuating the never ending cycle to debt from day 1 we are putting on our youth. Attending my undergrad institution was the worst decision I've made in my life. I know far too many people with student loans that they'll be paying back for the next 30 years and who expect to basically never be able to own a house in their lifetime.</p>

<p>The real secret to education:</p>

<p>1.) Go to instate school for as cheap as possible, or any other school that gives the most grants/scholarships so that undergrad degree is as cheap as possible.</p>

<p>2.) Work for 2-3 years </p>

<p>3.) Apply to grad school. Work experience will help you get in. Where you went for undergrad doesn't even really matter to employers, unlike where you went to grad school. All STEM PhDs are free at almost every university, in fact almost every university PAYS YOU to go to school. Don't waste money on a master's degree in anything unless your company is going to pay for it. </p>

<p>There you go. That's how you get the highest quality education for the right price. Don't waste money at the undergraduate level when an undergraduate degree doesn't even really matter where it comes from. Work and get your master's for free, or go for a PhD and get it for free.</p>

2

<p>I tell that very thing to some of my kids’s friends in high school, but nobody listens.</p>

3

<p>

</p>

<p>Smart man. There is absolutely no difference at the fundamental level between say an education for $20k per year at UNC vs a $56k education per year at Duke. The only difference is that the Duke student will be paying student loans until they are 50+ years old. The US govt needs to stop subsidizing student loans so loan sharks like Sallie Mae have stop having absolutely no risk involved when handing out easy money to students who they know will probably never be able to pay back their loan. Cut off the easy access to money and college tuitions will stop spiraling completely out of control. It’s obscene how much we are burying our kids in debt, even at in-state schools now, just to become educated.</p>

4

<p>NYT, (liberal biased, MSM) March 16, 2011.
<a href=“http://www.nytimes.com/2011/03/16/education/16loan.html[/url]”>http://www.nytimes.com/2011/03/16/education/16loan.html&lt;/a&gt;
Only 37% of students who started repayment in 2005 are on repayment track. </p>

<p>In three guesses, what was the Stafford and PLUS interest rates on July 7, 2005.
In three guesses, what was the Consolidation rates for Stafford and PLUS.
Accuracy +/- 0.5%.</p>

5

<p>For families making less than $60,000/year, the elite schools with the huge endowments are cheaper than living at home and attending a local commuter college.</p>

<p>In the not far distant future, will we see 100,000 applicants a year vying for each of the Top 20 schools, and everyone else enrolling in community college? Maybe the Second 20 will auction off their slots to the highest bidders, just to stay solvent?</p>

6

<p>Our family just went through this re: Med school. D wanted to be a primary care physician. I had her research primary care salaries for our area, and calculate what her annual repayments would have been for Med school loans.</p>

7

<p>I read somewhere that if you go out past 5 years the default rates actually are more grim. Many studies you come across on student loan defaults only go out to about 5 years. Ill try to find the article.</p>

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<p>OP, this type of topics have been disscused on CC for thousands of times already.</p>

<p>However, your limit as

is on the extreme side. Are you assuming most of the families could afford State schools without taking out any loans? </p>

<p>Other than the two extremes of the incomes, I would think a majority of families these days are taking some type of loans to pay for their children’s higher educations.</p>

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<p>The answer to the title question is … soon. It’s the big thing you & will will be footing the bill to “fix.”</p>

<p>Whenever I talk to parents & students about planning for college in terms of how they are actually going to pay for it, I am amazed at how many people just have no clue what college costs & how financial aid works. So many think they will get money for school … I can understand now knowing how it works, I guess. What floors me, though, is that families will still expect that the money fairy is going to visit them, even after they find out their EFC. They think arguing about how unfair the system is will change anything.</p>

<p>People need to save for college. They need to expect that they will have to part with their savings for college. They need to understand that there simply is not enough grant money to go around. They need to realize that MOST people do not have six-figure incomes, therefore those who do are probably not as needy as they think they are (in terms of need for aid purposes). They need to understand that the government expects them to be the first & foremost source of funding for their child’s education. They need to choose schools that fit their reality … if they cannot or will not pay for it, then they need to find a school that works for them.</p>

<p><em>Climbs down from her soapbox.</em></p>

10

<p>One aspect of these articles that I find troubling is the way they use specific evidence from students who graduate from private, four year colleges with large amounts of debt. The WSJ article, for example, gives specifics about a student who graduate from DePaul with a large amount of debt. It fuels the idea here that the debt crisis is mainly or mostly attributable to students wanting to attend their ‘dream’ private school and will do so at all costs, taking out exhorbitant loans to do so.</p>

<p>While I do not condone such large loans for a private education, it is not at all clear to me that the current crisis is mostly the result of this kind of decision making.</p>

<p>If you look at the specific report, you’ll find some not-so-surprising conclusions as well as some very surprising conclusions.</p>

<p>First off, not surprisingly, students who take out loans and then do not graduate are more likely to be in default. So one remedy would be to make sure that colleges retain and graduate more students.</p>

<p>Second, as noted in the NYTimes article, almost half of the defaulters have attended for-profit colleges, even though they account for about 12% of all college students. The NYTimes has reported extensively on the way these for-profit colleges operate, so a large percentage of defaulters are the ones who go to schools like the University of Phoenix, hardly the type of ‘dream’ private bandied around CC. </p>

<p>Third, the percentage of defaulters is higher for those who attended a public 4 year than a private 4 year school, and significantly higher for those who attended a community college. Only 8 percent of students who last attended a private 4 year are in default, while 10 percent of students who last attended a public 4 year are in default. At a public two year school (community college), it’s 24 percent (but as stated in the article, the overall percentage of these students who borrow is low and the amount of loan these students take out is also relatively low).</p>

<p>Fourth, the median amount of loans for those who are in repayment is over $8000, while the median amount for those who have defaulted is around $6000. So the students who default, overall, seem to have borrowed less than those who are in repayment.</p>

<p>Again, while I do not condone excessive borrowing, the report indicates that the debt crisis is not necessarily fueled by borrowing huge amounts for that expensive dream private, as the anecdotes highlighted by the press suggest.</p>

11

<p>the housing bubble popped because people were borrowing, on the assumption they could repay by selling their houses at higher prices - a classic bubble, that had to end, unless the price of a single house were to someday exceed the entire GDP of the US economy. </p>

<p>Student loans are do not go to purchase assets that can be resold, like mortgages finance houses. They are repaid out of salaries. Ergo, the bubble will pop when the labor market for recent college grads is softest - when unemployment hits its peak, or before then. </p>

<p>Ergo, the bubble will pop in October 2009 when Unemployments, seasonally adjusted, peaked.</p>

<p>If you prefer the unadjusted rate as a measure of labor market softness, the bubble will pop in January 2010.</p>

<p>You’re welcome.</p>

<p>edit - the WSJ article you link to is from April 2009. In line with my prediction. I dont think I will bother checking the other links.</p>

12

<p>“The real secret to education:”</p>

<p>Simply not go to school and learn online? </p>

<p>I can’t wait until the student loan bubble bursts. I have a big loan (compared to other loans it might be small) but I don’t really want to pay it back. It really ****es me off actually. I feel totally scammed, bought into a completely defunct product, and have absolutely no way of paying it back. We should organize a mass exodus from colleges and demand our money back. Either that or threaten anarchy.</p>

13

<p>Assuming an eighteen-year-old matriculating freshman is not capable of the judgment necessary to decide whether an 4-year undergraduate debt of, say, $100K, is valid–it’s up to the parents to either take on that debt themselves or relay the facts of life & urge him/her to attend a college with a much more reasonable COA. Not much wiggle room there.</p>

<p>In this economy it’s rare that just an UG degree will bring a job that pays more than $60K-70K per year. It’s the new reality.</p>

<p>D1 has minimal Staffords for her 4 UG years 'cause we assumed the main cost but she is presently incurring major-league loans in medical school. Even with the growing need for doctors down the road, that kind of compounding debt just scares the heck out of me. All I can hope for is whatever shape health care takes, doctors will be well-compensated.</p>

14

<p>^^^^^</p>

<p>But it’s not simply about taking out 100K in debt, which does sound absurd and is the attention grabber for upper middle class families dealing with private schools and 50K a year tuition.</p>

<p>The median amount for defaulters is around 6K, which is significantly lower and for many readers here on CC, seems like a very reasonable amount.</p>

<p>You need to look at the amount of debt in context of the person/family taking out the loan.</p>

15

<p>What do you think will happen when the “bubble” bursts? That is what I am most curious about. </p>

<p>I worked my way through community college and then transferred to my state flagship. In hindsight, I should have stopped at CC but I didn’t understand what 50k in debt would mean for me, and the employment schemes I thought I could go for to reduce the debt didn’t pan out like I thought they would. My parents didn’t save for college and I don’t qualify for FA, so the responsible thing to have done would have been to work my way through CC and then work until I turned 24 and could apply for financial aid without my parents info. But I was too immature to see that at the time. Nobody tells an 18-19 year old, “well maybe you just can’t afford to go.” My GCs and advisers and teachers were all saying, “don’t let money stop you from getting an education, you just go on to college and you’ll find a way to make it work, you’re a smart girl.” I didn’t know I couldn’t trust those people. I spent a few hours yesterday trying to figure out how I will avoid being homeless when my loans go into repayment, since all but about 18k are private loans, and with those kinds of loan payments I don’t know how I’ll be able to pay for anything else. I wish my parents had put their foot down and not cosigned. But, here we are now. I wish I knew what I could do salvage my life now but I am really at a loss.</p>

16

<p>

I guess you picked an arbitrary number but $15K is too low of a number for a max college loan amount. Many grads could pay that off relatively easily within a couple of years and many of them will take on a car loan bigger than that after they graduate which is much less of an investment in their life, some would even say frivolous, than the education was.</p>

17

<p>So when will the student loan bubble burst?</p>

<p>Sooner than we think, but not soon enough. There is a tuition bubble, which leads to the loan bubble. This will happen when college becomes unaffordable for most students and enrollments drop by say 15%. As long as there are sufficient students who are willing to take large loans to go to their dream school, the tuition bubble and by default the loan bubble will not burst.</p>

18

<p>A fair amount of guidance counselors are clueless when it comes to finances; they’re big on padding their resumes by pushing kids (and their respective parents) into name schools that are unaffordable. A caveat: the GC’s that read & post on here are the exception because they at least DO have a clue…:slight_smile: </p>

<p>At our HS there was one for 500 seniors, only half of which were college material. No way a GC can do a decent job with that ratio. I saw that right away when D1 was a HS junior, became pro-active & tried to learn all I could about the process, a lot of which came from this forum.</p>

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<p>Is it a new reality or an old one?</p>

<p>Most [bachelor’s</a> degree majors at UC Berkeley](<a href=“sales force form test - Career Engagement”>https://career.berkeley.edu/Major/Major.stm) have average pay of less than $60,000 for new graduates. Only Computer Science (College of Letters and Science) and Electrical Engineering and Computer Science (College of Engineering) have average pay of more than $70,000 for new graduates. Only four other majors (Applied Mathematics, Chemical Engineering, Engineering Science, and Mechanical Engineering) have average pay of more than $60,000 (though Business Administration, Economics, Physics, and Statistics are just under that).</p>

<p>At the opposite end, graduates in some popular majors like English, History, Integrative Biology, Molecular and Cell Biology, Political Science, Public Health, Psychology, Sociology, and Civil and Environmental Engineering average under $45,000 for jobs after graduation, if they find jobs.</p>

<p>If you look at previous years, the average pay reported is not significantly higher for most (Civil and Environmental Engineering being an obvious exception), although placement rates for job seekers were higher before the downturn.</p>

<p>Remember also that UC Berkeley is in a high pay, high cost of living region; to the extent that many graduates find relatively local jobs, that can bias the average pay numbers up compared to universities in low pay, low cost of living regions. The prestige value of UC Berkeley may also bias the average pay numbers upward compared to those at other universities.</p>

<p>In other words, any student considering a school where student loans are needed needs to be very careful about how much student loan debt is acceptable, given the estimated earning power after graduation. While people here like to have the idealistic “study what you want, it will work out in the end”, a high debt burden after graduation makes things much harder to work out in the end.</p>

20

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<p>With high costs, the value proposition for an expensive (net cost after non-loan financial aid) private university that is not highly regarded becomes quite iffy. Of course, people are going to chase the Harvards and Stanfords that are highly regarded and give out lots of non-loan financial aid. But the surge in applications to state universities (at least in California) may indicate that the less well known private universities have become less attractive due to their high costs. However, state budget problems are causing state university costs to go up as well.</p>